The President's National Energy Policy: Clean Coal Technology and Oil and Gas R&D (Part 1); The President's National Energy Policy: Hydrogen and Nuclear Energy R&D Legislation (Part 2)

Segment 3 Of 7     Previous Hearing Segment(2)   Next Hearing Segment(4)

SPEAKERS       CONTENTS       INSERTS

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Part 1

Panel I Questions

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Submitted to Mr. Robert S. Kripowicz, Acting Assistant Secretary for Fossil Energy, U.S. DOE, Office of Fossil Energy

These questions were submitted to the witness, but were not responded to by the time of publication.

Coal Quality, Recoverability and Technology
Q1. There has been a lot of discussion about the quantity of coal we have in the ground, how much is recoverable, and how much is of high enough quality to consider recovery. Can you discuss this, and tell us how technology may perhaps allow us to recover more coal from the mine as well as use lower grades of coal for fuel?

Q2. How do advanced technologies allow us to use coal in ways other than simply burning it in its original form? What advantages do these advanced technologies offer?

Producing Electricity from Coal with de minimus Emissions

Q3. Do you believe that it will be possible to produce electricity from coal with de minimus emissions by 2020 as envisioned by CURC? Do you believe that technology can be developed to accomplish this in the 2020 timeframe?

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Other Uses for Coal

Q4. What are some of the other uses for coal? Is it practical to consider coal as a transportation fuel?

Carbon Sequestration Technologies

Q5. Are there any practical cost effective technologies for carbon sequestration available today? Will any become available in the near future?

Potential for Coalbed Methane

Q6. What is the potential for coalbed methane in this country?

Benefits of the Clean Coal Technology Program

Q7. Are you aware of any industry estimates that quantify the benefits derived from clean coal technology? Do they correlate with DOE's internal estimates?

Q8. The President's National Energy Policy proposes $2 billion in spending on clean coal technology. How do you see this money being used, and how can we guarantee that taxpayers get the most ''bang for the buck?''

DOE R&D Programs

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Q9. Please describe DOE's advanced turbine and other high efficiency technologies and how these designs may be incorporated with next generation power plant designs. Can we reasonably expect efficiency to increase as much as CURC estimates?

Q10. Controlling emissions is critical to the success of any power plant technology. Can you give specific examples of DOE's research efforts to reduce stack emissions and recycling ash and other scrubbed stack pollutants?

Coal as a Source for Hydrogen

Q11. Can coal be used to competitively generate hydrogen or as a hydrogen carrier for fuel cells?

Relative Transportation Efficiencies between Coal and Electricity

Q12. Is it more efficient to generate electricity from coal in Utah and transport it to California on the grid—with its associated line loss—or is it more efficient to mine and ship coal to California and generate electricity closer to the user? How do infrastructure and air quality considerations influence these decisions?

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Responses by James E. Wells, Director, Natural Resources and Environment, U.S. General Accounting Office

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Possible Improvements in DOE's Clean Coal Program

Q1. What improvements could be made to the Clean Coal Technology Program in GAO's estimation?

A1. Mr. Chairman, based on our many reports, let me highlight four areas for possible improvements. First, select projects more carefully—maybe pick less but pick the best. Second, look closely at a company's financial soundness. Given the history of bankruptcies, maybe they could do better. Third, as auditors we saw opportunities for better cost recovery, which is a good thing for the taxpayers. And, lastly, given the number of projects that are facing local opposition and changing ownership, DOE may wish to reevaluate how the decision is made to terminate a project.

Q2. Your testimony states, ''Although these [clean coal R&D] projects met DOE's selection criteria, they may not be the most effective use of federal funds.'' Has GAO determined how to revise DOE's selection criteria such that federal funds are used most effectively?

A2. Yes. We recommended that DOE refine its project selection process to make the most effective use of the limited available resources. Specifically, we recommended that DOE (1) include as a factor in selecting projects an assessment of whether the technology to be demonstrated is likely to be commercialized without federal assistance and avoid selecting technologies that could advance in the marketplace without federal funding, (2) consider whether the potential market for proposed technology is large enough to warrant demonstrating the commercial application of the technology with federal funds, and (3) make projects ineligible for selection if their financing or economic viability is in doubt.

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Problems in the Clean Coal Technology Program

Q3. GAO's March 9, 2000, report, ''Clean Coal Technology: Status of Projects and Status of Demonstrated Technology,'' indicated that some of the ongoing projects in the Clean Coal Technology Program were either in serious trouble or were experiencing major delays. Could you characterize or elaborate on some of those problems?

A3. One project was moved from Tallahassee, Florida, to York County, Pennsylvania, and then to Jacksonville, Florida, and has had three different participants. The project is now 7 years behind schedule. Another project was in operation when it experienced environmental problems, which the participant did not have the funds to correct. Finally, after DOE spent about $38 million on the project, the project assets were auctioned for about $3 million to a third party, who will not continue the project.

Q4. One weakness of the DOE Clean Coal program that your testimony identifies is the serious delays or financial problems with the funded projects. In general, were these problems attributable to DOE or were private sector project participants under economic strain that contributed to the financial problems and resulting project delays?

A4. We found two common reasons for the slippage in schedules and the inability to complete projects. First, 6 of the 13 projects we reviewed were moved from one location to another, and project participants changed. Projects shifted location because nearby residents opposed the project, original participants decided they no longer needed additional energy capacity, or a participant had unforeseen financial difficulties. Second, two projects will not be completed because the participants' assets were sold in bankruptcy proceedings. These two participants could not obtain funds to complete the projects.

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Q5. Another weakness mentioned in your testimony is the decrease in the repayment of the federal investment since DOE reduced the percent of sales revenue subject to repayment. Why did DOE do this? Do you have an estimate of how much the Federal Government lost in repayment due to this decision?

A5. According to DOE officials, they reduced the percent of sales revenue subject to repayment, as well as made other changes, because of industry's complaints of continuing dissatisfaction with the recoupment concept and because of a concern that industry would reduce its participation in the program. DOE had not analyzed how much industry's interest and participation in the program would have lessened if the recoupment provisions had not been weakened nor the effect of these changes on the likelihood of recovering the federal investment in demonstration projects. Such analyses could provide an indication of the potential long-term costs to the Federal Government and confirm whether the weaker recoupment provisions were necessary to achieve adequate participation in the program.

We did not estimate the loss but recommended that DOE analyze the effect that recoupment provisions have had on industry participation in the program and the likelihood of recovering the federal investment. We further recommended that DOE re-evaluate its recoupment policy, on the basis of this analysis, to determine whether it should be strengthened to provide greater assurance that the federal investment in successfully demonstrated technologies will be recovered.

Successes in the Clean Coal Technology Program

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Q6. Some of the panel members talked a lot about successes in the Clean Coal Technology Program and have mentioned commercial sales as a milestone for measuring success. You also mentioned that the DOE program was a good experience in cost sharing. In GAO's experience, how does the Clean Coal Program compare with other R&D efforts? Does GAO think that this program is a model for future research?

A6. Clearly this is a program designed to pick research projects close to the commercialization stage, and would differ from typical basic or early applied research programs in terms of early commercial success. However, our ''lessons learned'' report outlines many of the strong features of the cost-share program that makes it a model for other similar programs.

Q7. As stated in your testimony, ''DOE has numerous examples of successes in the program, including commercialization of some technologies—the primary way DOE measures success.'' Is this an appropriate measure for ''successful'' R&D in this field?

A7. While we have not audited the commercial sales numbers, I think it would be fair to say that commercial sales is an appropriate measure. The purpose of this government-industry, co-funded program is to assist industry in accelerating the commercialization of new coal technologies by demonstrating that they burn coal more cleanly, efficiently, and cost-effectively than current technologies.

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Responses by Ben Yamagata, Executive Director, Coal Utilization Research Council (CURC)

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Coal Quality, Recoverability and Technology

Q1. Can you please describe the U.S. coal supply, what is the total resource, how much of that is reserves, and how does the industry characterize reserves? Can technology improve recovery from existing mines and increase reserves the way we have seen in the oil and gas industry?

A1. CURC is not in a position to answer this question, as it is outside our organization's area of expertise.

Q2. Can you discuss this, and tell us how technology may perhaps allow us to recover more coal from the mine as well as use less desirable grades of coal for fuel?

A2. CURC is not in a position to answer this question, as it is outside our organization's area of expertise.

Q3. How do advanced technologies allow us to use coal in ways other than simply burning in its original form. What advantages do these advanced technologies offer?

