Mr. Chairman and Members of the Subcommittee:

We are pleased to present a budget for fiscal year 1999 that squarely addresses the major challenges facing the fuels that are the energy mainstays of our economy.

Fossil fuels are, and will continue to be for many years into the future, our dominant suppliers of energy. Today, Americans rely on coal for more than 55% of their electricity, on oil for nearly 97% of their transportation fuel, and on natural gas for 27% of the primary energy they consume in their homes and businesses. The relatively low cost of these fuels and, particularly for coal and natural gas, their domestic abundance are major reasons why our Nation's economy remains strong.

No credible energy forecast predicts that the United States or the world will turn away from fossil fuels in the foreseeable future.

The Energy Information Administration (EIA) 1998 Annual Energy Outlook projects an energy mix in the year 2020 that is barely different from today's. In fact, in the EIA projections, the fossil fuel share of the domestic energy market increases from 85 percent in 1995 to 90 percent in 2020. Alternative energy sources will accelerate their entry into the market during this time, but because economic growth is projected to remain strong, energy demand will increase. By 2020, unless energy growth slows significantly, the United States could be consuming almost a third more total energy than it did in 1995. Fossil fuels will supply the largest portion of this additional demand.

International projections tell a similar story. Already, fossil fuels account for almost 85% of the world's energy use, and over the next two decades, global energy consumption is likely to rise even faster than in the United States, perhaps by as much as 54% by 2015. The great majority of this increase will be supplied by fossil fuels. The United States has a significant economic and environmental stake in the type of technologies used, how clean they are, and who supplies them.

The dominance of fossil fuels creates both remarkable opportunities and daunting challenges. Americans want our nation to realize the economic benefits that the relatively low cost of fossil fuels offer. But they also want fuels that are secure and do not compromise the quality of the environment. Our FY 1999 budget has been developed specifically to accomplish these objectives.

The budget we are proposing for FY 1999 addresses the two major challenges confronting the continued use of fossil fuels:

• Environmental Protection

As the world demands more energy, we have increasing concerns about greenhouse gases from energy processes. Building on the success of earlier technologies that have brought solutions to other air emission problems, we are developing higher-efficiency processes that minimize the carbon dioxide released from fossil fuels and innovations that potentially could capture and sequester greenhouse gases released from energy use. At the same time, we continue to develop better methods for reducing smog and acid rain-causing emissions to almost negligible levels. Our view is that Government has a role to work side-by-side with industry in developing better ways to meet Federal and state environmental regulations. Only through this partnership can future energy costs be kept as low as possible for our Nation's consumers and ratepayers and our environment protected for future generations.

• Energy Security

We continue to confront the challenge of declining domestic oil production. Continued diligence in maintaining a viable Strategic Petroleum Reserve can give us the security of an immediate response to foreign energy supply disruptions. Over the longer term, new technologies which have already helped slow production decline in many of our oil fields, can increase the flow of crude oil and natural gas from known fields and perhaps, lead to exciting new discoveries.

Technological innovation and creativity have served us well in the past. They are proven routes. And if we continue to follow them in addressing the twin challenges of environmental protection and energy security, fossil fuels will be for us not fuels of the past, but fuels of the future.

Special Note: In reviewing federal energy programs in the past, Members of Congress have asked legitimate questions about the results of the taxpayers' investment. To help answer these questions, we have included throughout this statement vignettes of specific accomplishments emerging from the DOE Fossil Energy program in just the past year.

Industry Honors Fossil Energy Accomplishments The technologies and tools emerging from the Office of Fossil Energy's cost-shared program with industry, universities and national laboratories are reshaping the future of our key energy industries. There is no better indication of this than the awards that industry itself conveys to these innovations. In 1997 the Tampa Electric Co.'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. Another clean coal technology, the gas reburning technology for controlling nitrogen oxides, was cited as the 1997 winner of the "J. Deanne Sensenbaugh Award" by the Air and Waste Management Association. And three petroleum technologies developed in DOE's National Laboratory-Industry Partnership program were recipients of "R&D 100" Awards given by the editors of R&D magazine to the most significant technical products of the year.

The FY 1999 Fossil Energy Budget

Our budget proposal increases funding where we believe additional R&D is necessary, such as in the environmentally acceptable use of coal, and decreases funding where programs have passed peak expenditure periods, e.g., the Strategic Petroleum Reserve, or where federal functions have been returned to the private sector, e.g., the Naval Petroleum and Oil Shale Reserves.

Coal R&D - Advanced Clean, Efficient Power Technologies

Program Goal: By 2010, achieve the technological advances necessary for a coal-based electricity system that will emit less than 1/10th the amount of air pollutants now specified by federal air quality requirements, produce 40-50% less carbon dioxide, and produce electricity 10-20% less expensive than current coal technology. Also, establish the technical foundation for an even more advanced multi-product energy system that would release virtually no pollutants, including, with sequestration, no net carbon dioxide emissions.

