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Prepared Witness Testimony The House Committee on Energy and Commerce
Future Options for Generation of Electricity from Coal.
Subcommittee on Energy and Air Quality
Mr. J. Brian Ferguson
Mr. Chairman and members of the subcommittee, I appreciate the opportunity to appear before you to share the enthusiasm that Eastman has for the production of electricity through coal gasification. Eastman, as you know, is a pioneer in the coal gasification business. Our coal-to-chemicals facility in Kingsport, Tennessee, has just reached the 20-year milestone, so we have a lot of knowledge and credibility with respect to coal gasification generally. But before I turn to the specific topics you asked me to address, let me take a few minutes to provide some background information about Eastman Chemical Company. Eastman: A Proud History and an Exciting Future Eastman is a global chemical company founded in 1920 by George Eastman to provide chemicals for Eastman Kodak Company's photographic business. We became independent from Kodak in 1994, and have grown substantially since the spin-off. Revenues in 2002 were $5.3 billion. Eastman supplies billions of pounds of chemicals, fibers, and plastics each year to customers around the world who, in turn, manufacture thousands of different consumer products. We serve many diverse markets, including pharmaceuticals, textiles, packaging, cosmetics, electronics, paint and coatings, and photography. Eastman's most visible asset today is arguably our large portfolio of products, but certainly one of our most valuable future assets is an expanding portfolio of ideas. After 82 years in the chemical industry, we have amassed an impressive body of technological and intellectual assets and multi-faceted capabilities. These assets have the potential to be developed into new technology-oriented service businesses that are based on higher-value business models. This strategy is an important part of Eastman's growth platform and a top priority for senior management. In that regard, a key business objective for Eastman is to use our two decades of coal gasification experience to help other companies design, build, and operate similar facilities for the production of electricity, chemicals, or other end-products, such as hydrogen. Eastman's Coal Gasification Experience Many of the chemicals that Eastman produces at our Kingsport complex are created through chemical reactions involving, at the front-end of the process, simple molecules such as hydrogen (H2) and carbon monoxide (CO). To produce these molecular building-blocks in the large volumes required in subsequent steps of the manufacturing process, our facility has always required great quantities of hydrocarbon raw materials. For many decades we relied upon petroleum as our principal hydrocarbon feedstock. However, severe price increases associated with two events during the 1970s-the oil embargo and the Iranian crisis-encouraged Eastman to turn to coal as an alternative. In the early 1980s we obtained a license from Texaco (now ChevronTexaco) and installed two large coal gasification units using the Texaco technology. The installation was completed in 1983 and we have made continuous improvements to this system over the last 20 years. Many experts consider Eastman to be the world's leading gasification operator for the following reasons: 1. Ours was the first commercial coal gasification project built in the United States. 2. We have the world's best operating performance. For the last 19 years we have enjoyed an on-stream rate of 98 percent (it was 91 percent in the initial startup year). And our annual forced outage rate is now less than one percent. 3. We have an enviable safety record. Our Kingsport site has an OSHA recordable rate of 1.0 and no lost time accidents in the last 11 years. 4. We have exceptional environmental performance. Our system removes more than 99.9 percent of the sulfur in the synthesis gas (syngas created from coal). We have a patented sulfur-free gasifier start-up process. And we remove nearly all of the volatile mercury present in the syngas stream. 5. Our continuous process improvements have resulted in a 40+ percent reduction in annual maintenance costs over the last six years. Eastman has such faith in the future of gasification that we have formed a subsidiary-Eastman Gasification Services Company-to help other gasification project owners achieve faster start-up, maximize plant value, and improve long-term performance. In a related development, we have signed a cooperative agreement with ChevronTexaco, which allows us to provide operation, maintenance, management, and technical services to other ChevronTexaco gasification licensees. Mr. Chairman, I am very proud of the fact that Eastman is widely-recognized as the premier coal gasification operator in the United States. And I am honored to appear before you today to share some insights based upon our two decades of operating experience. Three Key Questions about Coal Gasification As Eastman's gasification services team has marketed its expertise to potential clients here and abroad, we have repeatedly encountered three fundamental questions about coal gasification-based electrical power plants: 1. How expensive are they to build and operate? 2. Are they reliable? 