A3. Coal gasification is a method of producing a combustible gaseous fuel from almost any type of coal. An Integrated Gasification Combined Cycle (IGCC) power plant is a gasification facility coupled to a gas-fired combined-cycle unit. Based on current environmental control capabilities, IGCC offers a coal-based power technology with low emissions, high thermal efficiency, and the potential for phased construction. This technology has the potential to become one of the cleanest, most efficient means of producing electricity from coal. IGCC converts coal into a clean gaseous fuel for combustion in a high efficiency combustion turbine, utilizing waste heat in a steam turbine system. Potential pollutants are converted to marketable byproducts such as elemental sulfur or sulfuric acid. Current IGCC technologies being demonstrated provide cycle efficiencies of 38–41 percent. Future improvements, including combustion turbine advances and hot gas clean-up, promise efficiencies of 45–48 percent. Hot gas clean-up will remove 99 percent of the pulverized coal systems because of IGCC's greater scope and complexity. But, these costs will potentially be offset by higher efficiencies, use of low-cost coal, and the sale of byproducts. IGCC also offers retrofit/repower of both natural gas and coal-based systems with high efficiency technology. Future advances in gasification-based power production are linked to increases in gas turbine firing temperature, hot gas cleanup of the fuel gas, coproduction of both chemicals and electricity, improved gasified designs, and integration of gasification with advanced cycles and fuel cells. These advanced systems may achieve efficiencies exceeding 50 percent and more with nearly zero emissions.

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First generation IGCC plans have already demonstrated outstanding operability and environmental performance at commercial scale. The key issue is the impact of high capital costs. Future improvements to the economics of IGCC are mainly linked to development of advanced gas turbines with very high firing temperatures and to development of reliable hot gas cleanup schemes.

This answer is confined to a description of gasification technology because the question refers to utilization that does not burn coal in its original form. However, the CURC also supports R&D and demonstration of highly efficient combustion-based systems that have the capacity to meet increasingly stringent emissions standards. Important work has already been done in advanced combustion systems, including hybrid gasification/combustion systems.

Producing Electricity from Coal with de minimus Emissions

Q4. In your 2020 targets, you state that a coal power plant built that year will have efficiencies approaching 60 percent and de minimus emissions. Can you tell us how that plan was derived and whether or not it depends on the President's funding request for clean coal?

A4. The CURC has developed a technology ''roadmap'' and a strategy for technology research and development designed to preserve coal as a viable and efficient fuel option for domestic and international markets. The CURC roadmap incorporates a partnership between the Department of Energy and private industry to develop technologies that will result in increased efficiency in the conversion or combustion of coal to useful energy. When developing the Roadmap, the CURC took into consideration the possibility that emissions regulations for criteria pollutants will be tightened and that new regulations may be promulgated for mercury and CO. The Roadmap was constructed with de minimus emissions as the goal, and then works backward by setting short-, medium-, and long-term targets that direct collaborative R&D efforts toward that goal. The interim targets, both technology targets and funding needs, were based on the level of progress that must be achieved within a certain timeframe in order to reach the desired outcome. Funding outlined in the Roadmap amounts to approximately $6 billion over ten years; or $3 billion of public funding/$3 billion of private funding over that time period. The President's package is essential to reaching these goals.

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Other Uses for Coal

Q5. What are some of the other uses for coal? Is it practical to consider coal as a transportation fuel?

A5. Yes, it is practical. The CURC supports research that emphasizes the conversion of coal-derived synthesis gas to hydrocarbons, oxygenates, and advanced production and separation processes capable of producing pure hydrogen. The goal is to produce fuels that will enable on-road and off-road mobile and stationary platforms to achieve zero to near-zero criteria pollutants and, when combined with advanced engines, significantly reduce GHG emissions. Chemicals from coal could be tailored as fuel additives and lubricants or as specialty chemical.

Carbon Sequestration Technologies

Q6. Are there any practical, cost effective technologies for carbon sequestration available today? Will any become available in the near future?

A6. There are no cost-effective technologies for carbon sequestration today. The technologies that do exist are cost-prohibitive and/or unproven on a commercial scale. Funding for carbon sequestration and capture technologies are necessary to ensure that carbon mitigation will be affordable in the future. The CURC Roadmap takes these costs and goals into account. With sufficient funding and a focused research, development and deployment program, CURC believes that cost-effective carbon management technologies can be made commercially available by 2020.

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Q7. Please describe the work that CURC is doing in all phases of stack emissions reductions. Does CURC envision cost-effective carbon sequestration or control technologies becoming available in the near future?

A7. The CURC is not performing work on stack emissions reductions, though emissions reduction goals for various pollutants are reflected in the CURC Technology Roadmap. The stated goals assume a certain level of investment, research and development into technology within specific time frames. Regarding the potential for carbon sequestration technologies, see above (Q6).

Potential for Coalbed Methane

Q8. What is the potential for coalbed methane in this country?

A8. CURC is not in a position to answer this question, as it is outside our organization's area of expertise.

Power Plant Improvement Initiative

Q9. Please discuss the importance of how proposals are selected under the Power Plant Improvement Initiative. Is it better to fund a few large commercial demonstrations, and why?

A9. The CURC believes that only a very few projects can and should be funded under this solicitation. To the extent that research, development and commercial application of subsystems and components can be demonstrated using only a fraction of the available dollars, it may be feasible to provide cost-sharing for 1–2 large commercial-scale demonstrations as well as several smaller projects. The CURC firmly believes, however, that any selected project must be capable of demonstrating the commercial-scale viability of the technology.

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    The CURC has a number of specific recommendations for qualifying projects that we believe are consistent with the goals outlined in the draft solicitation. These recommendations include the following targets:

      1. Definition of a Qualifying Project: A qualifying project should be of sufficient size to insure a demonstration that will then enable scale-up to utility scale proportions. It is believed that a demonstration of at least 100 Megawatts (MW) in size will be required to insure confidence at utility scale proportion. The project must be coal-based, and in the case of an existing unit, include a design improvement that allows the modified unit to provide either:

        A. an overall design efficiency improvement of not less than 3 percentage points, including the effects of operation at off peak conditions, on a unit having design main steam throttle conditions of at least 1800 psi/1000 F/1000 F, or

        B. a design removal for one or more of the following emissions of not less than:

           i.   SO—98 percent removal, annual average at a capital and operating cost at least 25 percent below commercially available technology, or

           ii. NOX—85 percent reduction, annual average without the use of ammonia or urea, or

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           iii. Total Mercury—75 percent annual average emissions reduction excluding any reductions due to use of activated carbon or the effects of utilizing selective catalytic reduction.

           iv. 95 percent utilization of solid residues into useful by-products.

      2. Commercial Applicability: The design improvement involved in a qualifying project shall be applicable to at least 25 percent of existing coal-based electric generating capacity in the United States and the data collected from the project shall be applicable to electric power boilers of at least 250 MW in size.

      3. New Technology: The design improvement involved in a qualifying project shall be achieved with a technology that has not been demonstrated under the Clean Coal Technology program and is not commercially available as of the date of the solicitation.

      4. Selections: In making project selections that meet the criteria and purposes of the solicitation, the Department of Energy should select that projects) which—

        A. Demonstrates overall cost reductions in the utilization of coal to generate useful forms of energy;

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        B. Improves the competitiveness of coal among various forms of energy in order to maintain a diversity of fuel choices in the U.S. to meet electricity generation requirements; and

        C. Cost-effectively achieves more than one criteria set out in the solicitation including a project that demonstrates control of more than one emission and/or the production of by-products that have significantly greater economic value than by-products currently produced.

    The purpose of these specific recommendations is to better insure that selected proposals are most likely—if successfully demonstrated—to be applicable to the greatest number of existing, or new, units or production facilities. With these limited funds, application of exotic or novel technologies that have questionable widespread application will provide little overall benefit. Secondly, this program should be designed to encourage proposals that ''stretch the envelope'' so that we succeed in advancing the technology base. The specific parameters set out in item one above is intended to accomplish that purpose, while still being consistent with the program goal of supporting near term commercialization of promising coal technologies.

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Responses by Ms. Katherine Abend, Global Warming Associate, U.S. Public Interest Research Group (PIRG)

PIRG Concerns About the Use of Coal

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Q1. U.S. PIRG seems skeptical of clean coal. Does this stem completely from concerns over emissions, and will this concern be addressed if the Coal Utilization Research Council (CURC) can fulfill its goal of de minimus emissions by 2020? Does PIRG see any technologies coming to market that would allow us to achieve the promise of clean coal as stated by CURC?