In a world increasingly concerned about the effects of economic growth on the environment, more efficient and cleaner power generating technologies can be the key to greater prosperity and improved environmental quality. Today the world's typical power plants convert less than a third of the energy content of their fuel into electricity. The rest is discarded as waste heat. With better technology, we can generate electricity much more efficiently with less waste heat and correspondingly, with greatly reduced emissions.

The Office of Fossil Energy has adopted a goal of developing progressively higher efficiency power systems that significantly lower carbon emissions and ultimately produce near zero levels of pollutants while, at the same time, reducing electricity costs 10-20%. Ultimately, we see the best of these new systems evolving into a new type of energy facility, the "Vision 21 Energyplex."

Vision 21 reflects a new approach to 21st century energy production. It will integrate advanced concepts for high-efficiency energy production and pollution control into a class of fuel-flexible facilities capable of coproducing electric power, process heat, and high value fuels and chemicals with virtually no emissions of traditional air pollutants. Coupled with carbon sequestration, these facilities would add little, if any, carbon dioxide to the world's balance of greenhouse gases. The concept builds on DOE's existing R&D programs in advanced coal and biomass gasification and combustion, gas cleanup, next-generation fuel cells, and high-performance turbine technology. It also identifies the R&D needed for key enabling technologies, such as low-cost oxygen separation, advanced hydrogen separation membranes, and high temperature ceramic heat exchangers. Developing the Vision 21 concept will also require advances in materials and components, new catalysts and sorbents, and, to minimize the costs of engineering scaleup, the use of advanced computational technology to test "virtual pilot/demonstration plants."

With this as our ultimate objective, four major power systems along with supporting advanced and environmental research are proposed for FY 1999:

Low Emission Boiler System

FY98 - $15.48 million

FY99 - $15.00 million

This program will produce by 2001 the next major advance in pulverized coal combustion, the most widely used technology for coal-fired power generation in the world. In 1992, three developers received DOE cost-sharing support to begin redesigning a coal-fired boiler system to gain efficiency and environmental improvements. Rather than compromising performance by retrofitting state-of-the-art technologies into existing boiler configurations, the developers began with entirely new designs. Last year, the Office of Fossil Energy selected one of the three concepts for the final phase of the program. In FY 1999, DB Riley Inc. will be in the final stages of engineering design in preparation for constructing an 80-megawatt proof-of-concept facility in Elkhart, IL. This facility will reduce sulfur dioxide and nitrogen oxides to less than 1/6th New Source Performance Standards and convert the coal ash to a glass-like slag that can be used in the construction industry. Combined with supercritical boiler technology, DB Riley's design will boost thermal efficiencies from today's 33-35% to 42%. More than 73% of the final phase's $127 million costs will provided by the private sector.

High Efficiency Pressurized Fluidized Bed Combustion

FY98 - $17.88 million

FY99 - $14.64 million

Pressurized fluidized bed technology moves coal combustion to a new plateau of performance, with efficiencies for initial systems approaching 50% and sulfur and nitrogen oxide pollutant removals to levels 1/5th of the New Source Performance Standards. With improvements being developed in our program, future efficiencies could top 60% with emission levels as low as 1/10th New Source Performance Standards. The major portion of the FY 1999 funding continues hot gas filter testing and operation of pilot scale testing of advanced 2nd-generation technology at the Wilsonville (AL) Power Systems Development Facility. This testing program is providing valuable data that is reducing engineering uncertainty of the Lakeland (FL) clean coal technology project. The Lakeland project will prove the technological and economic viability of this significant advancement in coal-based power generation.

Indirectly Fired Cycle

FY98 - $4.93 million

FY99 - $6.00 million

The Indirectly Fired Cycle program is developing an innovative power system that incorporates a new high temperature advanced furnace which combines the combustion, heat transfer and emission control processes. Rather than sending combustion gases directly through a combined cycle turbine system, the indirectly fired cycle heats a clean working fluid (like air) to drive a gas turbine. Efficiencies for 1st generation systems are projected to be 47-50%, and future enhancements (such as the integration of higher efficiency turbines) could boost efficiencies to 55% or higher. In FY 1999 the two developers currently in the program will continue to develop the engineering basis for concepts selected in FY 1995.