3. What are the environmental benefits? These are the three essential questions, which Eastman and other coal gasification proponents must answer convincingly if we hope to see rapid and widespread deployment of this exciting technology. Question 1: How expensive are coal gasification power plants to build and operate? When discussing the merits of coal gasification, it is tempting to start by describing the environmental benefits of the process, since those benefits are substantial. However, if you start such a discussion with electrical power plant developers, they inevitably stop you in mid-sentence. "That's great," they always say, "but how do the life-cycle costs compare with other technologies?" The answer to that question is one Eastman can uniquely address. Based on our 20+ years of operating experience, we believe that coal gasification can be competitive right now and is becoming more cost-effective with each passing day. Consider these facts: Capital Expenses. According to data compiled by Eastman, ChevronTexaco, GE, and others, the capital costs of coal gasification power plants are currently projected to run between $1,200 and $1,400 per kilowatt of capacity and are trending downward. This compares favorably with the newest generation of pulverized coal power plants, which have projected capital costs in this same range. What has happened to make gasification competitive? Pulverized coal capital costs have risen in recent years as the result of ever-tightening federal air pollution and other environmental regulations. Coal gasification, on the other hand, has fewer potential environmental side-effects, and the capital costs of such plants are decreasing as the electric power industry gains more familiarity with the technology. [See Figure 1] Operational Costs. Although operation and maintenance costs are somewhat higher for coal gasification plants, these costs are offset by lower fuel costs (from higher efficiency) and by lower environmental treatment costs and subsequent waste product disposal costs. In addition, the coal gasification process produces saleable by-products, such as elemental sulfur. Mr. Chairman, total variable costs-O&M, fuel, waste product disposal, and by-product credits-are currently better for coal gasification than any other fossil fuel-based electric power generation technology, including natural gas. Moreover, the costs associated with the removal of volatile mercury and with carbon dioxide capture and sequestration (if and when such removals are required) are much less for gasification than for competing technologies. [See Figure 2] Fuel Costs. In general, coal gasification is competitive with natural gas when natural gas prices are in the range of $3.50-4.00/million Btu. Many energy experts now predict that natural gas prices will remain above $5.00/million Btu through most of this decade. Sustained natural gas prices at that level would continue to harm America's chemical industry, and at Eastman we hope that this scenario will not occur. Unfortunately, a prolonged period of natural gas prices in the $5.00-6.00/million Btu range seems likely. In summary, when comparing capital costs, operational costs, and fuel costs, we believe the generation of electricity from coal gasification can be competitive right now. As additional commercial-sized coal gasification plants are built, the cost-competitiveness of this environmentally superior technology should become more evident, especially if the best practices Eastman has developed over the years are incorporated into future designs and operations. Question 2: How reliable are coal gasification power plants? Mr. Chairman, this is also a question that Eastman is uniquely qualified to answer. As I mentioned earlier, we have successfully operated a coal gasification system for the last 20 years, which is longer than any other company in the United States. Of course, some might argue that there is big difference between running a coal-to-chemicals manufacturing facility and a coal-to-electricity power plant. They'd be right. Running a chemical facility is a lot more complicated. But the basic coal gasification process is the same regardless of whether the ultimate end-product is chemicals or electricity. [See Figure 3] Based upon our two decades of operating experience, I offer the following observations about the reliability and performance of our coal gasification facility: Availability. Eastman's gasification system has achieved on-stream availability of 98 percent since 1984. Even during the initial startup year we were on-stream 91 percent of the time. Perhaps most remarkably, our forced outage rate is only about one percent. While this extraordinary performance is due in part to that fact that we have two gasifiers, with one unit always serving as a "hot standby," even our single unit availability rate is estimated to be 90 percent. [See Figure 4] How critical is gasifier availability to Eastman? Let me put it this way: losing the ability to generate synthesis gas can shut down a significant portion of our Kingsport facility, which relies heavily on syngas production. The potential cost of such a shutdown is incredibly high. Performance. Eastman has continuously improved the performance of our gasification system during the last two decades. In 1983, for example, we were switching between gasifiers about once a week. In 2002, on the other hand, we averaged 62 days between switches. Another useful measure of performance is maintenance costs. In the last six years alone, annual maintenance costs for the gasification system have decreased by over 40 percent. [See Figures 5 and 6] Question 3: What are the environmental benefits of coal gasification? Mr. Chairman, let me answer that question simply and directly. The principal environmental benefits associated with coal gasification are: (1) significantly lower air pollution emissions in the short-term; and (2) more cost-efficient carbon dioxide (CO2) capture and sequestration in the long-term. In the future, America's electricity requirements may be met primarily by renewable energy sources such as wind and solar or perhaps even by nuclear fusion. It is prudent for America to explore those options. However, it is obvious to anyone who has studied our nation's energy situation in depth that coal can and must continue to play a leading role over the next several decades (at a minimum). Unfortunately, there are two major environmental issues which the public associates with traditional coal combustion processes and even with much newer (and cleaner) coal combustion technologies: 1. When coal is burned it produces certain air pollutants, most notably sulfur dioxide (SO2), nitrogen oxides (NOx), particulate matter (PM), and mercury (Hg). In coal-fired power plants these pollutants must be removed from the exhaust (stack) gases using expensive and often relatively inefficient processes. 