A1. Coal will remain a dirty power source even if Coal Utilization Research Council (CURC) meets its goal of achieving a 45%–60% coal conversion efficiency rate by 2020. The CURC plan only addresses a subset of the pollution problems inherent in the use of coal for power generation. For example, mercury and other hazardous air pollutants including toxic heavy metals that are emitted as a by-product of burning coal can be captured from coal plant smokestacks even with technology available today. However, these toxics remain a pollution problem even after capture, resulting in contamination of land and water resources. Furthermore, even if the most aggressive clean coal technology program achieved the targeted reductions of NOX, SO and carbon dioxide, coal generation would remain dirty relative to renewable energy sources or natural gas generation.

We have no confidence that any advanced technologies developed by federally financed ''clean coal'' technology programs would be used by the existing coal fleet. Even today there are commercially available emission control technologies that can remove more than 80 percent of NOX, SO and mercury from the coal plant smokestacks. Yet, most of the coal-burning power plants across the Nation have declined to use these technologies, and as a result pollution from these plants results in the premature deaths of an estimated 30,000 Americans each year. Only when federal or state lawmakers have imposed emission reduction requirements with firm deadlines and adequate enforcement have coal plant owners made pollution reduction investments.

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The electric and coal industries are making record profits, and can well afford the investments necessary to protect the public from health impacts caused by their pollution. For example, one company alone, the Southern Company, which was the Nation's largest utility emitter of CO, NOX, and SO in 1999, earned $1.28 billion dollars that year, and has more than $38 billion in assets—more than the gross national product of 107 countries.(see footnote 53)

The clean coal technology program wastes billions of tax-payer dollars to subsidize a wealthy industry without implementing any standards to ensure that the public will benefit from reduced emissions. As a group that focuses on protecting both consumers and the environment, U.S. PIRG supports the Boehlert-Waxman Clean Smokestacks Act of 2001, which will reduce NOX emissions that cause smog by 75 percent (this equates to an emissions rate of 0.15 lbs/mmbtu), SOX emissions that cause soot and acid deposition by 75 percent (0.3 lbs/mmbtu), reduce toxic mercury emissions by 90 percent and reduce carbon dioxide emissions that cause global warming to 1990 levels. Polluters, not the public, should pay to clean up pollution. Therefore, the coal industry should pay for the research and implementation costs of meeting these standards.

Q2. In U.S. PIRG's May 17th press release, you say that the President's National Energy Plan (NEP) is, ''Dirty, Dangerous and Doesn't Deliver for Consumers.'' Can you elaborate on that statement with specific examples or facts?

A2. American's deserves an energy policy that ensures clean, reliable, affordable, and secure sources of energy for generations to come. Through increased funding and standards for clean energy and increased energy efficiency, our Nation can meet future energy needs while reducing dirty fossil fuels and dangerous, expensive nuclear energy. President Bush's Energy Plan promotes drilling and increased reliance on nuclear and fossil fuels as the answer to our energy problems. History shows that this approach will lead to more pollution of our air land and water, and will not direct us towards a cleaner, smarter new energy future.

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    The Bush Administration calls for 1,300 new power plants—more than one new power plant per week for the next 20 years. These plants are not needed. This proposal ignores a Department of Energy study from November 2000, which shows that new plants proposed by the president are unnecessary. The report found that energy efficiency and renewable power can meet 60 percent of the Nation's need for new electric power plants over the next 20 years. Moreover, according to the Energy Information Administration, 48 percent of the new power plants the Vice President says must be built over the next 20 years is already in licensing or under construction, and are projected to be on line by 2004.

    Here are some specific objections to elements of the energy plan:

     Drill in the pristine Arctic National Wildlife Refuge in Alaska.
      Public Interest Response: The USGS estimates that there is a 95 percent chance of finding only 3.2 billion barrels of economically recoverable oil in the Arctic Refuge. At current rates of consumption in the U.S., that's six months worth of oil that would take ten years to reach consumers. It does not make sense to destroy one of America's last wild places, the coastal plain of the Arctic National Wildlife Refuge, for a small amount of oil that will not be available for ten years. The oil industry's track record in Alaska speaks for itself, ranging from the Exxon Valdez oil spill to an average 400 oil spills every year on Alaska's North Slope. An area as pristine and unique as the coastal plain of the Arctic Refuge cannot withstand this kind of pressure. We need an energy policy that focuses more on energy efficiency and renewable energy than on ruining some of the last unspoiled areas left in the U.S.

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     Open more public lands to oil and gas drilling.
      Public Interest Response: Approximately 95 percent of Bureau of Land Management lands in the Rocky Mountain States of Colorado, Montana, Wyoming, Utah, and New Mexico are already available for oil and gas development. The energy security of our country does not depend on despoiling our last special places. Opening up sensitive lands to such drilling would do little to address our long term energy needs but would result in irreparable damage to fragile habitat, pollution of drinking and other water, harm to fisheries and other recreational activities, and the building of roads that can increase the risk of wildfires and landslides. Rather than despoiling some of the last wild places in the U.S., we need to focus more on energy efficiency and renewable energy.

     Call for more offshore oil and gas drilling, and for a re-examination and possible dismantling of current policies that allow states to review exploration and production plans in federal waters off their coast.
      Public Interest Response: The President's call for more offshore oil and gas drilling could have jeopardized areas currently off limits, like the coast of Florida (eastern Gulf of Mexico) and parts of California's coast. Thanks to former President Bush, who banned drilling near the Florida Keys in 1990, much of the eastern Gulf of Mexico is currently off-limits. He understood that offshore drilling would jeopardize Florida's beaches, recreational and commercial fishing industry, tourism economy, and way of life, all for an estimated three-months supply of oil and natural gas. U.S. PIRG commends the U.S. House of Representatives for voting to protect the Florida coast and the Great Lakes region from oil drilling.
        Under the Coastal Zone Management Act, a state can review exploration and production plans in federal waters off their coasts to determine if the plans are ''consistent'' with how the state wishes to manage its coastline. Some states like Florida have depended on this review to protect their economic and environment from the harmful impacts of offshore drilling. Dismantling these policies would take away an important avenue for state input in OCS activity and in the case of Florida would potentially lead to hundreds of drilling rigs off their coast.

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     Direct the Secretary of Energy to continue a ''partnership'' with public and private entities to encourage oil and gas exploration.
      Public Interest Response: The profitable oil and gas industry already receives hundreds of millions of dollars a year in direct research and development funding and needs no further encouragement.

     Support the building of 1,300 new power plants between now and 2020.
      Public Interest Response: Pollution from dirty power plants cause more than 30,000 premature deaths and more than 603,000 asthma attacks a year. The Administration's proposal potentially puts more lives at risk. This proposal ignores a Department of Energy study from November 2000, which found that energy efficiency and renewable power can meet 60 percent of the Nation's need for new electric power plants over the next 20 years. Moreover, according to the Energy Information Administration, 48 percent of the new power plants the Vice President says must be built over the next 20 years is already in licensing or under construction, and is projected to be on line by 2004.

     Investigate the New Source Review (NSR) program for power plants. The NSR program requires that any old, dirty power plants that undergo major modifications that would result in more pollution must add technology to comply with modern pollution standards. While the Bush Administration has yet to say if this program will be dismantled, it has stated that NSR interferes with maximum power production and it will ''review'' the program.
      Public Interest Response: The plan threatens the future of life-saving provisions of the Clean Air Act that serve to curb excess emissions from the oldest, dirtiest coal-fired power plants. These plants account for about three-quarters of the emissions of CO, sulfur dioxide, nitrogen oxide, and mercury from all coal plants, yet are largely exempt from modern clean air standards that newer plants have to meet today. Instead of sending a strong message that these plants are going to have to use modern pollution controls, the Administration's plan forces the Environmental Protection Agency (EPA) to place public health in the back seat, behind the financial interests of some power companies. 120,000 Americans sent public comments to the EPA in opposition to weakening or dismantling the NSR program.

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     Relax siting and emissions standards for oil refineries.
      Public Interest Response: Oil refineries are among the largest sources of air pollution in the United States. They emit more volatile organic compounds than any other stationary source, and are among the largest sources of toxic air pollution, emitting millions of pounds of benzene, xylenes, toluene, and methyl ethyl ketone each year. Moreover, oil refineries are often found in highly industrialized urban centers, so their pollution has a disproportionate impact on human health. Weakening regulations for the siting or the operation of oil refineries could dramatically degrade air quality in places that are struggling to attain clean air.

     Provide more subsidies for dirty coal. The plan specifically calls for $2 billion in research money to be given to the coal industry over the next ten years and makes permanent a tax credit for coal research and development.
      Public Interest Response: The coal industry has already received more than $2 billion in federal subsidies for supposed ''clean coal'' technologies that have not achieved breakthrough reductions in smog and soot pollution and have not addressed mercury or global warming pollution at all. Moreover, according to the Citizens Coal Council, some of the ''clean coal'' technology plants produce more coal waste and more mercury than conventional plants.