High Efficiency Integrated Gasification Combined Cycle

FY98 - $22.34 million

FY99 - $33.50 million

Integrated coal gasification combined cycle (IGCC) is the only advanced power generation technology capable of coproducing electricity and steam along with a full slate of valuable fuels, chemicals, or hydrogen cost-effectively and with potential power generating efficiencies of 60% and thermal efficiencies in the 80-90% range. These efficiency increases will lower CO2 emissions, as well as reduce capital costs and lower emissions of hazardous air pollutants. To achieve the full potential of IGCC, DOE is advancing technologies that could lower emission levels to well below 1/10th the New Source Performance Standards while reducing electricity costs by 10-20%. Gasification is a key core system for the "Vision 21 Energyplex", and in FY 1999, increased funding is proposed for innovative approaches that can contribute to the multi-product (power, heat, fuels/chemicals) aspects of this new concept. Special attention will be given to the development of advanced air separation technology, the optimization of IGCC processes for power generation, testing of co-firing with other fuels, and feasibility studies on feedstock flexibility for increased market applications. R&D will also be conducted on ways to reduce potential air toxics and carbon dioxide and the integration of the IGCC process with advanced turbines and fuel cells to achieve power efficiencies of more than 60%.

Advanced Research and Environmental Technology

FY98 - $12.73 million

FY99 - $22.40 million

Super clean emission control technologies will be needed to comply with the more stringent environmental standards being imposed in Federal air quality regulations for microscopic particulates (PM2.5) and ozone. These new rules will impact essentially all existing coal-fired power plants. Meeting them will require reducing not only the extremely tiny ash particles that escape conventional particulate capture technologies but also gaseous emissions of sulfur and nitrogen compounds that condense into tiny sulfate and nitrate solids in the atmosphere. In FY 1999, we will continue a program begun in FY 1998 to develop a better understanding of the composition of fine particles, determine their sources, and develop appropriate technologies to mitigate emissions of the pollutants which matter most.

Air toxic standards are also being considered by EPA, and in FY 1999 much of our air emission control program will focus on the study and control of the trace elements from power plants that contribute to toxic emissions. This past November, we selected 8 research contractors to begin developing a new array of pollution control techniques, and 6 of the 8 focus on mercury control. These projects, if they continue to show promise, will be continued in FY 1999.

The major increase in FY 1999 will be for studies of potential carbon sequestration technologies. If effective, affordable ways can be developed to sequester carbon, the United States and the world could make use of the full potential its vast supplies of fossil fuel resources. Cost-effective carbon sequestration ultimately could be the key to the future use of fossil fuels. The Office of Fossil Energy's expanded sequestration research in FY 1999 is part of a Departmental effort coordinated closely with the Office of Energy Research. The Fossil Energy research will emphasize three sequestration approaches linked to energy production from fossil fuel facilities: (1) studies of the feasibility of storing greenhouse gases in geologic structures, such as depleted oil and gas reservoirs, unmineable coal seams and aquifers, or into the deep ocean, and R&D that can lower the costs of capturing, pumping and storing CO2 from power plants;

(2) applied research to "enhance" natural sinks such as the integration of improved forest management techniques into utility practices, or approaches that enhance the growth and carbon uptake of algae; and (3) research to identify and develop potential pathbreaking technologies to sequester greenhouse gases from energy systems.

Coal R&D - Advanced Clean Fuels

Program Goal: Provide the Nation with lower-polluting, alternative sources of liquid transportation fuels that are cost-competitive with equivalent petroleum products, with technological readiness achieved by 2010.

Coal's chemical makeup offers the potential for producing a wide array of valuable fuels and other products. Progress in recent years now makes it appear possible that coal-derived liquids could be produced at the equivalent of $19-25 per barrel within the next decade. Understanding coal's chemical structure and impurities is also leading to advanced methods for processing the coal to produce cleaner, more energy-dense solid fuels and feedstocks.

Coal Preparation

FY98 - $5.06 million

FY99 - $4.85 million

Nearly one of every four dollars proposed for this program in FY 1999 would be used to explore ways of removing air toxic precursors from coal. Mercury, in particular, may be exceedingly difficult to remove once it is converted into gaseous form in the combustion process; advanced coal cleaning technologies may be the best approach for removing mercury from coal before it is burned. Research will also continue on ways to develop products from coal "fines" (i.e., small coal particles) to offset environmental remediation costs in the processing of coal. A new focus in FY 1999 will be on technologies that can pre-clean and prepare coal/biomass/waste mixtures as feedstocks for future "Vision 21"-class energy facilities fueled by multiple energy sources.

Direct Liquefaction

FY98 - $5.82 million

FY99 - $2.80 million

Funding for this program is being reduced in FY 1999 with research limited to novel concepts that can improve the efficiency and economics of two-stage liquefaction and benchscale studies of coprocessing coal and low-value feedstocks (e.g., waste plastics and solid municipal wastes).

Indirect Liquefaction

FY98 - $4.22 million

FY99 - $5.50 million

Indirect liquefaction, in which coal-derived gases are chemically reconfigured into liquids, relies on many of the same basic chemical processes as natural gas-to-liquids technologies. In FY 1999 much of the research will focus on improving the Fischer-Tropsch process, the chemical conversion route common to both coal- and gas-to-liquids. Work will be coordinated with the Office of Energy Efficiency to develop advanced transportation-grade diesel fuels. This program is also a key element in the "Vision 21" technology roadmap.

