Subcommittee on Oversight and Investigations
June 6, 2002
09:30 AM
2123 Rayburn House Office Building

Chairman Greenwood, Ranking Member Deutsch, and Members of the Subcommittee:

ChevronTexaco is pleased to have the opportunity to testify before the Energy and Commerce Oversight and Investigations Subcommittee on DOE's FreedomCAR Program and the future of advanced energy technologies.

As ChevronTexaco's Chief Technology Officer, I am involved in all facets of our company's energy technology, including fuel-cell research and development, and can share our experiences about both key market incentives as well as challenges to the development of new energy technology.

Today I will focus my testimony on our work in fuel-cell technology applications, challenges to commercializing the technology and public policy recommendations.

By way of background, ChevronTexaco is an integrated, global energy company that produces oil, natural gas, transportation fuels and other energy products. We operate in 180 countries and employ more than 55,000 people worldwide. ChevronTexaco is the second-largest U.S.-based energy company and the fifth largest in the world, based on market capitalization. We consider ourselves to be an environmentally responsible company. In addition to supplying global energy, we are also involved in a whole host of advanced clean energy and fuel technologies.

We believe that fuel -cell technology will continue to evolve. Stationary fuel cells to generate high quality power are commercially available in selected operations today. ChevronTexaco is particularly optimistic about stationary fuel-cell applications and believes that mobile source fuel cells have a much longer time frame for development given the complexity of issues. For example, it was relatively easy for us to install Northern California's first commercial fuel-cell power plant, located at our office park in San Ramon, California. This fuel cell converts hydrogen from natural gas into electricity, clean water and usable heat, and provides secure digital-grade power to information technology systems. We undertook this project to gain experience with designing and installing stationary fuel-cell systems, and to help us translate this experience into other types of fuel cell projects. However, mobile source fuel-cell technology faces substantially more challenges.

ChevronTexaco's RESEARCH AND DEVELOPMENT INITIATIVES

We continue to support development of fuel-cell technology and the conversion of hydrocarbon fuels into hydrogen for use in fuel cells. We are actively working to develop safe methods for storing and delivering hydrogen in anticipation of future energy demands. To meet the numerous challenges involved with this new technology, we are involved in partnerships, participate in government and private workshops, and privately fund basic and applied research for hydrogen fuels and refueling stations. These efforts were under way prior to DOE's announcement regarding the FreedomCAR initiative; however, certainly this does provide an impetus for the private sector to focus its attention on the development of this technology. Unlike stationary fuel cells, this technology will require long-term development, especially with regard to fuel production and distribution infrastructure.

An example of the type of activity that we are involved in as a private/public partnership includes:

California Fuel Cell Partnership: One of the most well-recognized initiatives is the California Fuel Cell Partnership, which was formed to explore pathways to commercialization of fuel-cell vehicles, to demonstrate these vehicles in everyday driving conditions, and to demonstrate fueling options and other infrastructure needs. ChevronTexaco has been an active participant in the California Fuel Cell Partnership since it was formed in 1999. This organization is a voluntary collaboration of 8 automakers, 4 energy companies, a number of State and Federal government agencies, and technology providers.

Working with other energy partners, we are providing hydrogen to operate a project facility that safely delivers high-pressure hydrogen to demonstration vehicles. Today, the partnership is operating about a dozen fuel-cell vehicles at its West Sacramento facility.

Examples of our research and development activities, which reflect the many challenges facing the development of this technology, include:

Supply of Hydrogen: Hydrogen is a fuel - not a natural resource. It must be manufactured from other sources, so how the supply system is developed is critical. The two primary sources of hydrogen are water and hydrocarbons. For the past 50 years, we have been engaged in the conversion of hydrocarbons to hydrogen through refinery and gasification processes. As you may be aware, oil refineries are the largest current producers and users of hydrogen. We are leveraging long-standing core competencies in fuels, catalysis, proprietary gasification and process engineering technology to explore the development of a fuel-processing business. The total environmental consequences of making hydrogen from any source need to be carefully evaluated. There needs to be a cost effective technology that enables fuel-cell systems to operate on readily available hydrocarbon fuels and to deliver hydrogen fuels at competitive costs. We have developed relationships with leading fuel-cell developers, utilities and suppliers in an effort to introduce competitive fuel-cell systems into the market. We have hydrogen fuel- processing systems under development that will convert a hydrocarbon feedstock, such as natural gas, into hydrogen.
Reforming Gasoline Into Hydrogen: An avenue that leverages the existing fuel infrastructure is to produce the hydrogen on-board. We are collaborating to develop systems for the conversion of gasoline into hydrogen within a car. ChevronTexaco and General Motors are engaged in a multi-year research collaboration in support of General Motor's development of a gasoline-fed fuel cell for vehicles. GM is developing gasoline-fueled fuel cells as its interim strategy until a hydrogen infrastructure is established. This technology is largely based on fuel refining and related expertise, and is targeted to improve performance of converting gasoline-like fuels to hydrogen.

