DOE - Fossil Energy Techline - Issued on:  February 3, 2003

Fiscal 2004 Budget Includes Nearly $750 Million for Fossil Energy Programs

Carbon Sequestration Research Slated for Funding Increase; Strategic Petroleum and Heating Oil Reserves Fully Funded

Washington, DC - The Department of Energy's $23.4 billion budget request for FY 2004 allocates $765.9 million for fossil energy activities. Included is $533.3 million for coal, oil and natural gas research and development, $191.6 million for the Strategic Petroleum, Home Heating Oil Reserves and Naval Petroleum Reserve, and $36 million in further settlement payments to California for the 1998 sale of the Elk Hills oil field.

The actual budget request will be reduced by $19.0 million made available from prior year balances and other adjustments.

	Go to FY2004 Fossil Energy Budget Chart

The focus of the FY 2004 Fossil Energy program is exclusively on supporting three of the President's top energy and environmental initiatives: Clear Skies, Climate Change, and Energy Security.

To have been included in the FY 2004 budget request, Fossil Energy programs must either (1) support the development of lower cost, more effective pollution control technologies or help diversify the nation's future sources of clean-burning natural gas to meet the President's Clear Skies goals; (2) expand the nation's technological options for reducing greenhouse gases either by increasing power plant efficiencies or by capturing and isolating these gases from the atmosphere; or (3) measurably add to the nation's energy security by providing a short-term emergency response (e.g., Strategic Petroleum Reserve) or a longer-term alternative to imported oil (e.g., hydrogen and methane hydrates).

Research and Development

The President's Coal Research Initiative. The President's Coal Research Initiative accounts for $320.5 million of the request for Fossil Energy research and development.

The Department has made significant progress in implementing the initial stage of the President's $2 billion, 10-year commitment to a new generation of environmentally-clean coal technologies. The Round 1 solicitation in the Clean Coal Power Initiative - the centerpiece of the President's clean coal commitment - attracted three dozen proposals for projects totaling more than $5 billion. On January 15, 2003, Energy Secretary Spencer Abraham announced the first winners of this competition - eight projects with a total value of more than $1.3 billion, more than one billion dollars of which would be provided by the private sector.

In FY 2004, the department is requesting $130 million as the next "installment" of the Clean Coal Power Initiative. At the present time, plans are to issue competitive solicitations every two years - the next one slated for the fall of 2004. As in the initial solicitation, the department intends to combine two years of appropriations (and any available funds from prior solicitations) to offer a sufficient federal cost-share to attract meaningful proposals.

The President's Clean Coal Power Initiative is especially significant because it directly supports two Presidential initiatives: Clear Skies and Climate Change. The first projects, for example, included an array of new cleaner and cheaper concepts for reducing sulfur dioxide, nitrogen oxides, and mercury - the three air pollutants targeted by the Clear Skies initiative. To ensure that even more effective pollution control concepts continue to emerge as candidates for future clean coal competitions, we are requesting $22.0 million for research into even cleaner and more affordable innovations for existing plants.

Several of the recently-selected Clean Coal projects also help expand the menu of options for meeting the President's Climate Change Initiative, primarily by boosting the efficiencies of power plants (meaning that less fuel is needed to generate electricity with a corresponding reduction in greenhouse gases). To position even more advanced, high efficiency power generating concepts for future development and testing, the department is requesting $64.0 million to continue research into integrated gasification-combined cycle and a companion effort in high-performance, multi-fuel-capable turbines.

	Read more aboutthe Vision 21 Program[opens new window]

A key aspect of these advanced power concepts - which will make up key modules of the Vision 21 emission-free power plant of the future - is that they emit carbon dioxide in a way that makes the greenhouse gas easier to capture.

Carbon management will become an increasingly important element of the federal government's coal research program. Carbon sequestration - the capture and permanent storage of carbon dioxide - has emerged as one of the highest priorities in the department's Fossil Energy research program - a priority reflected in the proposed budget increase to $62.0 million in FY 2004 compared to an FY 2003 amended request of $44.0 million.

Carbon sequestration, if it can be proven practical, safe, and affordable, can dramatically enhance the world's long-term response to climate change concerns. It could offer the United States and other nations an option to reduce greenhouse gases that would not necessitate potentially disruptive and economically harmful changes in the way we produce, deliver, or use energy. That is why President Bush singled out carbon sequestration as one of the primary technology development efforts in his Global Climate Change Initiative.

	Read DOE's announcement on Regional Sequestration Partnerships [opens new window]

Beginning in FY 2004, one of the cornerstones of the Energy Department's carbon sequestration program will be a national network of regional partnerships. This Secretarial initiative will bring together the federal government, state agencies, universities, and private industry to begin determining which options for capturing and storing greenhouse gases are most practicable for specific areas of the country. The FY 2004 budget anticipates starting at least five of these partnerships.

