Statement of
Robert S. Kripowicz
Principal Deputy Assistant Secretary
for Fossil Energy
to the
Hearing on the
Need for a National Energy Strategy
House Committee on Appropriations
Subcommittee on Interior and Related Agencies
July 26, 2000
Mr. Chairman and Members of the Subcommittee:
Fossil fuels are fundamental to America's future. While we hope to increase the diversity of the
Nation's energy mix, traditional fuels such as coal, natural gas, and petroleum will continue to be
used to heat our homes, fuel our factories, power our automobiles and help grow the economy for
many years into the future. More than 85% of the energy our country currently uses is supplied
by fossil fuels. By 2020, when Americans will likely be consuming 25% more energy than
today, the contribution of fossil fuels could be even greater - perhaps approaching 90%.
For this reason, any realistic and effective national energy strategy must at its core recognize that
fossil fuels will remain the dominant source of America's energy in today's economy and, quite
likely, in the economies of several future generations.
The joint overview statement of Mr. Reicher and myself (submitted separately) describes the
general context of the Clinton Administration's national energy strategy. Fossil fuel-related
actions play a key role in each of the four major challenges described in the overview. This
statement provides additional descriptions of several of these actions:
Challenge #1 - Enhancing America's Energy Security - Reducing our Vulnerability to
Volatile Oil Markets
Strategy: Boost domestic oil production. America remains an oil-rich nation - the 3rd most
prolific oil producer in the world. In fact, current technology recovers only one
barrel of crude oil out of every three, leaving two barrels in the ground as a target
for future recovery.
Yet, the cost of producing oil in the U.S. is significantly higher than in other
producing countries. This has caused a migration of many of the major
companies to more lucrative prospects elsewhere, leaving much of the remaining
domestic resource in the hands of smaller, independent oil producers. Our
strategy for maintaining the productive capacity of America's oil fields has two
major components:
1) To spur domestic production and lower the costs of doing business the
President has proposed tax incentives for 100 percent expensing of geological and
geophysical costs (G&G) and allowing the expensing of delay rental payments.
The Administration has also initiated or supported virtually all significant energy
legislation enacted by the Congress over the last seven years. This includes
legislation for: Deepwater Royalty Relief; lifting the ban on the export of Alaska
North Slope Oil; Royalty Simplification; privatization of the Elk Hills Naval
Petroleum Reserve; the transfer and lease of Naval Oil Shale Reserves #1 and #3
for production; and creation of a guaranteed loan program for small domestic oil
and gas producers. The Administration has also proposed legislation to transfer
Naval Oil Shale Reserve #2 to the Ute Indian Tribe for production.
2) To address higher U.S. exploration and production costs compared to other
countries, we have invested in a portfolio of technologies that can lower the costs
of exploration and production, and produce hard-to-find oil in more mature fields.
This portfolio ranges from near-term innovations - e.g., online digital processing
of drilling permits to lower a company's paperwork costs, or the use of more
energy-efficient motors in pumps and other oilfield equipment to lower energy
costs - to the longer-range, high-tech concepts of laser drilling and subsalt
imaging. We are also working with state and federal agencies to reduce the costs
of environmental compliance without compromising the protection of our air and
water.
Given that U.S. oil fields currently supply less than half of America's crude oil supply, it
is unrealistic - and exorbitantly expensive - for a national energy strategy to attempt to
set a goal of complete oil independence, i.e., no oil imports. Yet, as our overview
statement points out, volatility is world oil markets is often the result of an imbalance in
supply and demand of only 1 or 2 million barrels per day. Our petroleum technology
program can increase domestic production by as much as 1 million barrels per day by
2010 - an amount that will not relieve our dependence on foreign oil but in combination
with reductions in oil demand, could significantly dampen future market volatility.
Because we live in a globally interdependent oil market, however, energy disruptions can
occur and America's economy can suffer as a result. The last three recessions were
caused or exacerbated by turbulence in the world oil market. Therefore, it is prudent that
a national energy strategy include an "insurance policy." Ours is the Strategic Petroleum
Reserve.
Strategy: Increase the protection provided by our "national energy insurance policy," the
Strategic Petroleum Reserve
The SPR - an emergency supply of crude oil stored in huge underground salt
caverns along the coastline of the Gulf of Mexico - is the nation's first line of
defense against an interruption in petroleum supplies. In the event of an energy
emergency, SPR oil would be distributed by competitive sale. Although used for
emergency purposes only once to date (during Operation Desert Storm in 1991),
the SPR's current size (nearly 570 million barrels) and the U.S. government's
stated policy to withdraw oil early in a potential supply emergency make the SPR
a significant deterrent to oil import cutoffs and a key tool of foreign policy.