     Expedite re-licensing procedures for hydropower plants.
      Public Interest Response: Reducing environmental protections in the licensing process for non-federal hydropower projects would have enormous implications for hundreds of species, thousands of river miles, and millions of dollars in recreational opportunities for decades to come. Any technology that causes massive habitat degradation, water quality impairment, and even species extinction, should not be considered renewable. Hydropower is such a technology.

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     Ask the Department of Justice to Review Current Enforcement Actions Under the Clean Air Act.
      Public Interest Response: The President's plan to interfere with current legal proceedings brought by the Department of Justice against dozens of power plants that are in violation of the Act is unwarranted, and could delay or derail clean-ups that would allow thousands of Americans to live longer, healthier lives.

     Review clean fuel requirements.
      Public Interest Response: The President's energy plan identifies state and local clean fuel requirements as an impediment to coordination of fuel production and distribution. In reality, states and local areas with severe air quality problems have adopted these clean fuel requirements because of a lack of a national mandate for cleaner fuel. A ''review'' that results in relaxing state and local clean fuel standards will result in more air pollution in places that can least afford to have their air quality further compromised.

     The plan does not contain comprehensive power plant cleanup legislation.
      Public Interest Response: The Administration has announced its intentions to recommend lowering nitrogen oxide, sulfur dioxide, and mercury emissions. However, details are vague as to whether the emissions standards would be low enough to protect the health of the hundreds of thousands of Americans that go to the emergency room every year because of asthma. Furthermore, the plan omits carbon dioxide, the primary culprit behind global warming. Truly comprehensive power plant cleanup legislation in the House and Senate includes significant reductions for all four pollutants, and at levels far more strict that what is expected from the Bush Administration.

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     Provide more subsidies for nuclear power.
      Public Interest Response: Nuclear power would not exist in this country without massive federal and ratepayer subsidies. Nuclear power is unsafe, unreliable, uneconomic, and generates long-lived radioactive wastes for which there is no safe solution. Nuclear power should be phased out as soon as possible and the Bush Administration should not encourage it as a future energy source. In 1994, citing economic and safety concerns, Congress killed two dangerous, expensive nuclear power research programs, including one that attempted to resurrect the Clinch River Breeder reactor technology. This congressional action saved taxpayers more than $6 billion. By 1998, the Department of Energy was spending no taxpayer money on developing new nuclear power plants.

     Continue insurance subsidies for the nuclear industry by recommending renewal of the Price-Anderson Act.
      Public Interest Response: This Act limits the liability of nuclear power plants in the event of a nuclear accident, a subsidy that is worth in excess of $3.6 billion. The Nuclear Regulatory Commission has stated that the nuclear power industry would not exist without this subsidy, an opinion repeated by Vice President Cheney on May 15, 2001 in an interview with Reuters. Without the Price Anderson Act, Cheney said, ''Nobody's going to invest in nuclear power plants.''

     Hasten licensing of new plants and re-licensing procedures for existing, aging nuclear power plants. The plan specifically encourages the Nuclear Regulatory Commission to expedite applications for new advanced technology reactors. The plan also calls for ''uprating'' existing nuclear plants. (Chapter 5, page 17)

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      Public Interest Response: Citizens are already shut out of most of the decision-making on licensing new plants and extending the licenses of aging plants. Citizen input in the past was vital to catching design errors at new nuclear plants and exposing age-related safety problems at the first plant to apply for a license. The public should have increased, not decreased, input into these very important issues, which will affect their future health and safety. Uprating existing nuclear plants allows them to run hotter and may compromise safety even further.

     Provide tax breaks for the purchase of nuclear plants. The plan specifically recommends that new nuclear plant owners get a tax break on decommissioning funds when they buy an existing plant. (Chapter 5, page 17)
      Public Interest Response: There is no reason to continue to subsidize the dirty, dangerous nuclear power industry. Nuclear power plant owners have already reaped billions from consumers for unfair bail outs.

     Promote ''Transmutation'' and Reprocessing of Nuclear Waste. The plan specifically recommends developing advanced nuclear fuel cycles that involve reprocessing of nuclear fuels, a policy currently discouraged in order to prevent nuclear weapons proliferation.
      Public Interest Response: Nuclear waste from reactors is probably the most dangerous material created by humans. It remains toxic to humans and other living things for a quarter of a million years. Any decisions regarding its ultimate fate should be based on sound science and not the nuclear industry's profits. ''Transmutation'' and reprocessing are schemes that would cost at least $280 billion, according to the Department of Energy, and may increase the amount and complexity of the waste ultimately needing disposal. Further, by promoting advanced fuel cycles based on reprocessing, the plan implies support for breeder reactor technology that has been killed twice by Congress because of economic, environmental and nuclear proliferation concerns.

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     Increase the highly toxic process of incinerating urban waste or trash by leaving the door open to include these fuels as part of his renewable energy tax credit.
      Public Interest Response: Municipal solid waste incineration is the second largest source of dioxin, one of the most toxic chemicals studied (contributing nearly a third of the national air emissions), and of mercury, a toxic metal that can damage the growing brains of children at low exposure levels (contributing 20 percent of mercury emissions). Although the Administration has now signed an international treaty on toxic pollutants that aims to eliminate dioxin emissions, the President is proposing energy strategies that could include increasing municipal waste incineration and its toxic dioxin emissions. The Administration should oppose any new incinerators and develop a strategy to phase out existing incinerators and increase generation of energy from renewable sources like wind and solar.

     The plan pre-empt state's rights for Electricity Transmission lines.
      Public Interest Response: The Federal Government should not trample on state's rights when it comes to siting transmission lines. Such decisions should be made locally and democratically.

     The plan contains a recommendation to develop a national deregulation of electric utilities. The plan specifically recommends development of comprehensive electricity legislation that would repeal the Public Utility Holding Company Act.
      Public Interest Response: Deregulation has been a failure in California, resulting in skyrocketing electricity costs and rolling blackouts. In other states, deregulation has resulted in multi-billion dollar bail outs to nuclear power plant owners and consumers held hostage to large power generators. Repealing PUHCA would only exacerbate the abuses of the large power generators who are currently causing California's woes.

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     The plan does not contain a commitment to raise miles per gallon standards as quickly as possible.
      Public Interest Response: When Congress implemented miles per gallon standards in 1975, they led to a doubling in the fuel efficiency of passenger cars over a period of ten years. Unfortunately, Congress has not significantly updates these auto fuel efficiency standards since 1985. We recommend closing the loophole that lets SUVs and other light trucks meet lower miles per gallon standards than cars by 2007. By 2015, the daily savings from closing the light truck loophole would save more than the maximum daily yield of oil from the Arctic National Wildlife Refuge, and the savings from closing the loophole would go on forever. By 2010, closing the light truck loophole would save consumers $7.4 billion annually at the gas pump, avert 120 million tons of global warming pollution each year, and conserve 240 million barrels of oil annually. These benefits show that raising auto fuel efficiency standards is an essential element of shifting to a smarter, cleaner energy future. We are disappointed that the House passed an energy bill that includes an imperceptible increase of one mpg over six years.

     The plan does not protect consumers from high gasoline prices.
      Public Interest Response: OPEC is cutting production to raise the price of oil. Drilling for more oil in the U.S., as proposed by the President, would not alleviate high prices because we do not have enough oil reserves to affect the world price. Of course, U.S. oil companies reap greater profits with higher world prices. Last year, ExxonMobil reported profits of $15.9 billion, the highest ever in the world. Chevron's profits increased 150 percent from 1999, with a reported profit of more than $5 billion last year.

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     The plan does not help consumers with skyrocketing electric bills.
      Public Interest Response: Consumers in California and other states are at the mercy of large, unregulated power producers. Some of these companies are already under investigation by the Department of Justice and the state of California for withholding electricity to drive up profits.

     The plan contains insufficient incentives for efficiency and renewable energy sources.
      Public Interest Response: While President Bush's plan contains some incentives for energy efficiency and renewable energy sources, President Bush has already proposed rolling back important air conditioner standards.

U.S. PIRG's Position on Energy Production

Q3. Does PIRG see a way to continue our economic expansion, continue to improve our standard of living and provide for an increasing population without gaining access to additional fossil fuel supplies? In other words, can we bridge the shortfall between supply and demand with renewables and conservation alone?

A3. Through a diverse portfolio of clean energy and increased energy efficiency, our Nation can comfortably power the future while reducing dirty fossil fuels and dangerous, expensive nuclear energy. Energy efficiency measures, such as higher fuel economy standards for automobiles and more efficient appliances, offer the fastest, cheapest solution for the near term to reduce energy consumption. Meanwhile, increasing funding for clean renewable energy programs and implementing a renewable portfolio standard of 20 percent renewables by 2020 will ensure a clean, reliable, affordable, and secure source of energy for generations to come.