The sequestration budget also includes support for the President's National Climate Change Technology Initiative. Funding from the Fossil Energy program will be combined with funding from the Office of Nuclear Energy and the Office of Energy Efficiency and Renewable Energy to conduct a series of competitions that will explore new concepts, innovative technologies, and advanced approaches spanning fossil, solar, nuclear and other energy technologies.

Another aspect of the President's Clean Coal Research Initiative is the production of clean fuels from coal. Hydrogen has emerged as a major priority within the department and the Fossil Energy program as a clean fuel for tomorrow's advanced power technologies (such as fuel cells) and for future transportation systems. The budget request allocates $5.0 million for research into new methods for making hydrogen from coal (along with another $6.5 million in the Natural Gas Research program to study future concepts for making hydrogen from natural gas).

To provide fundamental scientific knowledge that benefits all of the department's coal technology efforts, the FY 2004 budget also includes $37.5 million for advanced research in such areas as materials, coal utilization science, analytical efforts, and support for coal research at universities (including historically black and other minority institutions).

	Read more aboutFuel Cells[opens new window]

Other Power Systems Research and Development. The department is also proposing $47 million for continued development of fuel cells with an emphasis on lower-cost technologies that can contribute to both Clear Skies emission reductions, particularly in distributed generation applications, and Climate Change goals by providing an ultra-high efficiency electricity generating component for tomorrow's power plants. Distributed power systems, such as fuel cells, also can contribute to the overall reliability of electricity supplies in the United States and help strengthen the security of the nation's energy infrastructure.

Natural Gas Research. The President's Clear Skies Initiative also provides the rationale for much of the department's $26.6 million budget request for natural gas research. Clear Skies legislation is likely to further increase demand for this clean-burning fuel; even in the absence of new environmental requirements, natural gas use in the United States is likely to increase by 50 percent by 2020. Rising gas demand could place increasing strains on domestic supplies. In turn this could cause gas prices to rise, perhaps to the point where other market sectors might begin substituting oil for gas and compound energy security concerns.

The Natural Gas Research program, therefore, is directed primarily at providing new tools and technologies that producers can use to diversify future supplies of gas. Emphasis will be increased on research that can improve access to onshore public lands, especially in the Rocky Mountain region where much of the nation's undiscovered gas resource is located. A particularly important aspect of this research will be to develop innovative ways to recover this resource while continuing to protect the environmental quality of this area.

The FY 2004 budget proposals also anticipates a new industry-led, university consortia-based program to develop breakthrough technologies that can help assure a continued supply of affordable natural gas beyond 2015. The focus of this program will be on projects that could revolutionize the way natural gas is supplied in the United States - a focus that is well beyond the type of research industry is now doing.

Natural gas storage will also assume increasing significance in the United States as more and more power plants require consistent, year-round supplies of natural gas. Toward this end, the department's Office of Fossil Energy will initiate a nationwide, industry-led consortium that will examine ways to improve the reliability and efficiency of the nation's gas storage system and explore opportunities for LNG facility siting.

The most significant change in the Natural Gas Research program is the new work being proposed in hydrogen. In keeping with the energy security goal of finding alternatives to traditional transportation fuels, the department is proposing to spend $6.5 million to study innovative ways of producing hydrogen from natural gas. The department will ask industry, academia, and national laboratories to submit new ideas on hydrogen production and related research. Since the byproduct of gas-to-hydrogen processes will likely be carbon dioxide, this effort will also include research on ways to capture this greenhouse gas. This work will be closely coordinated with other efforts in the Office of Fossil Energy to capture and sequester carbon dioxide.

Over the long-term, the production of natural gas from hydrates could have major energy security implications. Hydrates - gas-bearing, ice-like formations in Alaska and offshore - contain more energy than all other fossil energy resources. Hydrate production, if it can proved technically and economically feasible, has the potential to shift the world energy balance away from the Middle East. Understanding hydrates can also improve the scientific understanding of greenhouse gases and possible offer future mechanisms for sequestering carbon dioxide. For these reasons, the FY 2004 budget sustains a research program to study gas hydrates with a proposed funding level of $3.5 million.

Oil Technology Development. The President's National Energy Policy calls attention to the continued need to strengthen the nation's energy security by promoting enhanced oil (and gas) recovery and improving oil (and gas) exploration technology through continued partnerships with public and private entities.

At the same time, however, analyses of past performance has led departmental managers to conclude that if the federal Oil Technology R&D Program is to produce beneficial results, it must be more tightly focused than in prior years. Consequently, the FY 2004 budget request of $15.0 million reflects a reorientation of the program toward those areas where there is clearly a national benefit rather than solely a corporate benefit.

