Statement of
Robert S. Kripowicz
Acting Assistant Secretary for Fossil Energy
U.S. Department of Energy
to the
Committee on Science
U.S. House of Representatives
April 26, 2001

Mr. Chairman and Members of the Committee:

The FY 2002 proposed budget for the Department of Energy's fossil energy programs, like the budgets for many other parts of the department, is meant to serve as a transition between the energy programs of the past Administration and the new directions and priorities that will be reflected in the coming months and years by the Bush Administration.

There is little doubt that energy once again is on the minds of most Americans. The United States has dealt with energy problems in the past but never have we confronted the multiplicity of issues that confront us today - from the threat of increasing power outages to concerns over rising gasoline prices, especially if unforeseen supply or delivery problems occur this summer.

America's energy problems are not confined to one region, they are not temporary, and they will not fix themselves. But America's energy problems are fixable. We remain an energy-rich nation. Our energy strength lies in the diversity of our energy resources. We have rich deposits of coal, natural gas, and uranium. We have the capability to capture the energy of sunlight, to harness the power of wind, and to tap the earth's natural heat. Even crude oil, despite a 30-year downward trend in domestic production, remains in relatively large quantities in the United States with only a third of our resource base having been recovered to date.

President Bush has promised the American people a comprehensive, balanced energy strategy that builds on America's true energy strengths. He has created an Energy Task Force headed by Vice President Cheney. Within the next few weeks, the task force will produce a strategic framework for environmentally responsible production of our domestic resources, for increased energy efficiency, and for new investments in the energy technologies of tomorrow.

The challenge is to encourage our energy industry to maintain and enhance the diversity of its energy supplies, assuring that America realize the full potential of all its domestic energy wealth without compromising the quality of its environment or the vitality of its economy. The budgets and programs described in this testimony are part of the Administration's efforts to meet this challenge.

FOSSIL ENERGY BUDGETARY RESOURCE SUMMARY

Fossil Energy Research, Development & Demonstration

Clean Coal Power Initiative

The FY 2002 budget includes $150 million for the Clean Coal Power Initiative, a high priority effort that reflects the President's commitment to clean coal technology. This is in addition to $95 million provided by Congress this year for a precursor program called the Power Plant Improvement Initiative (see chart on next page).

Coal supplies 54% of the nation's current power demands. Virtually every credible energy forecast shows that coal will continue to supply around half of the nation's power through at least 2020 and probably beyond.

The Bush Administration is proposing a new vision for research into clean coal technology. In setting the direction for new, competitively awarded clean coal research, development and demonstration efforts, greater emphasis will be placed on seeking the advice of industry in shaping the program. We intend to investigate the use of consortia of companies, an industry board, or other mechanisms that can enhance the private sector's participation in planning this initiative.

New clean coal technology efforts will target the power industry's top priorities in solving problems generic to the way coal is used to generate the electric power. Industry will be required to share the costs of projects, with the level of private sector financing ranging from 20% for the earliest stages of research to at least 50% for larger scale demonstrations.

The program will also solicit participation by universities as well as government laboratories in a broad-based effort to apply the best minds and institutions to eliminate barriers to enhanced coal use. Successfully implemented elsewhere in DOE, industry-guided research will choose the most important projects based on industry-defined merit.

Fuels and Power Systems R&D

Within the $159.8 million budget request, we have concentrated our efforts on research that will:

(1) directly support the Clean Coal Power Initiative, both immediately and over the 10-year life of the President's clean coal commitment,

(2) provide new, more reliable power systems for the joint Fossil Energy/Energy Efficiency effort to develop distributed energy resource technologies (for the localized generation and use of power), and

(3) expand the menu of options for managing carbon gases by developing affordable carbon sequestration technologies.

Innovative Emission Controls for Existing Plants: America has made remarkable progress in cleaning its air due largely to new technology. Coal use, for example, has doubled since the early 1970s but emissions of sulfur and nitrogen pollutants are down 70% and 45%, respectively. Yet, further challenges remain, especially in addressing such concerns as emissions of mercury, microscopic airborne particles, and further reductions in nitrogen oxide emissions. For mercury, no practical control technology now exists to significantly mitigate emissions from a broad range of power plant configurations. In addition, there may be opportunity for innovative, low cost technologies that address two or more pollutants simultaneously.

The Fossil Energy program is developing technologies that are intended to achieve future emission limits at costs far below what industry would pass on to consumers using today's technology. This is particularly important as support grows for an integrated emission reduction strategy that would sharply reduce key pollutants in exchange for long-term regulatory certainty.

Our FY 2002 budget contains $18 million for these efforts.