Technology to convert gasoline to hydrogen in on-board processors has been demonstrated. However, to use a gasoline-like fuel to produce hydrogen, on-board a vehicle, it will be necessary to reduce sulfur to very low levels, below that of the cleanest fuels available today. Development of a method to reduce sulfur to very low levels is one of the main features of our research with General Motors. We also are investigating other modifications to gasoline that will be needed for use in fuel-cell systems.

One key component of this collaboration is the development of an economically producible gasoline that can be used in vehicles with fuel cells and conventional internal combustion engines. As I will discuss in more detail later, the special infrastructure requirements, high costs and safety issues associated with hydrogen delivery are virtually prohibitive, at least in the near term. It is for this reason that we are working with GM to develop on-board fuel processors that will allow customers to use gasoline-like fuels that are familiar, the least expensive and use existing fueling infrastructure. Providing consumers with this practical solution may help remove fuel availability as a near-term impediment to commercial fuel-cell vehicle systems.
Delivery of Hydrogen: One other challenge is how hydrogen would be distributed in a decentralized manner. We are trying to design a hydrogen refueling station that is economic and safe. Designing these stations requires the incorporation of a range of new technologies including hydrogen extraction from natural gas, safe-site storage technologies, stationary fuel cells to provide power at the site, and advanced hydrogen detection and control systems to make the station safe for consumer use. This is a daunting array of simultaneous technical challenges that we are excited to take on, but recognize that they will require involvement of many industry technology providers as well as public and government agencies to make them happen.
Hydrogen Storage: Distribution of fuels for commercial and consumer uses will require an infrastructure that must provide for hydrogen storage. We are currently engaged in the R&D and commercialization of new hydrogen storage technology. Our focus is to produce safe, reliable products using a common technology capable of meeting a wide range of applications including small portable, automotive, and bulk storage applications. We are forming partnerships and associations with companies in various areas to coordinate our efforts.

CHALLENGES TO TECHNOLOGY COMMERCIALIZATION

We have operated in the refining and marketing business segment for over 100 years. The financial investment has been enormous. The current level of discretionary capital spending on the refining business segment by integrated oil companies has been close to zero. Integrated oil companies have generally been reducing their exposure to this business because of our inability to achieve a required return on capital. This has created an environment where refining assets have been sold for about 20% to 40% of replacement cost. It is estimated that six to nine refineries may be up for sale in the U.S. within the next 12 months either because of weak business conditions or Federal Trade Commission mandates. It is unlikely that U.S. refiners and marketers would create a substantial new infrastructure investment without believing that they could obtain a satisfactory economic return to compensate for this risk.

The introduction of fuel-cell cars must be coordinated with the introduction of the infrastructure. We know that the infrastructure must be in place before customers buy these cars. We also know that this will require significant investment with a minimal return initially until widespread adoption occurs.

In addition to the financial risks outlined above, we see the following additional challenges to the commercialization of this new technology and infrastructure:

Hydrogen must be available when and where it will be needed. We understand that customers must be confident that hydrogen will be available before they will buy cars powered by hydrogen. It is a significant task to develop technology to:

1. produce the hydrogen at a reasonable cost;

2. deliver it over a broad geographic area;

3. store it at the sales point;

4. fuel the cars; and

5. in addition, the technology must be employed in a safe manner to achieve total consumer confidence.

There are 9 million tons per year of hydrogen produced and used in the United States. Worldwide production is 40 million tons per year. Most of this hydrogen is used in refineries, chemical plants, metals processing and the electronics industry. Hydrogen right now is a specialty chemical, and it must be transformed into a broader energy fuel as it begins to be used for transportation.