Advanced Research and Environmental Technology

FY98 - $0.74 million

FY99 - $1.78 million

The primary focus of this research in FY 1999 will be to study ways to extract carbon from coal for producing such materials as carbon electrodes and carbon fibers for high-strength materials, and a new competition for ways that can reduce carbon dioxide from coal-to-liquid processes.

Advanced Research and Technology Development

Program Goal: To support the more fundamental, novel and supporting research necessary to ensure that we remain guided by sound science and continue to produce innovative, pathsetting fossil fuel concepts.

The Advanced Research & Technology Development (AR&TD) Program funds two types of activities:

Coal-Related Advanced Research

FY98 - $7.78 million

FY99 - $12.00 million

For the future use of coal, the Advanced Research program provides two major products. The first is the basic information and knowledge needed to bridge the gap between fundamental science and advanced engineering development programs, overcoming technical barriers encountered by the these programs. The second is a program that identifies and guides advanced research in new directions. Innovative concepts and ideas are explored to enhance the pace of technology innovation for fossil energy systems.

In FY 1999, the Coal Utilization Science portion of this program will be redirected from basic studies of coal combustion to a greater emphasis on identifying critical technology barriers to the Vision 21 Energyplex concept. Research will focus on innovations that can improve the efficiency and performance of several key "Vision 21" technologies. Also, new research efforts will be initiated to study possible chemical approaches to transforming CO2 into carbonates that would provide a geologically permanent way to sequester carbon from energy systems.

Long-range biotechnology research is also part of this program. In FY 1999, research will be conducted on biological processes that can lower the carbon content of fuels and reduce their impact on climate change. The biological conversion of coal synthesis gas to ethanol will be demonstrated, and new biofiltration systems for removing nitrogen oxides from combustion gases will be explored.

DOE also intends to continue its support of coal-related research at the Nation's universities with a new round of student-teacher research grants in the University Coal Research Program.

Fossil Energy-Wide Crosscut R&D

FY98 - $9.8 million

FY99 - $11.6 million

A major element of this activity is the Materials and Components activity where new materials are being developed that can benefit a variety of fossil energy processes. For example, in FY 1999, research will be conducted on new membranes that could lower the cost of producing pure streams of oxygen and hydrogen for advanced energy and fuel production systems. Research will also examine materials for advanced electrodes for solid oxide fuel cells and new heat exchanger materials that could improve the indirectly fired cycle technology. Also in this activity is continued support for fossil energy research at the nation's Historically Black Colleges and Universities.

Natural Gas R&D

Program Goal: Through R&D and improved regulatory practices, ensure that natural gas supplies remain competitively priced and are available to provide the anticipated 6 trillion cubic feet of increase in natural gas demand through 2010 (one quarter of which could depend directly on the development of new technologies in DOE's R&D program). Assist industry in developing an advanced generation of fuel cells and fuel cell/turbine hybrids that could boost power efficiencies to 60-70% and combined heat and power efficiencies to 80% or higher. Support the development of a revolutionary, ultra-clean utility gas turbine that will break through the operating temperature limits of today's technology and achieve combined cycle efficiencies of 60% or higher.

Natural gas is a resurgent domestic energy source, used increasingly by utilities and other sectors of our economy to meet the need for cleaner, affordable energy supplies. The Energy Information Administration forecasts that domestic natural gas consumption will increase by 40% by 2015 (the equivalent of 4.2 million barrels of oil per day). To ensure that future gas supplies are available and remain affordable, better technologies will be needed. Advances such as 3- and 4-dimensional seismic imaging and improved fracturing technologies already have given producers better tools to find and produce more gas. As a result, for the last four years, more natural gas has been found and added to the Nation's reserves than has been consumed.

In the 21st century, however, supplies increasingly will have to come from deeper (3 miles or more deep) and more geologically complex formations. DOE's natural gas program is working with industry, national laboratories and universities to develop the technologies that will be needed in the vast, largely untapped basins of the West, the mature reservoirs of Appalachia, and the large remaining gas resource in the formations of the South and Southwest. If the program is successful, the advanced tools and techniques emerging from this cost-shared R&D program could contribute directly to more than a quarter of the additional 6 trillion cubic feet of natural gas expected to be needed annually by 2010. It will also keep costs affordable for all the natural gas consumed in the United States. In FY 1999 the program will be made up of:

Exploration and Production

FY98 - $13.93 million

FY99 - $13.43 million

In FY 1999, the Fossil Energy R&D program will continue to develop a new generation of advanced drilling technologies, including thermally stable polycrystalline diamond drill bit cutters, hydraulic pulse drilling, and microwave processing to incorporate new materials into drilling hardware components. These technological advances will enable future drilling systems to penetrate rock faster, at lower costs, with less environmental impact, and with less formation damage. Working with industry, DOE will also continue to develop advanced seismic imaging and more accurate predictive techniques for locating natural gas in the highly-fractured regions of the Greater Green River Basin in Wyoming, and through a competitive solicitation in FY 1999, will expand the applicability of advanced technologies to the deep complex reservoirs in the Piceance Basin in Colorado, and other priority basins.

