Statement of
Patricia Fry Godley
Assistant Secretary for Fossil Energy
U.S. Department of Energy
Before the
Subcommittee on the Interior and Related Agencies
Committee on Appropriations
U.S. House of Representatives
March 26, 1998

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 energy preparedness have served us well in the past. They are proven routes. If we continue to follow them in addressing future challenges, 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 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.

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

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:

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.

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.

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.

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%.

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 as a sequestration strategy for the energy industry; and (3) research to identify and develop potential pathbreaking technologies to sequester greenhouse gases from energy systems.

Coal R&D - Advanced Clean Fuels

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.

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.

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, 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.

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

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

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.

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

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:

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.

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 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.

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.

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.

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.

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.

Oil Technology

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:

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 U.S. producers.

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.

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.

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:

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.

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.

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.

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.

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

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.

Strategic Petroleum Reserve

The Strategic Petroleum Reserve (SPR) is the nation's first line of defense against an interruption in oil supplies. The SPR discourages supply disruptions as a tool of other nations by being prepared to respond rapidly, in concert with the other 23 nations of the International Energy Agency, to replace the disrupted oil supplies. This emergency supply of crude oil is stored in huge caverns created in the salt domes of the Texas and Louisiana Gulf Coast region. The four Reserve sites are: Bryan Mound and Big Hill in Texas, and West Hackberry and Bayou Choctaw in Louisiana, with a total storage capacity of 680 million barrels. The current inventory of the Reserve is 563.4 million barrels, however, the Appropriations Act for FY 1998 requires the Department to sell an additional $207.5 million worth of SPR crude oil to offset the Reserve's 1998 funding requirements. Based on current oil prices, 18-22 million barrels would have to be sold. Recognizing that low oil prices could necessitate the sale of significantly more oil than the Appropriations Act anticipated when passed last year, the Department is continuing to work both internally and with Congress to determine if viable alternatives to the non-emergency sale can be found.

The current inventory provides an import protection level of 63 days based on the U.S. net import rate for crude and petroleum products during 1997. The level of net import protection provided by the Reserve has continued in a declining trend over the past twelve years, due to the increasing dependence on oil imports, as well as sales of crude oil to fund budget deficits. By FY 1999, the net import protection level could fall to 58 days.

To maintain a continual readiness posture, the following objectives are included in the FY 1999 budget proposal:

The SPR's goal is to ensure physical system readiness and maintain the capability to draw down and distribute crude oil from the reserve within 15 days at the direction of the President. Funding supports operational readiness and facilities maintenance activities to maintain established performance and reliability standards. The FY 1999 budget continues storage site maintenance, operations, security, drawdown testing, and drawdown readiness. There are no plans for oil acquisition in FY 1999.

Deterioration of cap rock and salt has compromised the integrity of this converted salt mine and created a high risk for environmental damage if an uncontrolled water intrusion displaced oil into the surrounding sediments. That environmental threat has now been essentially eliminated, with the completion of oil relocation to the Bayou Choctaw, Louisiana, and Big Hill, Texas, sites. In FY 1998, final oil skimming operations will be continued and the salt mine will be filled with brine for long-term stability. Decommissioning of the site is planned for FY 1999 with follow-on monitoring to assure geotechnical stability, mine integrity, and emergency response capability.

Three of the SPR's storage sites, Bryan Mound, West Hackberry and Bayou Choctaw, were completed in the early 1980's and designed for an operational life of 20 years. In 1994, DOE implemented a Life Extension Program to maintain high standards of system reliability and availability and extend the life of the Reserve through 2025. By the year 2000, all of the major systems for operating the Reserve will be upgraded or replaced. This will streamline site configurations and standardize equipment across the Reserve to reverse obsolescence, improve long term reliability, and reduce maintenance and operating costs.

Naval Petroleum and Oil Shale Reserves

The mission of the Naval Petroleum and Oil Shale Reserves (NPOSR) has been to manage, operate, maintain and produce oil and gas from federally-owned properties in California, Wyoming, Colorado and Utah. Since 1976, when the Naval Petroleum Reserves were authorized for maximum efficient production, the petroleum products were either sold competitively in the open market, to the Strategic Petroleum Reserve, or to the Department of Defense. NPOSR activities generated a net income of $13.8 billion for the U.S. Treasury between FY 1976 through FY 1997.

In 1996, the Administration and Congress agreed that the largest of the properties, the Elk Hills Naval Petroleum Reserve near Bakersfield, CA, no longer served a national security purpose. The National Defense Authorization Act for Fiscal Year 1996, Public Law 104-106, required DOE to contract to sell the government's share of the Elk Hills field within two years. On February 5, 1998, DOE concluded the sale of its interest in the field to Occidental Petroleum Corp. for $3.65 billion in cash, making it the largest privatization in the history of the U.S. Government. After divestment of Elk Hills, the budget necessary for operating the remaining properties will be reduced by almost 80 percent, to $22.5 million.

The FY 1999 budget proposal requests funds for the following:

Although the new owner of the Naval Petroleum Reserve No. 1 will assume operations of the field during FY 1998, funding will be required in FY 1999 in order to conduct post-sale close-out activities. The most significant of these activities is the settlement of equity with Chevron, the field's joint owner.

Although no future development activities are planned for NPR-3 (Teapot Dome), the field should continue to operate economically through FY 2003. Of the $10.2 million requested, about $3 million will be used toward environmental remediation efforts in preparation for eventual abandonment or privatization of the property, subject to Congressional approval. Over 500 wells will be plugged and all but a few hundred acres of the 9,000 acre property will be restored to its natural state over the next four to five years.

The program is also exploring the possibility of privatizing the Rocky Mountain Oilfield Test Center (RMOTC), located at Teapot Dome, by FY 2001. RMOTC was established in 1995 in accordance with the Department's Domestic Natural Gas and Oil Initiative. Activity will be increased in FY 1999 in order to demonstrate its potential as a profitable operation and generate interest from the private sector. RMOTC currently serves as a training center as well as a facility for demonstrating, testing and evaluating new technologies and equipment in an operating oil field environment.

During FY 1999, the Naval Oil Shale Reserve Nos. 1 and 3, located in northwestern Colorado, will be transferred to the Department of the Interior (DOI) for commercial leasing as required by the National Defense Authorization Act for Fiscal Year 1998 (Public Law 105-85). Funding is requested in FY 1999 for continued routine surface management, groundwater monitoring of the spent shale pile at NOSR-3, and operation and maintenance of on-line gas wells until the transfer occurs. The increase in the budget request is to provide funds for contingent environmental liabilities which DOI may identify as a part of the transfer process.

This activity provides funding to support 36 full-time equivalent (FTE) staff positions required to manage, operate, maintain and produce the remaining program assets to achieve the greatest value and benefits to the Government, a reduction of 50 percent from the prior year. Federal staff will also provide significant support to close-out activities in such areas as engineering, finance, administration and human resources. A Federal Employee Transition Plan has been developed to ensure sufficient Federal staff are retained to carry out continued operations, divestiture, and close-out activities at NPR-1. Funding is also included for 26 FTEs from NPR-1 who may transfer to other DOE and Federal programs as part of the transition plan.

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.