Remarks by
Patricia Fry Godley
Assistant Secretary for Fossil Energy
U.S. Department of Energy
at the
National Association of State Energy Officials
1998 Energy Outlook Meeting
Washington, DC
February 9, 1998

I want to begin by thanking the National Association of State Energy Officials for your dedication to this Nation's energy and environmental security -- and for your support of the Department of Energy.

As the federal official responsible for the management of the SPR, I want in particular to thank you for your statement of support for maintaining the SPR as a key factor in our energy security.

We are likely to need your help in opposing further sales of SPR oil to fund non-discretionary federal spending in FY99.

I'd like to focus, though, this morning on another area of work of the Office of Fossil Energy -- our investments in research and development of coal, oil and natural gas technologies.

As you know, the President's Committee of Advisors on Science and Technology -- which is comprised of leading industry CEOs, academicians, and scientists from around the country -- completed a comprehensive, in-depth analysis of federally-funded energy R&D last Fall.

In its report, PCAST stated: "This country's economic prosperity, environmental quality, national security and world leadership all require improving our energy technologies."

The Department is in the process of implementing many of the PCAST's very detailed, direct recommendations, direct recommendations on areas of high priority, high yield energy R&D.

The Office of Fossil Energy is no exception.

Fossil fuels are the nation's and the world's primary energy resources. Today, coal powers more than 55% of our electricity, oil more than 99% of our transportation sector, and natural gas about 20% of the energy used in the United States. And we are rich in these resources. Currently, the United States is the world's second largest producer of oil, gas and coal.

The relatively low cost and abundance of fossil fuels and the available infrastructure are the major reasons we continue to rely on fossil fuels. They are the mainstays of our economic strength. But, population growth and development will place huge demands on our energy resources. Achieving our economic and environmental goals will not be easy. But it can be done if we -- government and industry -- pool all of our talents and resources.

The Office of Fossil Energy -- in partnership with the private sector, universities, the states, and other institutions -- addresses these environmental and energy challenges. We work in three key areas:

• Advanced power systems: Our focus is on developing innovative systems for generating clean, economical electricity from coal and natural gas.

• Natural Gas and Liquid Fuels Supplies: We want to expand the use of clean-burning natural gas to meet our nation's energy needs and to reduce U.S. dependence on insecure foreign sources of oil, and;

• Crosscutting research and development: In computer technology, advanced materials and other fields that provide the scientific basis for future innovations in all fossil fuel technologies.

One of NASEO's goals is that federal energy programs operate as effectively and efficiently as possible. We have heard the same message from the Congress. During a recent hearing, Rep. Regula, the chairman of the Subcommittee on Interior Appropriations, asked if we could give him more examples of what we have achieved for the $6 billion-plus that Congress has appropriated for Fossil Energy research and development in the past decade.

The achievements are numerous and the reason, we believe, is that our projects are done in PARTNERSHIP with industry, the states, and academia.

Partnerships in Clean Coal and Power Technologies

The technologies emerging from the Office of Fossil Energy's cost-shared programs are reshaping the future of our key energy industries. There is no better indication of this than the awards that industry has conveyed to these innovations. For example, in 1997 the Tampa Electric Company's Polk Power Station, with its coal gasification combined cycle technology, became the 5th Clean Coal Technology project in the last 7 years to win one of Power magazine's prestigious "Powerplant of the Year" awards. Tampa Electric's 250-megawatt power facility is one of the cleanest coal-fueled power stations in the world. More than 95% of the sulfur pollutants are removed and converted into commercially valuable products. The combined cycle, using gas and steam turbines, can push operating efficiencies to 50% -- a huge increase over the 35 - 38% efficiencies of standard coal-fired power plants.

This plant one of the 39 projects in our Clean Coal Technology program, a $6 Billion program in which industry has invested $2 for every federal $1. A number of states also participated in co-funding projects in the program. We have worked, for example, with the Ohio Coal Development Office to complete several projects. One project involved a full-scale demonstration of a low-NOx Cell Burner, which resulted in a 58% reduction of nitrogen oxide emissions. Other participants in that project included the Babcock & Wilcox Company, the Dayton Power and Light Company, the Electric Power Research Institute, and several other power and energy services companies.

The state of Illinois cofunded a project with us to demonstrate desulfurization technology. This technology was proven to remove 70%-80% of the sulfur in the power generation process. On the east coast, the Pennsylvania Energy Development Authority was cofunder of a successful demonstration of a different type of flue gas desulfurization technology.

By the year 2010, our goal is to achieve 60% efficiencies for coal-based systems while controlling emissions. Such results go beyond what the 1990 Clean Air Act Amendments will require. Other strategic goals of our Coal and Advanced Power Systems division for the early 21st century are:

• to demonstrate a full-scale utility fuel cell power plant fueled by coal-derived gas;
• to develop and demonstrate an advanced natural gas turbine system for power plants that achieve 60 percent efficiencies with significantly reduce nitrogen oxide emissions;
• to complete demonstrations of natural gas fuel cells;

While the development of advanced power systems is vital to our nation's and the world's energy and environmental future, maximizing the production of our domestic oil and gas resources is also vitally important.

Later this month, we will dedicate the National Fuel Cell Research Center in Irvine, California. There we will have an opportunity to collaborate our fuel cell and advanced turbine research efforts with the California Energy Commission, the University of California and the private sector. The projects developed there will be key to the clean, highly efficient fuel cell power systems of the future.

While the development of advanced power systems is vital to our nation's and the world's energy and environmental future, maximizing the production of our domestic oil and gas reserves is also important.