A Natural Gas Success Story A DOE project has changed conventional wisdom about natural gas reservoirs. The old idea was that gas reservoirs were continuous formations which could be produced effectively by widely spaced wells. DOE's "secondary gas recovery" project showed that the old idea was wrong. Using 3-D seismic imaging, vertical seismic profiling, and other advanced technologies, researchers found that gas-bearing reservoirs are compartmentalized, broken into discrete units of widely varying sizes. By strategically targeting wells to intersect these discrete zones, gas could be produced that otherwise would have been missed. In south Texas, where "secondary gas recovery" projects have been concentrated to date, success rates in locating and producing gas are averaging 78 percent, among the highest in the Gulf Coast region. By 2000, more than 2.6 trillion cubic feet of additional natural gas will be produced that otherwise might have been left in the ground.

Also, attempts will be made in the Appalachian Basin and the Permian Basin of west Texas and eastern New Mexico to duplicate past successes in south Texas and the midcontinent that have located large quantities of "secondary gas" bypassed by traditional gas operations.

Two new efforts will begin in FY 1999. Following a year of study and consultations with industry, DOE will initiate a new effort to determine the location and volume of gas hydrate resources and begin developing technologies that could lead to commercial production by 2015. Gas hydrates are methane molecules bound in an ice lattice found below the ocean floor and beneath the Arctic tundra. Their resource potential could dwarf the 5,000 trillion cubic feet that currently make up the world's known gas reserves; estimates of the methane hydrate resource range from 45,000 trillion cubic feet to as much as 400 million trillion cubic feet.

The other new effort will be an engineering assessment of gas stripper wells, which account for 5% of domestic gas supply, to determine if new technologies can revitalize gas flow and extend production. In prior years, an average of 3500 gas wells have been abandoned annually, but last year the abandonment rate increased to nearly 5200 wells. A small R&D effort now, concentrating in FY 1999 in Texas, Oklahoma and Ohio (moving the second year to West Virginia, New Mexico and Colorado), could prevent U.S. gas well abandonments from becoming the major problem that oil well abandonments are today.

Largely offsetting the funding for these new efforts will be cost reductions resulting from the completion of work on steerable air percussion drilling systems, integrated underbalanced directional drilling and CO2-sand fracturing technology. Also, work on a comprehensive natural gas data base -- the Gas Information System, or GASIS -- will be completed.

Natural Gas Storage

FY98 - $0.99 million

FY99 - $1.00 million

Natural gas is often pumped into storage in underground reservoirs or other formations to ensure that supplies are available closer to where they are needed. Consumers can benefit if gas storage technologies can be developed to lower costs and provide alternatives for new storage capacity. In FY 1999, primarily through Cooperative Research and Development Agreements with industry, DOE will continue to develop new tools, such as direct energy metering and advanced gas measurement, that will improve the efficiency and economics of gas storage.

Emerging Processing Technology Applications

FY98 - $7.81 million

FY99 - $7.31 million

Research in this area is developing the technologies needed to transport and/or use natural gas that is low quality or in locations that are remote from conventional pipelines, e.g., Alaska North Slope, western U.S., and the offshore Gulf of Mexico. To remove impurities from the approximate one-third of the Nation's natural gas supplies that are below pipeline quality standards, DOE is developing advanced membranes and other separation technologies. For natural gas too distant from the Nation's gas pipeline network, DOE is sponsoring a new effort to lower the costs of converting this gas into cleaner, competitively priced, transportation-grade liquids that can be brought to market by existing oil pipelines. This program is being carried out collaboratively with the coal transportation fuels program and the heavy vehicle technologies and hydrogen programs of the Office of Energy Efficiency.

Effective Environmental Protection

FY98 - $3.27 million

FY99 - $2.62 million

Funding for environmental research activities is bringing credible scientific information and advanced technologies to assist industry in meeting compliance requirements while keeping energy costs affordable. New methods will be examined to detect and reduce air emissions (including PM2.5 particulates) from gas equipment and facilities, and new, lower cost approaches will continue to be developed to treat and dispose of naturally-occurring radioactive material produced by gas and oil operations.

Advanced Turbine Systems

FY98 - $45.00 million

FY99 - $43.00 million

The Advanced Gas Turbine program is nearing the point where advanced sub-systems and components developed over the past 4 years will begin to be integrated into the prototype of a new type of utility gas turbine with remarkable improvements in efficiency and environmental performance. In FY 1999, testing will be completed for full-scale components and sub-systems. The manufacturing capability for the first test engines will be completed, and site preparation will begin for the critical full speed engine tests scheduled for the final phase of this program.