Low Emission Boiler System: The federal portion of this program is drawing to a close as Cornbelt Energy Cooperative incorporates the technology into a coal-fired generating plant sited in Illinois. The 91-megawatt generating plant is proposed to built on land owned by Turris Coal company and is projected to use approximately 370,000 tons of coal per year from the company's Elkhart mine in Logan County.

The federal cost-sharing commitment to this project has been fully funded in prior year budgets, and no new funding is needed.

Vision 21: Vision 21 is the core of our long-range power research program. It draws from several budget areas, including gasification combined cycle, pressurized fluidized bed combustion, fuel cells, and advanced research (the latter involving new materials research and advancements in supercomputing modeling and simulation).

Through this program, we believe it is possible to develop a new type of power facility that will virtually eliminate environmental concerns over the future use of fossil fuels.

A Vision 21 plant would be fueled by coal, or natural gas, or perhaps biomass or municipal waste. It would emit virtually none of today's air pollutants and produce no harmful solid or liquid wastes. This extraordinary achievement could ensure that America - and other countries - benefit from the full potential of their available energy resources without compromising environmental goals. A complete Vision 21 prototype is 10 to 15 years into the future, but many of the critical technology modules are already taking shape, and some are likely to be adopted by industry in the next few years.

In FY 2002, we propose to fund Vision 21-related efforts at $37.5 million. The request is about $14 million below the FY 2001 budget due primarily to completion of advanced turbine systems research and the redirection of funds from the indirectly-fired cycle program (this combustion technology is being refocused toward developing combustion/gasification hybrid systems under the Integrated Gasification Combined Cycle budget).

Advanced Gas Turbines: After successfully completing a joint government-industry program to develop a "breakthrough" utility-scale (~400 megawatts) gas turbine, the Department is proposing no new funding for advanced turbine research. With gas turbines expected to dominate demand for new power generators throughout this decade, there is significant incentive for industry to advance turbine technology and new turbines that meet emerging market needs.

Fuel Cells: Our research into fuel cells focuses on lower-cost, high performance units that can provide localized power supplies for factories, hospitals, military installations, and other distributed power applications. (The complementary program underway in the Office of Energy Efficiency is developing fuel cells for vehicular and home use.) At modular scales of 5-kilowatts to 1-megawatt or more, the advanced fuel cells we are developing could be in growing demand as businesses and factories look for more reliable ways to generate premium-quality electric power onsite.

A high priority in this program will be to begin completing efforts that represent more than 20 years of development and are within 1 to 2 years of achieving their objectives. We will also allocate a smaller portion of the budget to the much longer-range future of fuel cells. The focus will be to co-fund competitively selected industrial teams that will develop new types of all-solid-state fuel cells that can break through the cost barrier currently limiting widespread market acceptance.

The FY 2002 budget request for fuel cells is $45.0 million.

Carbon Sequestration: The Administration recognizes the importance of continuing to develop lower cost options for reducing the buildup of greenhouse gases. Voluntary emission reductions, for example, could become much more attractive if low-cost carbon management options result in commercial benefits - for example, injecting carbon dioxide from power plants into oil fields or coal seams to produce marketable crude oil or natural gas. If more emission reductions are needed in the future, research must be conducted now so that lower cost sequestration options are available.

In FY 2002, we propose to increase funding for carbon sequestration research to $20.7 million, a 10% increase that will enable the first limited field tests for the most promising approaches.

Fuels R&D: In FY 2002, the $7 million budget request will support research to reduce the cost and broaden the range of feedstocks that can processed into clean transportation fuels suitable for tomorrow's high-fuel-efficiency vehicles. Funding is requested for the continued development of improved ceramic membranes for producing synthesis gas that can be chemically recombined into a variety of clean liquid fuels. A small portion of this budget will also be used to support a university-industry consortium that is developing ways to use coal to produce high-value carbon products.

The Department does not propose to continue funding for developing new fuel processing approaches for producing ultra low-sulfur diesel and gasoline. The President has decided not to relax the requirements for cleaner automotive fuels. Industry now understands the need to meet the new standards, and this will create an incentive for private sector research into cleaner fuels.

Advanced Research: The FY 2002 request for Advanced Research is $26.0 million, which funds two types of activities. The first is a set of crosscutting studies and assessment activities in environmental, technical and economic analyses, coal technology export and international program support.

The second includes crosscutting fundamental and applied research programs that focus upon developing the technology base in the enabling science and technology areas that are critical to the successful development of both super-clean, very high efficiency coal-based power systems and coal-based fuel systems, with greatly reduced or no net emissions of CO₂. These systems are encompassed in the Vision 21 energy plant of the future. Advanced Research projects seek a greater understanding of the physical, chemical, biological and thermodynamic barriers that limit the current use of coal and other fossil fuels.