Americans depend on oil and gas for two-thirds of the energy we consume, and 99% for transportation. And, again, technology development is the key to maximizing the development of secure domestic resources at affordable prices and with minimal impact on the environment.

The Department of Energy brings to our technology development partnerships unique technologies, adapted from a half century of investment in Cold War defense technology. For example, in partnership with industry we are using advanced supercomputer technology developed at our world class national laboratories to locate difficult-to-find oil and gas resources; to improve natural gas storage and retrieval; to extend the life of domestic energy resources and reduce well abandonments.

Some truly remarkable advances have been made in computational technology -- both on the desktop and in the supercomputer. This past year, one of the prestigious R&D-100 awards -- given to the "100 most significant technical products of the year" -- went to the first commercial quality, 3-D oil reservoir simulation package to harness the power of high-performance, massively parallel computing technologies.

With this software, for the first time, operators can perform relatively fine scale modeling of very large oil fields in their entirety. Consider this for a moment: worldwide reservoirs produce about 70 million barrels of crude oil each day. Of this, 40 million barrels are from huge fields -- like Prudhoe Bay -- that cannot be modeled comprehensively with present-day computer simulation. Current computer systems are too slow.

But massively-parallel computing combined with this software -- called Falcon -- with speeds 100 times faster than other oil and gas simulators, turns those advances into tools for the hydrocarbon industry. In the early 1980s, fewer than 29% of exploratory oil and gas wells found successful pay zones. Today, nearly 40% prove successful and, with further advances in this technology -- the success rate will continue to grow.

And, because of better drilling technologies, the "footprint" of an average well is, in a number of states, 10 times smaller than it was 20 years ago...and continues to shrink.

Our Office of Natural Gas and Petroleum Technology also has worked closely with industry and the states to lower regulatory and other barriers to maximize domestic oil and gas production and protect our environment. Let me highlight a few examples.

For a number of years, we were aware of the declining state of the petroleum industry in California. The oil price collapse starting in the mid-1980s, coupled with increasing environmental compliance requirements, resulted in the demise of many small producers. DOE saw the need to respond and formed the California Outreach Team. Since 1990, the team has worked with the oil and gas industry and with state and local government officials in order to improve the climate for petroleum production and to streamline regulatory requirements. One result was a successful joint effort to convince the Administration and the Congress to lift the 20-year-old ban on exporting Alaskan North Slope crude oil. The ban was depressing oil prices in California, resulting in well abandonments and job losses for small operators.

The Office of Fossil Energy has worked closely with states and other federal agencies to enhance the efficiency and effectiveness of federal and, sometimes, state environmental regulatory programs. Current Safe Drinking Water regulations require oil and gas producers to conduct a quarter-mile radius Area of Review (AOR) analysis of disposal or injection wells. Under certain conditions, however, AOR variances can be granted. With support from DOE, the University of Missouri developed a methodology that could be used by regulators to validate AOR variance requests when there is little or no risk of contaminating drinking water. Successful demonstration of the AOR variance methodology on an East Texas oil field resulted in the Texas Railroad Commission approving a variance for the entire field, saving industry about $86 million. Potential nation-wide industry cost savings for AOR variances in low-risk areas could exceed $300 million. We are working with California, Kansas, and Oklahoma to implement the methodology.

Other work our oil and gas division is doing in collaboration with industry and the states to includes:

• Directing a project to streamline oil and gas regulations in Indiana with citizen involvement, which may become a model for other states and;
• Facilitating a dialog group for Appalachian and Illinois Basin State regulators to share information on environmental problems, solutions, and regulatory innovations.

Finally, the Office of Natural Gas and Petroleum Technology supports the Petroleum Technology Transfer Council (PTTC). The Council serves as a national clearinghouse for the upstream technology needs of U.S. producers. This organization, with ten regional centers located in state or industry association offices in oil and gas producing regions, is accelerating technology transfer among independent producers, number over 7,000 in the U.S.

In this way, we are taking steps to make sure that the investments we have made with taxpayer dollars pay off.

Let me conclude by endorsing a key theme in your 1997 National Energy Issues Agenda:

"It is essential to achieve a balanced national energy policy that allows states to prioritize, develop, and implement programs that are targeted to their citizens, while maximizing the use of their indigenous energy resources."

A Comprehensive National Energy Strategy

From the beginning of his tenure as Secretary of Energy, Federico Peña has emphasized the need for an energy strategy that would give context to the importance of energy, our energy industries and the efforts of federal, state, and local governments . . . and provide a clear list of actions we should be taking to ensure our energy and environmental security.

Last month, a preliminary draft of that Strategy was issued for consideration by other federal and state agencies, the private sector, and the public. As you will be hearing in more detail from other DOE officials in the next several days, the Strategy sets forth 5 goals and a number of specific objectives and actions to meet those goals.

DOE is seeking comment on and amplification of the draft Comprehensive National Energy Strategy. Members of this organization are uniquely qualified to offer meaningful input into this important effort -- and I urge you to do so.

The Strategy is available on the Internet at www.eren.doe.gov -- it is the first item that comes up when you search under "Comprehensive National Energy Strategy." Hearings on the draft Strategy will be held this month in Houston, Texas (February 12); Davis, California (February 13); and Washington, DC (February 19).

For more than a decade, the National Association of State Energy Officials and its members have worked diligently with industry, the federal government and other institutions to shape our nation's energy future. We face many environmental and energy security challenges in the coming century, and I know that NASEO will continue to be an important voice in shaping the nation's energy future.

Thank you.