The Largest Gas Turbine Compressor Ever Built This past October, an advanced turbine compressor -- a critical component in an ultra-clean, high-efficiency turbine power plant being developed for the 21st century -- passed a major performance test. The compressor was the largest, highest pressure ratio, 60 Hz (hertz) utility combustion turbine compressor ever built. The compressor is the critical first step of a gas turbine. In it, air is compressed to a fraction of its initial volume. When heated in a combustor and released into the turbine, the hot, high pressure air expands rapidly, creating the power that spins the blades of the turbine which, in turn, drives an electric generator. The new compressor operated at an advanced 29 to 1 compression ratio compared to the 19 to 1 ratio of the most advanced conventional stationary turbine now offered commercially.

Fuel Cells

FY98 - $40.21 million

FY99 - $42.20 million

Fuel cells offer a fundamentally new approach for generating electricity and useable heat from fossil fuels. Rather than combustion, fuel cells rely on an electrochemical reaction, much like a battery. Inherently clean, highly efficient, and capable of being sited in both central and dispersed power applications, fuel cell technology is one of the most promising technologies for meeting stringent air quality standards and reducing greenhouse gases. Yet, fuel cell costs will have to be brought down before the technology finds widespread commercial application.

For the two molten carbonate systems currently in DOE's program, longer-lasting and higher performance fuel cell stacks are being developed, and new commercial prototype configurations are being designed that are more compact and less expensive than units tested to date. In FY 1999, a 250-kilowatt durability stack test and a 1 megawatt module test will be initiated.

For the solid oxide system, DOE's FY 1999 program will also concentrate on cost reduction and performance improvements through a series of progressively larger prototype units called for under the 5-year program extension approved in FY 1997. To date, the solid oxide technology has been developed to operate at atmospheric pressure, but for enhanced performance in a hybrid fuel cell/turbine configuration, a pressurized tube bundle is being developed and a 250-kilowatt fuel cell/microturbine test will be initiated in FY 1999.

Milestone Tests for Advanced Generation Fuel Cells The largest electric power generator ever fabricated from solid oxide fuel cells performed flawlessly in test runs in 1997 at Westinghouse Electric Corporation's Science & Technology Center in Pittsburgh. The 100-kilowatt unit was the first to use prototype cells that expected to be the size used in future commercial power plants. With its array of 1152 tubular cells, each about 60 inches long and almost an inch in diameter, the new generator produced nearly 5 times the power of the previous record. The unit now is being tested in a power plant setting, at a power station in Westervoort, Netherlands. The unit is rated at 100 kilowatts but will be capable of producing an output of 150 kilowatts. Also in 1997, the world's first cogeneration molten carbonate fuel cell power plant was tested. Housed on a space no larger than two tennis courts at the Miramar Naval Air Station in California, the M-C Power Corporation's 250-kilowatt unit was dedicated on February 20, 1997. The Miramar test provided valuable data that engineers are using to design a more compact and durable fuel cell that is intended to be the precursor of the first market-entry fuel cell in the early part of the next decade. These technical milestones point the way toward future fuel cell power plants with overall electricity generating efficiencies of 50 to 70%, and if the fuel cell system also makes use of the byproduct heat, efficiency levels approaching 80%

Oil Technology

Program Goal: Improve the capability of the Nation's petroleum industry, with particular emphasis on the smaller, independent producers, to increase the supply of secure, domestic oil by an average of 0.5 million barrels per day during the 2001-2010 period while significantly reducing the environmental impact of oil production.

The United States has the potential to reverse an almost three decade-long history of declining domestic oil production within the next 7 years. Advanced technology is one of the major reasons. But as the make-up of the U.S. oil industry continues to change, with smaller independent producers accounting for an increasing share of lower-48 production, a sustained commitment to developing and, through technology transfer, deploying these advanced technologies will be needed. The key activities proposed in FY 1999 include:

Exploration and Production Supporting Research

FY98 - $30.64 million

FY99 - $31.55 million

The goals of this program are to increase recovery efficiency of oil, particularly from Federal lands, to develop and demonstrate the tools and techniques to produce oil from known reservoirs where current technology is not effective, and to support university research in extraction technologies and recovery process modeling to ensure the flow of new technology and the continued availability of well-trained workers.

To extend the life of known U.S. oil reservoirs, research will continue on a variety of higher-efficiency recovery processes, including advanced thermal methods for both heavy and light oil, the use of foams, alkaline-surfactant polymers, and microbial processes. Work will also continue on advanced diagnostics and imaging systems including seismic and electromagnetic tools and processing techniques that will improve imaging of reservoir fractures and the monitoring of the flow of oil and other fluids through a reservoir. Much of this work will be conducted cooperatively by industry and the National Laboratories. By using these and other advanced sensing technologies, producers can enhance recovery while, at the same time, minimizing the number of infill wells (wells drilled between existing wells). This, in turn, will lead to oil field operations with a smaller surface "footprint," reduced waste, and fewer emissions.