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    The following are U.S. PIRG's solutions for a smarter, cleaner energy future:

    INCREASE FUNDING FOR ENERGY EFFICIENCY

    Energy efficiency offers the fastest, cleanest, cheapest solution. Americans today consume 40 percent less energy and thus have 40 percent lower energy bills as a result of smart efficiency policies initiated over the past 25 years. Had government leaders not implemented those programs, Americans would have spent $260 billion more on energy bills in 2000. Efficiency is more than simply a ''personal virtue.'' It is a smart way to save money, energy, and the environment. Congress should double funding for energy efficiency between FY 1998 and FY 2003, resulting in a budget of $1.22 billion in FY 2003. This means an increase in funding for energy efficiency research, development and deployment by approximately $170 million in FY 2002. President Bush's proposed federal budget would cut funding for energy efficiency and renewable energy programs in half. We strongly support DOE's energy efficiency programs except the Partnership for a New Generation of Vehicles program or other programs that subsidize the development of diesel engine technology.

    SET STRONG STANDARDS FOR AUTO FUEL EFFICIENCY

    When Congress implemented miles per gallon standards in 1975, they led to a doubling in the fuel efficiency of passenger cars over a period of ten years. Unfortunately, because of auto industry opposition, Congress has not significantly updated these auto fuel efficiency standards since 1985. Recent polls indicate that 89 percent of the public supports mandatory increases in fuel efficiency—especially with rising gasoline prices.

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      We recommend closing the loophole that lets SUVs and other light trucks meet lower miles-per-gallon standards than cars by 2007. By 2015, the daily savings from closing the light truck loophole would be greater than the maximum daily yield of oil from the Arctic National Wildlife Refuge, and the savings from closing the loophole would go on forever. Auto-makers could achieve higher miles per gallon standards while maintaining or improving auto safety. This is because a more efficient transfer of power from the engine to the wheels, which has no impact on vehicle safety, would account for most of the increase in fuel efficiency. By 2010, closing the light truck loophole would save consumers $7.4 billion annually at the gas pump, avert 120 million tons of global warming pollution each year, and conserve 240 million barrels of oil annually. These benefits show that raising auto fuel efficiency standards is an essential element of shifting to a smarter, cleaner energy future. We are disappointed that the House passed energy legislation including an imperceptible one mpg increase over six years.

    INCREASE FUNDING FOR CLEAN RENEWABLE ENERGY

    According to the Department of Energy, wind energy is now cost competitive with fossil fuel energy in some areas, and the Union of Concerned Scientists has shown that six percent of the contiguous U.S. land area could produce 1g the amount of electricity used in the U.S. in 1999. Denmark expects to get 50 percent of its power from wind by 2030. Congress should increase funding for renewable research and development to over $750 million per year. The Bush Administration cut funding for renewables by nearly 50 percent, from $376 million to $186 million in its budget proposal. We commend the U.S. House of Representatives for restoring funding for renewable energy programs to previous levels. We strongly support DOE's renewable energy programs except we do not support any funding for hydropower, municipal solid waste incineration, and burning trees that are not dedicated crops.

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    SET STANDARDS TO INCREASE RENEWABLE ENERGY GENERATION

    Congress should support a renewable portfolio achieving 20 percent electricity production with renewables such as wind, solar and geothermal power by 2020. This should not include energy from hydropower, municipal solid waste incineration, or burning trees that are not dedicated to crops.

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Submitted to John S. Mead, Director, Coal Research Center, Southern Illinois University-Carbondale

    These questions were submitted to the witness, but were not responded to by the time of publication.

Illinois' Clean Coal R&D Efforts

Q1. You have discussed the state of Illinois' clean coal R&D activities. How might other states with high-sulfur content coal benefit from this body of research? What is the mechanism for broad dissemination of this R&D information? Might low-sulfur coal achieve lower emissions via these technologies?

Q2. You have described Governor Ryan's legislative initiative to promote new coal-fired power plant construction while preserving air quality. Can you suggest ways in which States' programs and the Federal program may increase their coordination, collaboration, may be optimized or complimented and otherwise leveraged? How might the Federal program need to change in order to be of greater benefit and usefulness to states such as Illinois and Maryland?

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The State of the Illinois Coal Mining Industry

Q3. What is the coal mining infrastructure condition and status of Illinois' coal mines, handling and transportation systems? Are any mines operating and if not, or at a reduced capacity, what would it take to resume full production?

Coal Quality, Recoverability and Technology

Q4. There has been a lot of discussion about the quantity of U.S. coal reserves, e.g., how much is in the ground, how much is recoverable, and how much is of high enough quality to consider recovery. Can you discuss this, and tell us how technology may perhaps allow us to recover more coal from the mine as well as use lower grades of coal for fuel?

Q5. How do advanced technologies allow us to use coal in ways other than simply burning it in its original form? What advantages do these advanced technologies offer?

Q6. Do you believe that it will be possible to produce electricity from coal with de minimus emissions by 2020 as envisioned by CURC? Do you believe that technology can be developed to accomplish this in the 2020 timeframe?

Other Uses for Coal

Q7. What are some of the other uses for coal? Is it practical to consider coal as a transportation fuel?

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Carbon Sequestration Technologies

Q8. Are there any practical cost effective technologies for carbon sequestration available today? Will any become available in the near future?

Potential for Coalbed Methane

Q9. What is the potential for coalbed methane in this country?

Part 1

Panel II Questions

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Submitted to Mr. Robert S. Kripowicz, Acting Assistant Secretary for Fossil Energy, U.S. DOE, Office of Fossil Enerty

These questions were submitted to the witness, but were not responded to by the time of publication.

Source of the ''Energy Crisis''

Q1. What are your perceptions of the current energy shortage? Would you characterize the current situation as an energy supply constraint, an infrastructure constraint, a regulatory constraint, or some combination of the above? Based on your characterization, what is the quickest, most effective way to address energy shortages?

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Oil Field Life-Extension Technologies

Q6. Please discuss in further detail how the Bakersfield oil lease was brought back to production. Are these technologies site specific, or can they be used at other sites around the country? Is there a down side to field life extension technologies that the Committee should be aware of?

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Responses by Virginia B. Lazenby, Chairman and CEO, Bretagne, GP; On behalf of the Independent Petroleum Association of America

Source of the ''Energy Crisis''

Q1. What are your perceptions of the current energy shortage? Would you characterize the current situation as an energy supply constraint, an infrastructure constraint, a regulatory constraint, or some combination of the above? Based on your characterization, what is the quickest, most effective way to address energy shortages?

A1. Prior to September 11th and the attacks on the World Trade Center and the Pentagon, the perceived energy ''crisis'' or shortage, appeared to have momentarily dissipated, a direct result of falling gasoline and natural gas prices, due in part to the recent downturn in the Nation's economy, a recent stabilization of electricity and natural gas prices in California and the Pacific Northwest and an increase in oil supplies. However, there were already indications that shortages in certain segments of the industry were beginning to reappear: for example, gasoline prices are ''inching'' back up, due in part to restricted refining capacity in the mid-west. In addition, according to the Energy Information Administration (EIA) overseas imports for January through June of 2001 exceeded 60 percent, the first time this dangerous precedent has been set. These illustrations demonstrated that energy, like many other sectors of the economy is cyclical, dependent on volatile forces considered outside the scope of the marketplace (seasons/weather/OPEC, among others). Since September 11th, the scenario for oil supplies, both foreign and domestic has become murky at best. On one hand, demand is estimated to be lower, due to a decrease in jet fuel consumption (air carriers have announced a 20 percent cutback in scheduled flights) and an economy that continues to struggle. However, because we rely on oil imports from the politically volatile countries that comprise the Middle East, oil supplies could tighten significantly if prolonged military action is undertaken. Much of this scenario remains to be played out.

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As a result of the unpredictability of these forces, oil and gas producers, in the interim, can only continue to pursue the establishment of a stable supply source, at the lowest cost possible, to ensure that an adequate supply is made available to the consumer at reasonable prices. The ''crisis'' is a culmination of all three constraints suggested: supply, infrastructure and regulatory.