Today, the SPR holds almost 570 million barrels of crude oil and has the capacity
to hold 700 million barrels. It is the largest emergency oil stockpile in the world.
We are returning the reserve to its 1995 level of 590 million barrels through the
acquisition of royalty-in-kind oil from Federal offshore tracts, and our strategy is
to continue to examine opportunities to acquire additional oil.
Challenge #2 - Improve the Environmental Acceptability of Energy Production and Use
Strategy: Develop cleaner, more efficient technologies for traditional and future fossil fuel-fired power plants. Coal and natural gas currently account for 66% of the
electricity generated in the United States; by 2020, these two fuels could supply as
much as 80% of the nation's electric power. Yet, coal-fired power plants generate
the majority of our sulfur dioxide and a substantial fraction of nitrogen oxides -
the two pollutants most closely linked to acid rain. In the future, emission
controls may also be needed to remove toxic impurities (i.e., mercury) and the
precursors of microscopic airborne particles (referred to as PM2.5). Even natural
gas, the cleanest of fossil fuels, produces nitrogen oxides when combusted which
can limit its use in urban and other environmentally constrained regions.
A key aspect of our energy strategy, therefore, is to develop technologies that will
permit these abundant domestic fuels to continue to be used while meeting current
and future air quality standards. Concepts are being developed that could lead to a
virtually pollution-free power plant fueled by coal, natural gas, or perhaps
biomass or municipal wastes (or combinations) within the next 15 years.
Power generation efficiency can also have a major effect on the release of air
pollutants. Today's coal-fired power plants convert only a third of the energy
value of coal into electricity. Technologies have emerged from the DOE program
that boost this efficiency level to 45% or higher, and innovations on the horizon
could approach the 60% threshold. Breakthrough turbines and revolutionary new
fuel cells could lead to equally significant increases in the efficiency of natural
gas-fueled power generation. And in the future, a multi-product energy plant -
producing electricity, fuels and/or industrial heat - could extract 80% or more of
the energy value of coal and 85% or more of the energy value of natural gas.
Efficiency improvements at the "front end" - i.e., the power generation plant - are
equally as beneficial as enhancing the efficiency of energy-using appliances and
equipment. A 60%-efficient coal plant, in addition to producing lower cost
electricity, also cuts greenhouse gas emissions by up to 40% - making "front end
efficiency" one of the most cost-effective ways to combat global climate change.
Strategy: Develop ultra clean fuels for transportation. Driving now accounts for more than
40 percent of the total air pollution in America. With energy use for
transportation growing faster than any other market sector, sustaining our clean air
progress will require even cleaner automobiles and trucks in the coming years. To
meet this need, we have begun a new partnership effort with the refining and
transportation industries to develop a new generation of low-polluting fuels for
both current and future vehicles. Working in conjunction with the Partnership for
New Generation Vehicles, this effort is also developing advanced emission
control devices for automobiles and light trucks. The goal is to meet new, stricter
clean air requirements for highway vehicles and to explore ways to produce even
cleaner transportation fuels in the future.
Strategy: Encourage greater use of natural gas. Natural gas, in addition to being one of our
most abundant domestic fuels, is one of our cleanest, with negligible sulfur and
trace metals and about half the carbon of coal. Because of its abundance and
environmental benefits, demand for natural gas is likely to increase by more than a
third in the next 10 to 15 years. By the end of this decade, domestic gas demand
could top 30 trillion cubic feet per year and will likely to increase in future years.
To supply this demand, producers will turn increasingly to more challenging gas-bearing formations. Recently, the National Petroleum Council - a private sector
advisory panel to the Secretary of Energy - forecast that between 1998 and 2015:
- Deepwater production from the Gulf of Mexico, currently in its infancy,
would increase more than five-fold (from 0.8 Tcf to 4.3 Tcf annually).
- Onshore production from nonconventional formations would increase by
almost 50% (from 4.4 Tcf to 8.5 Tcf), with much of the increase coming
from low-permeability reservoirs in the Rocky Mountain region.
- Onshore production from conventional formations deeper than 10,000 feet
could increase by 20% (from 4.6 Tcf to 5.5 Tcf).