Another key element of this program will be the continued development of risk-based decision tools and studies of underdeveloped basins, such as the Hopi Black Mesa Basin in Arizona. With the information from DOE's program, smaller operators can increase their exploration success rates.

A common element through each of these items is the use of regional workshops and other technology transfer mechanisms, including continued cooperative efforts with the industry-led Petroleum Technology Transfer Council, to convey meaningful results directly to domestic producers.

Recovery Field Demonstrations

FY98 - $6.05 million

FY99 - $7.80 million

For much of this decade, 32 DOE-industry cosponsored field tests have shown that state-of-the-art technologies applied in oil fields threatened by imminent abandonment can prolong the economic life of the field. Several of the field tests, however, have shown that even larger quantities of additional oil could be produced by applying lessons learned in the initial tests and in the supporting research program.

Based on documented production and reservoir modeling, we estimate that the transfer of technologies demonstrated in the 32 projects will provide an additional 500 million barrels of domestic production. The Petroleum Technology Transfer Council now has a significant effort underway to transfer the technologies and techniques applied in these projects to producers across the country facing similar production problems.

In FY 1999 funding is requested for a limited set of follow-on, highly-targeted field tests in each of the three geologic classes of the original program (fluvial dominated deltaic, shallow shelf carbonates, and slope basin clastic reservoirs). A competitive solicitation is being planned for FY 1998 with projects expected to start in early FY 1999. By revisiting these high-priority reservoir groups, using newer technologies or working in untested basins, we hope to build on the lessons learned in the prior program and capitalize on the joint investment already made by government and industry.

Including the 4th Dimension in Seismic Mapping One of the most important advances in exploration and production technology has been the development of 3-dimensional seismic imaging which uses today's computer technology to convert large quantities of data into a depiction of the height, width and depth of an oil reservoir. Now, a DOE-industry cosponsored field test has shown how time can be included in the geologic portrait, in effect adding a 4th dimension to seismic imaging. The result is an entirely new way to examine an oil reservoir. In some Gulf of Mexico reservoirs, 4-dimensional seismic imaging is showing that reservoirs are actually being replenished over relatively short periods of geologic time. In 1997, the use of this new tool accounted for nearly $500 million in oil service company revenues.

Effective Environmental Protection

FY98 - $6.36 million

FY99 - $10.82 million

The environmental research activities focus on technologies and practices that reduce the threat to the environment and decrease the cost of effective environmental protection and regulatory compliance. Four activities make up this program: risk assessment, regulatory streamlining, technology development, and program planning and analysis.

In FY 1999, this program will be expanded to include downstream (i.e., refining) environmental activities previously conducted in the Emerging Processing Technology Applications program. This environmental work includes: (1) generating independent, high-quality scientific data to streamline and improve federal, state and local regulations governing oil production and processing; (2) working with industry, states and the Environmental Protection Agency (EPA) to conduct research that will assist EPA in making scientifically-sound decisions on air emissions, including the release of particulate matter (i.e., PM 2.5) from oil field operations and processing facilities; (3) serving as a neutral third party between federal and state regulators and industry to develop scientific information on environmental and health risks of pollutants emitted by the oil industry; (4) identifying pollutants present in fuels and developing improved technologies for preventing their formation, and (5) in response to recommendations of the President's Committee of Advisors on Science and Technology, perform research on fuels that have fewer emissions affecting global climate change.

Also in this budget category, studies will be carried out to assess and mitigate environmental risks posed by oil exploration and production, including the use of injection wells to dispose of produced water and oil field wastes.

Emerging Processing Technology Applications

FY98 - $5.52 million

FY99 - $0 million

The majority of this activity will be combined with the Effective Environmental Protection program above. The process thermodynamic/chemistry portion of this category has been discontinued because of uncertainty about its value to the Nation and the appropriate Federal role in this effort.

Other Fossil Energy Research and Supporting Activities

In addition to its primary research and development activities, the Office of Fossil Energy sponsors several other types of research and supporting programs, including:

Cooperative Research and Development

FY98 - $5.84 million

FY99 - $5.84 million

This category provides the federal funding share of jointly sponsored research at the Western Research Institute (Laramie, WY) and the University of North Dakota Energy and Environmental Research Center (Grand Forks, ND). DOE funds must be matched by non-federal partners.

Advanced Metallurgical Processes

FY98 - $4.97 million

FY99 - $5.0 million

Transferred to DOE in FY 1996, this program at the Albany (OR) Research Center addresses the life cycle of materials production and processes to their disposal and recycling. A key part of the FY 1999 program will be targeted at new material R&D for the Vision 21 Energyplex concept.

Environmental Restoration

FY98 - $12.94 million

FY99 - $11.0 million

Funding will be used to ensure protection of workers, the public and the environment at DOE-Fossil Energy facilities and to conduct environmental protection and cleanup activities at several locations where former Fossil Energy R&D projects were conducted.