The national objective should be to prevent the cycling energy crises that we have recently experienced—low energy prices in 1998–99 that crippled the industry and exacerbated the high energy price crisis of 2000–01 now shifting toward low prices again. Both producers and consumers need stable energy prices that are adequate to maintain and enhance domestic production. The 1998–99 low oil price crisis resulted in a 10 percent drop in domestic production. Marginal wells—which represent about 20 percent of domestic oil production—become uneconomic when the average price of oil drops below about $19.50. The domestic average price is about $3.00 less than the New York Mercantile Exchange (NYMEX) price of West Texas Intermediate crude oil. Among the actions that need to be taken to improve stability in energy prices and encourage domestic production are to address these constraints on developing energy. In part, the industry needs to improve its capital development. A significant capital issue for independents is the retention of revenues—this in turn becomes a federal tax issue. Similarly, an unwieldy regulatory overlay constrains the efficient development of existing and new sources of fuel supply: streamlining the permitting process, accompanied by an emphasis on coordinating activities between affected agencies can go far to relieve the regulatory burden many producers face, both on public and private lands. Finally, national energy policy must recognize the importance of domestic energy supply as a critical and strategic component of the Nation's energy needs.

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Unconventional Sources of Natural Gas

Q2. It appears that increasing quantities of natural gas are going to come from unconventional sources that may require the development of new technologies. Please describe how technologies may help us develop resources such as tight gas, coalbed methane and gas hydrates.

A2. Gas hydrates is considered a relatively new area that is currently being explored under R&D programs administered by the Department of Energy: the oil and gas industry awaits the further development of technologies to allow for the extraction of hydrates, typically housed in very complicated and challenging seismic formations offshore. With respect to the development of new technologies that have been successfully applied toward the recovery of unconventional sources such as tight gas and coalbed methane, many examples abound. For example, coalbed methane currently accounts for more than five percent of total gas production in the U.S. Successfully tapping of this promising resource is due to relatively recent advancements in reservoir engineering and completion practices, and through the effective use of carbon dioxide or nitrogen to ensure more complete gas recovery rates. In particular, producers in the San Juan Basin of New Mexico and Colorado are successfully utilizing new recovery techniques referred to as displacement desorption with injected carbon dioxide, and partial pressure reduction with injected nitrogen, techniques resulting from both public and private sector R&D initiatives. Coalbed methane, as well as tight gas sands, Devonian shale and other unconventional formations apply hydraulic fracturing, typically used to restart productivity after the initial flow diminishes. Application of hydraulic fracturing to increase recovery is estimated to account for 30 percent of U.S. recoverable oil and gas reserves and has been responsible for the addition of more than 7 billion barrels of oil and 600 trillion cubic feet of natural gas to meet the nation's energy needs. The National Petroleum Council estimates that 60 to 80 percent of all the wells drilled in the next decade to meet natural gas demand will require fracturing. Most recently, Chevron and Schlumberger Dowell, working in conjunction with DOE's Natural Gas and Oil Technology Partnership have made great advances to improve efficiency, reduce costs and increase productivity through the stimulation of numerous wells from fixed equipment locations an effort developed over the last 10 years.

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The Importance of Stripper Wells to U.S. Energy Production

Q3. Please describe the importance of the Nation's stripper well producers to the economic well being and national security of the United States.

A3. According to recent numbers issued by the Interstate Oil and Gas Compact Commission (IOGCC), the number of stripper wells increased from 410, 680 in 1999 to 411,783; output rose from 315,514,000 barrels in 1999 to 326, 208,000 barrels in 2000. Marginal wells (wells that produce 15 bbls/day or less) produce approximately 29 percent of total U.S. domestic production. This marks the first increase in production since 1984, according to the IOGCC survey of over 20 oil producing states. For every barrel produced domestically, a barrel of imported oil is displaced (imported oil recently has been hovering at or above 60 percent). The 10 percent drop in domestic oil production since 1997 has essentially been replaced with imports from Iraq—a result that cannot represent sound policy. Increased production at home further strengthens the U.S.' secure grip on it's own future, both in terms of economic viability and national security, reducing our susceptibility to actions of unstable foreign government decisions—an issue that has repeatedly been identified as a national security issue in the Section 232 process.

Implications of Capping a Well

Q4. Please describe the process of capping a well. Is the capped well out of production for good, or is it simply ''mothballed'' waiting for better days? What are the barriers, economic and technical, to bringing a capped well back into production?

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A4. The term ''capping'' a well typically implies a temporary measure, while ''plugging'' a well is considered permanent, utilizing a cast iron object or cement.

There are various reasons why a well would be capped or ultimately plugged, such as low prices for a sustained period of time, or reservoir conditions. A well may be capped for a certain period of time in accordance with varying states' regulations; if production does not resume within a specified time period, the well must be permanently plugged or shut-in, thereby abandoning the well. Plugging a well, especially with cement is nearly impossible to reverse.

R&D Cycles in the Oil and Gas Industry

Q5. It seems that the oil and gas business is [cyclical]. Can you talk about how ''windfall'' profits can be invested against time of famine? Can technology be used to reduce the cost of production and perhaps keep the industry profitable at lower price levels? How does the Department of Energy R&D figure into this cycle?

A5. The term ''boom or bust'' is something every producer is all too familiar with. The most recent ''bust'' cycle occurred in 1998–99, when oil and gas prices plummeted, sending production into a state of decline. Many independent producers were driven to capping producing wells, with some driven out of the business entirely, resulting in the displacement of thousands of oil/gas field workers. Prices have recovered since that time, with production rebounding resulting in an increase in exploration and production activities, but the industry has yet to fully recover. Today, we look at natural gas and crude oil supplies struggling to meet demand in the U.S. primarily because of the loss of capital when crude oil prices fell. Compounding the problem is the fact that this inherently risky industry must compete for funds against other more appealing investments and the lure of lower costs to produce foreign oil.

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With respect to the question of whether or not technology can be used to lower production costs, producers are constantly looking for new and improved technologies to allow for more efficient production of product, but at lower production cost. Recent developments in technologies, such as downhole separation, CO sand fracturing, horizontal drilling and coalbed methane recovery are enabling producers to effectively deal with the costly issue of treatment and disposal of produced water. Other technologies, such as artificial lift optimization and utilization of stripper well beam pumps have reduced electricity consumption significantly, historically considered a substantial cost burden. According to DOE's study, ''Environmental Benefits of Advanced Oil and Gas Exploration and Production Technology,'' in the case of technologies relative to development of modern drilling bits, the choice of bit represents only 3 percent of the cost of well construction, yet bit performance can affect up to 75 percent of total well cost. During periods of low prices when profit margins are narrow at best, production costs may determine the survival of many smaller, independent producers. When prices are low, one of the first things producers financially relinquish is investment in the R&D sector; ironically, it is this same investment that yields important survival techniques for many marginal producers. The Department of Energy, through R&D programs administered through the Office of Fossil Energy provides the necessary new and improved ''tools,'' techniques small producers need to produce in both older established fields and new ''plays.'' Programs such as the Stripper Well Consortium (SWC) and the Petroleum Technology Transfer Council (PTTC) couple public and private partners, moving the technology from the experimental stage to ''real life'' applications in a producing field.

Oil and Gas Production Enhancement Technologies

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Q6. You describe a nitrogen 'huff and puff' technique that has allowed you to breathe new life into one of your wells. Is this technology appropriate for widespread use, and could we expect to see similar results at other stripper well sites? How cost-effective is this technique? Is there an environmental downside?

A6. The huff and puff technique using nitrogen could apply to approximately 25 percent of the stripper wells in the U.S. The incremental cost on a per barrel basis is estimated at $2 to $5.

Relative to other enhanced recovery processes, the process is environmentally friendly. Nitrogen gas produced by the same membrane units is used in food processing, e.g., the same gas is used to pressurize bottled water containers.

The only known downside is that the nitrogen becomes bound in the produced gas and renders it non-marketable under current technology.

Q7. Please describe any other technologies derived from R&D over the past several decades that have helped your industry. Are many of these technologies developed in the private sector for sale to the oil and natural gas industry, are they produced by multinationals and held proprietarily, or are they developed through government action?

A7. This is a large question with many aspects. R&D is normally conducted by the multinationals and generally held proprietary due to difficulty in securing patents worldwide and fierce competition in securing production positions. That is why the role that DOE plays in the development and transference of technology is so vital to the smaller independents.

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ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Responses by Paul Cuneo, Vice President & Chief Information Officer, Equiva Services, LLC; On behalf of the American Petroleum Institute

Source of the ''Energy Crisis''

Q1. What are your perceptions of the current energy shortage? Would you characterize the current situation as an energy supply constraint, an infrastructure constraint, a regulatory constraint, or some combination of the above? Based on your characterization, what is the quickest, most effective way to resolve energy shortfalls or supply constraints?

A1. The current energy shortage is caused, not by one single item, but numerous reasons.

     High demand for natural gas in the fall of 2000, spring 2001.

     Implementation of the summer RFG program.