Storing hydrogen in the car, at the refueling station and throughout the delivery infrastructure is a sizable, unfulfilled challenge. The problems are different at each location, and they each deserve the attention of industry, national labs and the DOE. Much attention is given to storing hydrogen on board the car, and rightly so, but similar attention is needed in the other places that hydrogen needs to be stored. This technology still needs to be developed, tested and embraced.

It is likely that some of the first fleet refilling stations and even retail stations will make the hydrogen right at the station from reforming natural gas. We need codes and standards to be developed that will let us demonstrate this concept; they do not currently exist.

Eventually the hydrogen market may be big enough that we can make hydrogen in large centralized plants, similar to refineries today. But this still needs to be distributed across the country. The challenge will be to build a network of large-scale industrial hydrogen generation facilities, pipelines, truck delivery systems and smaller on-site generation facilities -- all expanding as an economic market develops due to increasing consumer acceptance of fuel-cell vehicles.

Once large centralized plants are built, it will be possible to capture a significant portion of the carbon dioxide made as a by product. Capturing, inertly storing or sequestering large volumes of CO2 are two distinct challenges yet to be solved.

New codes and standards need to be developed that permit the development of the infrastructure. Existing building codes and hydrogen system design standards were not developed with consumer applications in mind. Today's codes provide large distance "setbacks" from other facilities that limit the locations where hydrogen can be manufactured, stored and dispensed. This was appropriate for the technology and hydrogen applications of the 20^th century, but they make retrofits of existing sites with limited area for expansion impractical for future hydrogen facilities. Codes and standards will need to be updated to reflect the developments in safer hydrogen technologies arising from the new storage and control system technologies. In some cases, building codes will need to strengthened to ensure safe maintenance facilities. In all cases, revisions of the codes will need to occur simultaneously with developing hydrogen technologies.

The cost of hydrogen to consumers needs to be competitive in the market with other energy fuels. We need to be convinced that hydrogen can compete with other fuels in the market. This looks achievable once the demand for hydrogen is substantial, but as of yet this has not been demonstrated. The ability to supply hydrogen to the market while the demand is very low is difficult.

From our perspective, it will take time to work through all these challenges. Centralized fleets of fuel-cell cars and buses are going to be important to get the infrastructure started and to prove the value and functionality of the fuel-cell vehicle and infrastructure. Specialty applications and niche markets that use much of the same technology but in different products are going to be important and will be a signpost along the path. One opportunity in this area would be for use of the technology by the military. In addition, applications, such as airport ground equipment vehicles and fleets of industrial vehicles with centralized and stationary refueling, need to be successful before consumers become a significant user of this technology.

PUBLIC POLICY RECOMMENDATIONS

We believe that there are several areas that are critical to the development of the technology and the need for a public-private partnership. We recommend the following:

1. Consider the Infrastructure As Well As The Technology: It is absolutely critical that DOE work on the infrastructure issues simultaneously. Although technology can be developed, it will not be implemented until there is an infrastructure to support it. Energy companies have a large role to play in the development. This should be a high priority in terms of DOE and other government R&D funds.

2. Manage Public Expectations: When new technologies are on the horizon, there is a lot of fanfare and media attention surrounding the development of the technology. Unfortunately, this leads to unrealistic public expectations that such technology will be readily available within a short time frame. We believe that it is critical and responsible to ensure that the public understands that this technology has a long timeline, and not create unrealistic or false expectations.

3. Leverage Private Industry Stakeholders: DOE has held a number of meetings bringing together public and private industry stakeholders. We believe that this will help make the technology commercial, and also focus government priorities on areas where there is the most need.

4. Monitor Market Signals: Often we see that factors can change the need for a particular technology - either increasing or decreasing demand. Some of these factors may include competing technologies, availability of resources, public opinion, etc. For example, we expect that hybrid cars are going to increase the fuel economy of future cars and impact the market. To embark on a long-term major government initiative without doing mid-course reviews would be a mistake. By doing periodic full reviews, there would be an opportunity to steer or change policy as needed and implement appropriate mid-course corrections.

I should note that pending energy legislation, now in a House-Senate conference, does include several provisions to address issues related to this technology as well as other advanced energy technologies.

Thank you for the opportunity to testify and I would be happy to answer any questions.

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DOE's FreedomCAR: Hurdles, Benchmarks for Progress, and Role in Energy Policy

CHALLENGES TO TECHNOLOGY COMMERCIALIZATION

PUBLIC POLICY RECOMMENDATIONS