Petroleum and Natural Gas (Supply) R&D

The United States has experienced a decline in its domestic oil production for most of the past 30 years, yet huge quantities of crude oil remain. In fact, nearly two-thirds of all the oil found in the history of the U.S. oil industry remains unproduced, and much of it is beyond the capabilities of today's petroleum industry.

Greater access to oil-bearing resources will help slow the decline in domestic production, but for a growing percentage of the nation's oil producers, access to federal property will not be enough. For these producers - typically, the smaller companies - there is also the need for access to better technology and for validating that improved technologies will perform as expected.

These smaller companies now account for 40% of the oil produced in the United States and almost two-thirds of the natural gas. They account for 85% of new domestic drilling. The Department will continue to fund efforts that will encourage these smaller domestic producers to adopt optimum technologies that can find and produce oil and natural gas that might otherwise be left in the ground.

The program also supports wise stewardship of Federal lands; 50% of remaining, untapped technically and economically recoverable crude oil and gas resources are on federal lands. New technology can increase production from these properties, adding both new energy supplies and federal revenues.

The overall funding for Petroleum & Natural Gas R&D reflects a significant decline compared to the current level of effort. This will require the program to be reoriented toward three primary objectives:

• A concentrated effort to transfer improved technologies and "best practices" to the nation's smaller independent firms in the very near-term - the next 1 to 5 years - and to lower the cost of environmental protection through a combination of risk assessments, technology development, regulatory streamlining, impact analysis, and improved federal-state-local coordination;
• Much longer-term research -- 10 or 15 years into the future -- to develop technologies that could locate and produce oil and gas that are beyond the reach of current technologies or those that industry is developing; and
• Efforts to enhance the reliability and deliverability of the Nation's natural gas pipelines and gas storage facilities (reduced level of effort).

Oil Technology

Exploration & Production: In FY 2002, the focus will be on the new tools and techniques that oil producers in the next decade can use to explore for and produce hydrocarbons that are too difficult to extract today or are in environmentally sensitive regions that require "lower-impact" technologies (i.e., smaller surface "footprints" and reduced drilling wastes). For example, one of the FY 2002 activities will demonstrate slimhole drilling technology under Arctic conditions (which will be coordinated by a newly created Arctic Research program). Another activity will study ways to locate and produce oil from highly fractured reservoirs or from ultra-deep deposits.

The FY 2002 request for this effort is $20.4 million.

Reservoir Life Extension/Management: Much of the focus in this program will be on the much nearer term, with technology development and assistance targeted specifically for smaller, independent operators. Evaluation of past field trials in the nation's most endangered reservoirs will be completed and results transferred to private operators.

The FY 2002 request for this effort is $4.8 million.

Effective Environmental Protection: The budget request of $5.3 million will fund technologies and practices that reduce the threat to the environment and decrease the cost of effective environmental protection in oil exploration, production, and oil processing. The program will collect data and analyze the effects of emissions and wastes from gas and oil operations and facilities. It will also support efforts to streamline and simplify environmental regulatory processes and provide data and analyses for environmental initiatives.

Emerging Processing Technology and Ultra Clean Fuels: These efforts, both of which in prior budgets focused on new technologies for low-sulfur transportation fuels, are not proposed for continuation in FY 2002. A smaller fuels-related effort, concentrating on membrane technology development for synthesis gas, is included in the Fuels and Power Systems R&D Program.

Natural Gas Technologies

In FY 2002, $21.0 million is requested for Natural Gas Technologies. The Energy Information Administration, in its 2001 Annual Energy Outlook, projects over a 60% increase in domestic natural gas consumption between 2000 and 2020, with nearly two-thirds to be used for electric power generation. This requires increasing gas production from parts of the vast domestic resource base that are not currently economical to recover because of the geological setting, quality of the gas, or location relative to infrastructure.

With such a large growth anticipated in market demand, industry has a significant incentive to develop new technologies that can tap increasingly difficult gas resources. The federal program will be oriented toward activities that are well beyond the scope of the private sector, such as gas hydrates, or that address critical national priorities, such as our aging gas delivery infrastructure.

Exploration and Production: In this effort, new drilling and production technologies, along with advanced diagnostics and imaging systems, are being developed. A particular emphasis is on new technologies that can reduce costs, minimize environmental impacts, and limit damage to the gas-bearing formation (formation damage can prevent full recovery of the gas resource). For example, in FY 2002, the world's first microwave-hardened drill bit will be developed, along with a new generation of lighter-weight, high-strength composite drill pipes that might one day replace the traditional steel piping. Efforts will also focus on locating natural gas trapped in dense (low-permeability) and naturally fractured reservoirs. Being able to pinpoint these gas-bearing "payzones" more accurately can reduce the number of dry holes and lower the costs of operations in geologically difficult terrains.

The FY 2002 request for this area is $9.3 million.