2. The combustion of coal also produces substantial quantities of CO2. If and when CO2 capture and sequestration is eventually required, it will be difficult and prohibitively expensive for coal-fired power plants to meet such requirements. By contrast, coal gasification is a chemical process. As such, it is possible to remove the sources of SO2 and Hg and the CO2 from the synthesis gas before combustion, when it is much easier and thus less expensive to remove. Also, because the syngas is much cleaner than the raw coal itself, lower quantities of NOx and PM are produced during the combustion process. [See Figure 7] There are many more environmental benefits of gasification such as minimal solid waste generation, nominal water consumption, and the generally pleasing aesthetics of facilities and operations. These benefits have been adequately documented by both private and public sector experts. All that you need to take away from this hearing concerning the environmental benefits of coal gasification is a simple fact: it is by far the cleanest of the clean coal technologies. FutureGen and the Clean Coal Power Initiative Mr. Chairman, I am pleased to publicly express Eastman's support for FutureGen and the Clean Coal Power Initiative (CCPI), two research, development, and demonstration programs initiated by the Bush administration. Since you have asked the witnesses at this hearing to address both FutureGen and the CCPI, I would offer the following observations: FutureGen. Eastman supports this program because we believe that the government must lead the way in demonstrating both the feasibility of large-scale hydrogen production from coal and the sequestration of carbon dioxide from coal-based power plants. If properly conceived and executed, FutureGen could help achieve these two purposes while accelerating the commercialization of coal gasification. However, we are concerned that budget constraints in future years will make the 80 percent federal funding commitment to FutureGen difficult to sustain. If forced to choose between funding for FutureGen and the Clean Coal Power Initiative, we would choose the latter. The CCPI program-with its biennial competitive solicitations-provides a long-term source of support for a diverse array of technologically promising but commercially risky coal gasification process improvements. While the goals of FutureGen are laudable, the CCPI is more important, in our opinion, for the future of coal gasification. Also, if the FutureGen project does go forward, Eastman agrees with our colleagues on the Gasification Technologies Council (GTC) that this project ought to be designed and executed in close collaboration with the gasification industry. Mr. Chairman, I have attached to this statement a copy of the comments submitted by the GTC to the Department of Energy on the FutureGen proposal, and I ask that you make these comments a part of today's hearing record. The position of the gasification industry on the FutureGen project is set out in detail in this document. Clean Coal Power Initiative. Eastman supports the CCPI program and we thank the members of this committee for including a nine-year, $200 million per year, authorization for the CCPI within H.R.6, the omnibus energy bill passed by the House of Representatives earlier this year. As you know, the CCPI authorization in H.R.6 includes a requirement that at least 60 percent of the CCPI funds "shall be used only for projects on coal-based gasification technologies, including gasification combined cycle, gasification fuel cells, gasification coproduction, and hybrid gasification/combustion." Eastman believes that this 60 percent minimum should be increased to 80 percent as is the case in the bill presently pending before the Senate. (This position was recently supported by a report from the National Research Council.) Given the serious federal budget limitations that lie ahead and in light of the fact that gasification is the cleanest of the clean coal technologies, we urge you and your colleagues to accept the Senate position on this matter when the joint House-Senate conference committee meets to iron out the differences in the two versions of the energy bill. The electric power industry is highly regulated and hence conservative when it comes to embracing new technologies. Thus, even though Eastman believes that coal gasification is ready for further commercialization right now, some additional market incentives such as the CCPI and the proposed clean coal tax credits are useful and necessary inducements. We thank the members of this subcommittee for your leadership on these specific issues and on advancing coal gasification in general. Concluding Thoughts Mr. Chairman, the gasification services team at Eastman Chemical Company has spent a lot of time contemplating the barriers-both real and perceived-to widespread acceptance of coal gasification by the electric power industry. Many of the perceived barriers have been addressed at this hearing, and I hope that I have conveyed to you what we firmly believe at Eastman- 1. Gasification is economically competitive with other clean coal processes. 2. It is the environmentally superior coal-based technology. 3. And, as Eastman has proven through 20 years of experience, coal gasification plants can be operated at maximum efficiency with a high-degree of reliability. # # # Attachments (Adobe PDF) Fig. 1. Gasification Capital Cost Trends Fig. 2. Cost of Electricity Comparison Fig. 3. The Flexibility of Coal Gasification Fig. 4. Forced Outage Rate of Eastman's Gasification Plant Fig. 5. Days Between Gasifier Switches for Eastman's Gasification Plant Fig. 6. Maintenance Costs for Eastman's Gasification Plant Fig. 7. Syngas Contaminants Removed Prior to Combustion Letter from the Gasification Technologies Council regarding the FutureGen project
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