     Refinery turnarounds.

     High refinery utilization required to meet demand.

    With essentially no new refinery construction, growth in capacity at existing refineries through the 1990s has more than offset the effect of refinery closures—particularly in the later part of the last decade, with the result that total refinery capacity grew from 15.5 to 16.5 million barrels per day in the 1990s. However, this capacity expansion has not been enough to keep up with the growth in product demand. In addition, the RFG and CARB gasoline specifications make it difficult for imports to meet swings in supply and demand on short notice. This results in the industry running at record refinery utilization levels to meet consumer demand.

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While there is growing recognition that refinery capacity expansion is needed to continue to meet consumer demand for petroleum products, there are a number of constraints on capacity expansion such as permitting, regulatory uncertainty, increased environmental compliance costs, outdated depreciation treatment of refineries and near term requirements for massive environmental investments.

Among the solutions to this problem is to have government policies in place that create an environment conducive to refinery capacity expansion investments. We cannot take advantage of the full potential of the latest advances in technology if we do not first remove obstacles to its use. Continued imposition of the federal oxygenate mandate adds unnecessary costs and hinders oil companies from developing cleaner, more versatile gasolines. Oil companies have the know-how and the technology to deploy such gasolines, but regulations prohibit consumers form realizing these extra benefits. What is needed is more regulatory flexibility and a modernization of current regulations.

Refinery Efficiency, Technology and U.S. Competitiveness

Q2. Can you discuss efficiencies that are being achieved at refineries, and what that means for the future of refining in America? Are we competitive with refineries around the world, and, if so, how can we maintain a competitive edge? If not, what, if anything, may be done to improve this industry's competitive advantage?

A2. Refineries use sophisticated computer software to help manage and optimize operations, ensuring increased efficiency, higher refinery utilization and better tracking of environmental performance. Refineries run harder today and produce more product more safely than ever before.

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    In the future and provided the right regulatory environment is in place, refineries will become safer, more reliable, more energy efficient, and have reduced impact on the environment. Refineries will be highly automated with integrated process and energy system controls.

    The United States refining and marketing operations were less profitable (as measured by return on investments) than foreign companies during most of the 1990's (see attached graph from Energy Information Report, Performance Profile of Major Energy Producers, January 2001). In my view, most of this difference in profitability is caused by the highly competitive marketplace for petroleum products that exists in the U.S. As our utilization increases and as differentiated product requirements for clean fuels are implemented, profitability for refineries will continue to improve.

    Cash generation and profitable operations are a long-term requirement for investment in new technologies for the industry to remain competitive. New technologies, market incentives, and an increase in the scale of operations will continue to improve the efficiency of energy use. Deregulation of utilities will give refineries greater flexibility to produce and sell electric power and improve their overall efficiency.

Q3. The refinery infrastructure in this country continues to age. What would be the efficiency and environmental benefits derived from a brand new refinery, if it were built including all the latest technology?

A3. Grassroots refineries have not been built in the U.S. for more than 20 years. Profit margins have not been attractive, even during the good times and environmental concerns are a strong disincentive. Most industry observers would argue it is unlikely that a new grassroots refinery will be build in the U.S. within the next 10 years. A March 19, 2001 Oil and Gas Journal Refining Report article estimated the overall cost of a new refinery and off sites to be about $2.5 to $3 billion.

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    Refineries will increasingly need capability to accommodate changes in crude slates. Operations will become more sophisticated, and new technology and new approaches will be employed. New catalytic material will provide the basis for major improvements in existing refinery processes and will lead to new chemistry and new concepts in refining. Improved process and modeling technologies including on-line measurement technologies will allow optimization of facilities.

Q4. Describe how technology makes refineries more able to adapt to both short-term and long-term market needs. Can you switch products more rapidly than in the past to better address market needs?

A4. Reliance on state-of-the-art technology has enabled the industry to find, produce, refine and distribute its products with maximum efficiency and minimal impact on the environment. The industry has invested heavily in technology which has allowed our industry to produce more oil and natural gas from more remote places—some previously unreachable—with significantly less impact on the environment.

    Refineries are becoming highly automated with integrated process and energy system controls. This results in improved operational and environmental performance and enables refineries to run harder and produce more product more safely than ever before.

    These advanced control systems improve the flexibility in the refining process to switch production percentages of gasoline, aviation fuel, and diesel rapidly in response to market demands.

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    Tomorrow's more efficient refineries will be highly automated with integrated process and energy system controls. They will develop enhanced capability to accommodate changes in crude slates.

Pipeline Monitoring Technologies

Q5. We understand that pipeline ''smart'' pigs are an essential part of pipeline monitoring. Yet, there are some parts of any pipeline where pigs cannot be used. Describe other monitoring technologies and how they are used in an integrated pipeline maintenance and safety regime.

A5. API conducted a survey of pipeline companies to determine the total mileage of oil pipelines that can be inspected using in-line inspection tools (smart pigs). Currently 89 percent of oil pipeline (crude oil and refined products) mileage in the United States is capable of being inspected by in-line tools.

    Pipeline monitoring includes:

     A pipeline control center that operates 24 hours a day year round to provide continuous real time monitoring of receipts, deliveries and pipeline operations. The control center continuously receives electronic information from a myriad of field measurement devices through a supervisory control and data acquisition system (SCADA). Operators monitor routine operating data and receive alerts and alarms from the SCADA system and act on the data, alerts, and alarms, as well as information from field personnel.

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     Routine surveillance by aerial patrol and/or line walking.

     Routine monitoring of cathodic protection systems to prevent corrosion.

     Inspection techniques to determine the condition of the pipeline, including—

      — In-line inspection using various tools (deformation tools, low-resolution magnetic flux leak tools, high-resolution magnetic flux leak tools, crack detection tools, geometry tools, etc.). Tools are selected based on the capability to detect specific types of defects.

      — Hydrostatic testing—This test methodology validates the integrity of the line with respect to maximum operating pressure as well as providing a leak tightness test. Water is introduced into the pipeline; the line is held at 125 percent of maximum operating pressure for 4 hours and then at 110 percent of maximum operating pressure for an additional 4 hours. Hydrostatic testing is a test designed to destructively remove critical defects.

      — Visual inspection of the coating and/or exterior pipe surface any time that underground pipe is exposed for maintenance or service.

      — Visual inspection of the pipe interior surface anytime the pipe is cut into for maintenance or service.

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     Routine inspection of key pipeline components like valves and pressure relief devices.

     Participation in ''call-before-you-dig'' programs and other public awareness efforts to prevent third party damage to pipelines.

    Oil pipelines now fall under new integrity management rules promulgated by the U.S. DOT Office of Pipeline Safety. Those rules include a requirement that operators prepare a pipeline integrity management program that includes testing of pipelines that may impact high consequence areas using in-line inspection tools or hydrostatic testing every five years.

    The portions of pipeline systems that cannot be inspected using in-line inspection tools (11 percent of the total) typically include bends with radii that are too tight for tool passage or pipe having major restrictions (valve design, changes in pipe diameter, certain types of lateral connections, piping connected within manifolds, etc.) into the pipe that prevent tool passage. Some of this mileage is associated with terminal operations or pump stations. This category also includes mileage that is currently being maintained but is not in active service. Typically these portions of pipeline systems will be inspected using hydrostatic testing. Some above ground pipe will be directly monitored visually.

Advantages of Gasoline Infrastructure for Hydrogen Supply

Q6. Your testimony includes a section on gasoline as part of a future hydrogen infrastructure for this country. Please describe some of the advantages inherent to gasoline as a hydrogen carrier. What improvements would be necessary at the refinery, at the terminal and in the wholesale and retail distribution infrastructure to enable gasoline to be used for hydrogen? Is the industry looking at other hydrocarbons as possible hydrogen carriers?

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A6. The choice of fuel could have profound implications on consumer acceptance, vehicle sales and capital requirements. A misstep in fuel choice could easily result in an unsuccessful introduction of this promising technology. When viewing the whole process from extraction, production and finally distribution, the existing infrastructure of the hydrocarbon fuel system provides a major advantage.

    Hydrogen appears to be at a significant disadvantage for use in personal vehicles because of its high cost, low energy density and safety concerns. To be economically viable, new fuels, such as methanol and hydrogen, that require a complete new production/distribution system must provide significant benefits over alternatives that can use existing infrastructure.

    A number of hydrocarbon fuels are excellent candidates for fuel cell vehicles. Industry will select the best fuel combination based on vehicle performance and fuel cost:

    (1) Conventional gasoline is the easiest to supply, and it has been run successfully in laboratory tests. A specially formulated ultra low sulfur gasoline may be necessary to maximize vehicle performance.