Gas Hydrates: This vast source of ice-encased natural gas on the ocean floor and beneath the Arctic tundra is probably the best example of a gas resource that holds tremendous promise but is well beyond the scope of today's commercial activities. The $4.8 million request will permit limited experiments that can improve today's understanding of the resource and potentially lead to safe petroleum operations in hydrate areas.

Infrastructure: The Department remains concerned about the aging nature of the nation's natural gas delivery system. Therefore, $5.1 million in the FY 2002 budget will be used to develop new sensor and repair technologies that can prevent dangerous leaks in natural gas pipelines and to develop advanced boring systems that will permit new pipelines to extend into areas previously inaccessible, for example beneath urban areas. Also included in this effort is the continued development of advanced gas storage technologies.

Emerging Processing Technology: Limited work on gas separation membranes has been transferred to the Fuels portion of the Fuels and Power Systems R&D Program, and no new research is proposed for gas-to-liquids, low-quality gas upgrading or coal mine methane production. The $250,000 included in this budget item will meet the U.S. funding commitment to the International Center for Gas Technologies, a technology transfer organization.

Effective Environmental Protection: The program request is $1.6 million. The program works to lower the cost of environmental protection through a combination of risk assessment technology development, regulatory streamlining, impact analysis, and facilitating dialogue that attempts to achieve consensus among affected parties on ways to balance the need to develop the Nation's energy resources with the maintenance of our environmental values.

Among the other Fossil Energy research and development efforts in the FY 2002 budget are (1) $5.2 million to continue advanced metallurgical activities at the Albany (OR) Research Center, including efforts that are helping to develop better materials for the Vision 21 concept, and to study new carbon sequestration approaches; (2) $9.5 million for corrective actions at Fossil Energy R&D facilities to meet environmental, health and safety requirements and for other locations where environmental remediation is necessary; and (3) $1.0 million for regulatory activities involving natural gas imports and exports, exports of electricity, and authorizing Presidential permit applications from the private sector for constructing and operating electric transmission lines that cross U.S. borders with Mexico and Canada.

No funding is requested to continue the cooperative research and development efforts. DOE policy is to have funding allocated on a competitive basis. Since this portion of the budget provides earmarked funding to two institutions - the Western Research Institute in Laramie, WY, and the University of North Dakota Energy and Environmental Research Center in Grand Forks, ND - without competition, funding could not be supported in a limited budget.

This budget category provides for salaries, benefits and overhead expenses at the Fossil Energy program headquarters and the National Energy Technology Laboratory (with sites in Morgantown, WV, Pittsburgh, PA, and Tulsa, OK). In FY 2001, the budget provides for 110 federal headquarters employees and 330 management and administrative full-time equivalent employees at the National Energy Technology Laboratory. The FY 2002 budget request provides for 80 positions at headquarters and 272 management and administrative employees in Fossil Energy field offices (the field personnel numbers do not include 9 fulltime equivalent positions which are paid through reimbursable agreements with other DOE organizations).

[NOTE: We recognize that the following programs are not within the jurisdiction of the Science Committee; however, to provide Members with a complete picture of the Fossil Energy program and to place the preceding budget request within the context of the overall program, we are including descriptions of the Petroleum Reserves budget requests in this testimony.]

Strategic Petroleum Reserve

Strategic Petroleum Reserve: The Strategic Petroleum Reserve provides the United States with strategic and economic protection against disruptions in oil supplies. The FY 2002 budget request will maintain the Reserve's readiness to respond to a Presidential directive in the event of an energy emergency. During FY 2001, the inventory of 561 million barrels will provide 53 days of net import protection. By FY 2002, with the receipt of crude oil returned in the 2000 exchange initiative and all royalty-in-kind oil, the Reserve inventory is projected to grow to more than 591 million, its historical highest level. Even with the increase in inventory, the days of import protection are projected to increase only slightly, to 55 days, because of the continuing rise in oil imports.

Recently, the Energy Department renegotiated the delivery dates for 23.8 million of the 30 million barrels of crude oil released in last year's exchange initiative. Under the original agreements, companies would return 31.35 million barrels later this year - the additional 1.35 million representing a premium in returning for obtaining crude oil when inventories were tight last year. Now, under the renegotiated contracts, which defer deliveries until December 2001 through January 2003, the Strategic Reserve will be replenished with 33.54 million barrels - 2.4 million more than originally anticipated. It may also be possible that delivery dates will be renegotiated for at least some of the oil currently scheduled to be returned this year, further adding to the emergency crude oil inventory at no additional cost to the taxpayer.

In FY 2002, $3 million is included in the budget request to begin dealing with a recurrence of gas buildup in the Reserve's crude oil.

Northeast Home Heating Oil Reserve: A second Presidential initiative (along with the Clean Coal Power Initiative described on page 3) is to fully fund the Northeast Home Heating Oil Reserve.