The Council report states that access to potential gas supplies on Federal lands is a
key factor in determining whether the U.S. gas demand will be met. Two of the
most promising regions for future gas production are the Rocky Mountains and
the Gulf of Mexico. The Council also cited the need for continued development
of improved gas exploration and production technologies - especially those suited
to the more challenging frontiers where tomorrow's gas will be found.
Our strategy to encourage a greater role for natural gas, therefore, is three-fold:
1) develop better tools for finding and producing it in more difficult and deeper
formations, 2) ensure a more reliable infrastructure for delivering it to consumers,
and 3) improve the efficiency and economics of its use through advanced
technologies such as turbines, fuel cells, and engines.
Strategy: Explore the potential of carbon sequestration. Even with improved efficiencies
and a major increase in the use of low-carbon fuels such as natural gas, the U.S.
(and the world) may not be able to achieve the substantial greenhouse gas
reductions that may be necessary to achieve acceptable levels in global
atmospheric carbon dioxide concentrations. Therefore, our energy strategy
includes research into the possibility of capturing greenhouse gases at their point
of emission, or perhaps from the ambient air, and either storing them for centuries
or recycling them into useful products.
Challenge #3 - Increase the competitiveness and reliability of U.S. energy systems. As our
overview statement describes, the resurgence of the domestic natural gas industry is due, in large
measure, to the removal of federal price constraints and the introduction of increased
competition. Mr. Reicher's testimony describes our efforts to bring similar benefits of increased
competition to a restructured electric utility market. In addition to our electricity restructuring
strategies, other ways to meet this challenge include:
Strategy: Encourage the development and deployment of distributed power technologies.
Market forces have begun to favor smaller, modular power technologies that can
be installed quickly in response to market signals close to consumer demand.
Technologies such as gas turbines and reciprocating engines are already making a
contribution and have more to offer through focused development efforts. Fuel
cells are beginning to enter the market but require additional research and
development to realize widespread deployment. Our strategy -- implemented
jointly by the Office of Fossil Energy and the Office of Energy Efficiency and
Renewable Energy -- is to work with industry to develop these distributed power
technologies and to work with State and Federal regulators to ensure that these
systems receive appropriate environmental credits and that existing regulations do
not serve as barriers to their use.
Strategy: Ensure a sound natural gas infrastructure. The integrity and efficiency of our
aging gas infrastructure may be the most critical barrier to achieving the projected
one-third increase in gas use predicted for the next 15 years. To connect the 15
million new customers expected by 2015 and to serve existing customers,
approximately 38,000 miles of transmission pipeline and 255,000 miles of
distribution mainlines are likely to be needed. In addition, much of the current
270,000-mile interstate pipeline network could need future upgrading. A new
element of our energy strategy - and in our budget proposal for FY 2001 - is
research that can improve the integrity of our natural gas transportation, storage,
and delivery infrastructure.
Our strategy includes joint efforts with the gas industry to develop advanced
materials and technologies needed for longer life, high-strength, non-corrosive
pipelines. We also propose to develop new obstacle detection systems that can
speed the boring of tunnels for gas distribution pipes, along with advanced sensors
that can inspect and seal leaks from inside of pipelines. Gas storage will also
become increasingly important, especially if pipeline constraints (access rights,
construction lead times, etc.) or customer requirements require greater reliance on
gas storage near market centers.
Challenge #4 - Ensure a robust U.S. energy future. As our overview stresses, the Federal
government's investments in advanced energy technologies is an investment in America's
economic and environmental future.
If America is to sustain a growing economy with more high-skill, high-wage jobs, a cleaner
environment, and a stronger, more globally-competitive private sector, Federal involvement as an
incubator of tomorrow's energy ideas and as a partner in sharing the costs of high-risk
experimental scale-ups will be vital.
Our strategy, therefore, is to look beyond conventional thinking and to explore new concepts in
such areas as 1) computational science where advances could reduce the need for expensive
engineering tests, 2) biotechnology where breakthroughs might lead to better ways to produce oil
from domestic fields or reduce the buildup of carbon dioxide in our atmosphere, 3) materials
where new membranes may fundamentally reshape key industrial processes and lower the cost of
future energy production, and 4) micro-miniaturization which might one day lead to portable,
"smart"drilling systems or a new generation of process sensors.
These will be the seeds for tomorrow's national energy strategy.
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