One example is the use of carbon dioxide (CO2) injection to enhance the recovery of oil from existing fields. CO2 injection is a proven enhanced oil recovery practice that prolongs the life of some mature fields, but the private sector has not applied this technique to its fullest potential due to insufficient supplies of economical CO2. A key federal role to be carried out in the proposed FY 2004 program will be to facilitate the greater use of this oil recovery process by integrating it with CO2 captured and delivered from fossil fuel power plants.

The Office of Fossil Energy will also refocus much of its Oil Technology Program on a new Domestic Resource Conservation effort that will target partnerships with industry and universities to sustain access to marginal wells and reservoirs. These aging fields account for 40 percent of domestic production, yet contain billions of barrels of oil that might still be recovered with ever-improving technology. A high priority effort in FY 2004 will be to develop "micro-hole" technology. Rather than developing just another new drilling tool, the federal program will integrate "smart" drilling systems, advanced imaging, and enhanced recovery technologies into a complete exploration and production system. Micro-hole systems may offer one of the best opportunities for keeping marginal fields active because the smaller-diameter wells can significantly reduce exploration costs and make new drilling between existing wells ("infill" drilling) more affordable. Using breakthrough technology like this to keep marginal fields in production preserves the opportunity to eventually apply even more advanced innovations that could recover even larger quantities of domestic crude that traditional oil recovery methods currently leave behind.

Other Fossil Energy R&D. The budget request also includes $124.3 million for other activities in the Fossil Energy program, including $92.8 million for headquarters and field office salaries, $3.0 million for plant and capital improvements, $9.8 million for environmental restoration, $6 million for federal matching funds for cooperative research and development projects at the University of North Dakota and the Western Research Institute, $2.8million for electricity and natural gas import/export responsibilities, and $10 million for advanced metallurgical research at the Albany (OR) Research Center. The increase in funding at the Albany Center (up from $5 million in FY 2003) reflects the Center's growing role in developing better materials for fuel cells and in studying new mineral carbonation concepts for carbon sequestration.

Petroleum Reserves

The Strategic Petroleum Reserve and Northeast Home Heating Oil Reserve are key elements of national energy security. Both serve as response tools for the President to use to protect U.S. citizens from disruptions in commercial energy supplies.

Strategic Petroleum Reserve. The President has directed the Energy Department to fill the Strategic Petroleum Reserve to its full 700 million barrel capacity. The mechanism for doing this - a cooperative effort with the Minerals Management Service to exchange royalty oil from Federal leases in the Gulf of Mexico - is working well. The department has been able to accelerate the fill rate from an average of 60,000 barrels per day at the start of the President's initiative to an expected 130,000 barrels per day for deliveries beginning in April.

Because of the President's "royalty in kind" initiative, the Strategic Petroleum Reserve has reached its highest inventory level ever, now at 599 million barrels. The goal remains to have a full inventory of 700 million barrels by the end of calendar 2005.

The FY 2004 budget request for the Strategic Reserve is $175.08 million, all of which is now allotted for facilities development and operations. No additional funds are required for oil acquisition because charges for transporting "royalty in kind" oil to the Reserve are now the responsibility of the oil supplier. Also, because authority exists to "borrow" funds from other departmental accounts to support an emergency drawdown, there is no longer the requirement for the same amount of standby funding in this account.

Northeast Home Heating Oil Reserve. The department is requesting $5.0 million for the Northeast Home Heating Oil Reserve. The $3.0 million decrease from last year's request reflects budget savings realized from recompeting commercial storage contracts. The two-million barrel reserve remains ready to respond to a Presidential order should there be a severe fuel oil supply disruption in the Northeast. A key element of this readiness is a new online computerized "auction" system that we implemented during the last year to expedite the bidding process. Installing and testing the electronic system (including tests with prospective commercial bidders) has been a major element of the Office of Fossil Energy's role in implementing the "e-government" initiatives in the President's Management Agenda.

Naval Petroleum and Oil Shale Reserves. The FY 2004 budget request of $16.5 million, a decrease of approximately $4.5 million from FY 2003, reflects major programmatic changes. The Rocky Mountain Oilfield Testing Center, established at the Naval Petroleum Reserve No. 3 in Wyoming, will be closed, resulting in $3 million per year cost savings. The department also intends to transfer the Naval Petroleum Reserve No. 2 in California to the Department of the Interior by the end of FY 2003, although the transition and certain environmental compliance activities will continue into FY 2004. There is also less funding required for equity redetermination studies for the Government's portion of the Elk Hills Naval Petroleum Reserve No. 1, which was divested in 1998. Of the four producing zones for which final equity shares had to be finalized, three have been completed; the fourth (the Shallow Oil Zone) is expected to be finished in FY 2005. The FY 2004 budget also provides for the sixth payment of $36 million to the State of California to settle its claims for a share of assets from the Elk Hills sale.

- End of Techline -