Fuels Programs

FY98 - $2.17 million

FY99 - $2.17 million

This budget supports regulatory functions still required of DOE to review natural gas imports and exports, exports of electricity and the construction and operations of electric transmission lines which cross U.S. international borders, along with other regulatory responsibilities.

Program Direction & Management Support

FY98 - $66.76 million

FY99 - $67.03 million

This category provides funding for salaries, benefits and overhead expenses for management of the Fossil Energy program at Headquarters, the Federal Energy Technology Center (Morgantown, WV and Pittsburgh, PA), and the National Petroleum Technology Office (Tulsa, OK).

Plant and Capital Equipment

FY98 - $2.53 million

FY99 - $2.60 million

Funding would be for general plant projects at the Federal Energy Technology Center and the National Petroleum Technology Office to repair, improve, alter, and refurbish site buildings.

Clean Coal Technology Program

From five competitive solicitations, the Clean Coal Technology Program has produced some of the most advanced technological concepts available anywhere in the world to use coal cleanly and efficiently. By the end of 1997, the program was made up of 39 projects, 32 of which either had completed their test runs or were in operation. The federal government is investing more than $2.1 billion in this initiative, a commitment to clean air and affordable energy that is unmatched by any nation of the world. Moreover, U.S. industry and states have more than matched the federal commitment, providing nearly $3.8 billion or 66% of the total costs of the program.

For FY 1999, DOE is proposing that $40 million of funding previously appropriated be deferred until FY 2000 and beyond. This funding is not necessary in FY 1999 to maintain the Federal commitment to ongoing projects but will be necessary to complete the Government's obligations in future years and to administer proper oversight of the remaining projects.

Currently, of the 39 projects in the program:

• 16 projects are complete with many of the technologies demonstrated now continuing in use in fully private sector funded, commercial operations;
• 15 projects are in operation generating valuable test data on the technical, economic and environmental performance of the advanced coal systems;
• 1 project -- the Piñon Pine Coal Gasification Combined Cycle Project -- is in the final stages of construction and will start operations early in calendar 1998; and
• 7 projects are in design.

By the end of FY 1999, 28 of the 39 projects are expected to be completed, and five more will be in operation. Beyond FY 1999, only two projects are expected to have outstanding obligation commitments.

The Investment Continues to Pay Off The pre-commercial projects in the Clean Coal Technology Program continue to produce technologies that are being accepted by the energy industry. Commercial sales of low-NOx burners developed by Babcock & Wilcox and Foster Wheeler in the Clean Coal program continue to be made with installations on well over one-quarter of the coal-fired capacity in the United States. EER's gas reburning systems for NOx control have been sold to TVA and Baltimore Gas & Electric. The Pure Air Advanced Flue Gas Desulfurization System has been chosen to provide 1,600 megawatts of sulfur dioxide scrubbing capacity. The Airpol project has led to commercial sales in Ohio, Sweden and Taiwan. U.S. Steel Corp. has purchased a commercial replicate system based on the Blast Furnace Granulated Coal Injection project. All of these technologies are the products of the DOE Clean Coal Technology Program.

Conclusion

We fully expect fossil fuels to continue to make vital contributions to U.S. and global prosperity and a better quality of life.

With advanced technology and a sustained commitment to partnerships with our research and engineering community, we can continue to use, and benefit from, fossil fuels. Our vision of the 21st century is one in which the United States retains its leadership in the development, use, and export of environmentally beneficial fossil energy technologies. By 2010, we believe we can establish the technological foundation for the "ultimate" energy-producing facility, one capable of power generating efficiencies approaching 60% or more and combined heat and power efficiencies that could top 80% -- in essence, extracting virtually every useable energy unit from a hydrocarbon molecule. We believe it will be technologically possible to develop a fossil fuel energy facility that has almost no impact on its surrounding environment, releasing virtually no smog- and acid-rain causing pollutants and adding no additional carbon dioxide to the world's greenhouse gases.

We believe it is technologically possible to reverse the decline in domestic production of crude oil by the year 2005. We believe it is possible to add potentially huge new supplies of natural gas to our proven reserves, and by doing so, increase the contribution of this clean fossil fuel in our energy mix without large price impacts on consumers.

We believe it is possible, with "breakthrough" research, to develop ways to ensure environmental protection, potentially slowing or reversing the buildup of global greenhouse gases through cost-effective carbon management and sequestration technologies.

In short, we believe there are technological opportunities that can resolve the conflict between energy production and environmental protection. But realizing those opportunities and taking maximum advantage of them will require a sustained commitment to government-industry-academic partnerships. These partnerships are the innovative strength of this Nation, and they will be the source of 21st century energy and environmental solutions.

Our FY 1999 budget preserves the federal government's commitment to continue making investments in our future through these partnerships.

Thank you for the opportunity to present our budget proposal.