    (2) Naphtha is a common refiner stream that is an inexpensive alternative to gasoline. Naphtha is easily processed to very low sulfur levels and is widely available with low sulfur in most refineries. Naphtha is ideal for fuel cells and could be supplied to retail stations with today's infrastructure.

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(3) Liquid hydrocarbons derived from natural gas also make excellent fuels and provide an additional resource-flexibility base.

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Responses by Dr. Craig W. Van Kirk, Professor of Petroleum Engineering and Head of Department of Petroleum Engineering, Colorado School of Mines

Source of ''Energy Crisis''

Q1. I would like to hear from the panel what your perceptions are of the current energy shortage. Would you characterize the current situation as an energy supply constraint, an infrastructure constraint, a regulatory constraint, or some combination of the above? Based on your characterization, what is the quickest, most effective way to get out of our difficulty?

A1. The current energy shortage only recently recognized by the government, news media, and especially the citizens of California has been a long time in the making and a long time coming. It will not go away soon. The abominable and cowardly terrorist attacks on the United States on last week Tuesday September 11 will amplify the volume of the energy crisis to unpredictable and more uncomfortable levels.

The recent and current energy situation should be characterized as resulting from a combination of many factors. The most significant and fundamental contributing factors have been wide-spread ignorance and complacency among the public, news media, and government leaders. Ignorance about world geography, world history, world cultures, basic economics, earth's natural resources, and the sources of readily available and cheap consumer goods, especially energy. Complacency with an unrealistic view of prosperity and ''the good life'' without recognizing the real costs and without recognizing the need for knowledge, a solid practical education, and hard work.

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    Perhaps the most significant contributing factor of all has been the unwarranted and ill-founded over exposure of the extremist environmentalists. These loud individuals, groups, and lobbies have received far too much publicity and say-so, without solid science and engineering facts receiving equitable air time.

    Last weeks' terrorist attack was a jolting wake up call to some ignored realities of the world. The security and destiny of the United States and all other peoples who want freedom, peace, and prosperity depend to a great extent on the United States' ability to secure a stable supply of energy. The supply should be composed of a reasonable and balanced combination of both domestic and foreign energy sources.

    A. The last sentence and question in your #1 states: ''. . .way to get out of our difficulty?'' There is no doubt that the ''energy crisis'' is not simply a ''difficulty.'' The ''energy crisis'' of your question number 1 is a very real Energy Crisis!

       ''What is the quickest, most effective way to get out. . .?'' The way out is not quick. But serious and significant action needs to be taken ''quick,'' as soon as possible. Here are the critical steps:

       1. Encourage U.S. domestic oil and gas drilling and production, onshore and offshore. Open up ANWR in Alaska, lots of Federal lands onshore, and lots of offshore Federal acreage all over the Gulf of Mexico and offshore California. The petroleum industry has the expertise and good track record to manage these operations in an environmentally sound manner. Also, consider tax relief and/or encouragement for investments in oil and gas operations, both for new activities and to keep older wells on production. These steps could add approximately 2 million barrels per day to our domestic oil production.

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            Keep in mind that the American petroleum industry has the expertise to move safely into a sensitive area like ANWR, with very little impact on the environment, produce natural resources of oil and gas from the earth over a period of only a few decades; then cleanup, get out, and leave forever.

       2. Solidify relations with the major oil exporting countries, especially those in the Middle East region, and educate the citizens of these countries how they can control their destiny through peaceful means without violence. We Americans have a good track record of teaching formerly aggressive and warlike nations how to be friendly and prosperous.

       3. Educate the public, news media, and government leaders on world history, world geography, world cultures, basic economics, earth's natural resources, where energy comes from; and what an amazingly good job the American petroleum industry has done in supplying the American public with the safest and cheapest energy on earth. This education of America needs to begin now, at a much more thorough level than ever before. Ignorance is not bliss. What we don't know can hurt us. This education is a long-term project, which cannot be diminished, and will be beneficial forever.

       4. America should call upon those of us who know; the experts, the educators. Many of us have significant experience in many other countries, cultures, and religions. Many of us host and educate energy experts from all over the world. Most of us would be happy to help in the educational process, and through research, or serving as advisors or ambassadors. Personally, I have been in Iraq and other Middle East countries, and Russia, and China, and throughout South America; all to do with oil and gas production.

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       5. American petroleum engineers need to be incorporated into the Government's efforts to better understand oil and gas energy sources and methods of discovery and production, and to help develop the best plan for the future. Sources of these petroleum engineers are the American private industry, recent retirees, and American universities.

       6. American petroleum engineers need to be utilized by the Government to study and better understand the world's oil and gas resources, and how these energy sources fit into the destiny of the United States.

    B. Failure to adequately consider environmental issues can lead to both tangible and intangible economic losses. Intangible losses are difficult to quantify, but can include loss of public support for an otherwise economically viable project. Tangible losses have more readily quantifiable economic consequences. For example, near- and long-term economic liabilities associated with potable water contamination can adversely affect project economics. It becomes a question of business ethics whether a practice that is legal, but can lead to an adverse environmental consequence, should nonetheless be pursued because a cost-benefit analysis showed that economic liabilities were less than economic benefits.
         Typically, arguments to pursue an environmentally undesirable practice based on cost-benefit analyses do not adequately account for intangible costs. For example, the decision by an oil company to dispose of a North Sea platform by sinking it in the Atlantic Ocean led to public outrage in Europe in 1995. Reversing the decision and disassembling the platform for use as a quay in Norway resolved the resulting public relations problem, but the damage had been done. The failure to anticipate the public reaction reinforced a lack of public confidence in the oil and gas industry, and helped motivate government action to regulate the decommissioning of offshore platforms in northwest Europe.

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         The problem facing the industry is to learn how to achieve sustainable development. One industry response to environmental and social concerns in the context of sustainable development is the ''triple bottom line.'' According to this view, sustainable development must integrate social and environmental concerns into a development plan that optimizes economic profitability and value creation. The three components of sustainable development, and the three goals of the triple bottom line (TBL), are economic prosperity, social equity, and environmental protection. The focus of TBL is the creation of long-term shareholder value by recognizing that corporations are dependent on licenses provided by society to do business. Although TBL is in its infancy, key elements of TBL policy are beginning to emerge. They include:

         Performance measurements that include qualitative social indicators and eco-efficiency measures (such as energy consumption and recycling) in addition to compliance and pollutant emissions.

         Development and implementation of strategies that will enable the industry to meet both future global energy needs and environmental objectives.

         Investment in natural gas, low or zero-emissions fuels, and renewable forms of energy.

         Improved communications with communities affected by operations.

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Unconventional Sources of Natural Gas

Q2. From the panel's testimony, it appears that increasing quantities of natural gas are going to come from unconventional sources that may require the development of new technologies. Please describe how technologies may help us develop resources such as tight gas, coalbed methane and gas hydrates.

A2. Clean energy refers to energy that is generated with little environmental pollution. Natural gas is a source of clean energy. Oil and gas fields are considered conventional sources of natural gas. In the following, we discuss unconventional sources of natural gas: tight gas, coalbed methane, and gas hydrates.

    A. Tight Gas

       Tight gas is a term for natural gas contained in very low permeability (tight) rock formations. Frequently the reservoir rock is dirty, very sensitive to damage and further permeability reduction due to reactions with drilling or completion fluids, and usually these reservoirs require more expensive tender-loving-care and hydraulic fracture treatments to stimulate production rates to higher levels.
         Tight gas reservoirs have been under development in the U.S. for years, but recent improvements in technology and understanding have contributed to this known resource of quite clean energy source being developed and connected to the Nation's energy distribution system at ever increasing levels of importance. Recent and further new technological developments which will further increase tight gas resources, reserves, and production include:

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       1. Hydraulic fracture treatments, improved control, increased well productivity.

       2. Underbalanced drilling to reduce formation damage.

       3. Drilling and completion fluid improvements to reduce formation damage.

       4. Improvements and lower costs for multilateral or horizontal wells, to increase gas recovery and reduce the surface environmental impact.

       5. New drilling techniques, such as laser drilling, to reduce time, costs, and environmental impacts both on the surface and subsurface.

       6. New production techniques which will reduce the water-related problems and attain the minimum possible bottom-hole producing pressures, resulting in higher production rates and more gas recover over a longer period of time.

    B. Coalbed Methane

       Coalbeds are an abundant source of methane. The presence of methane gas in coal has been well known to coal miners as a safety hazard, but is now being viewed as a source of natural gas. The gas is bound in the micropore structure of the coalbed, and it is able to diffuse into the natural fracture network when a pressure gradient exists between the matrix and the fracture network. The fracture network in coalbeds consists of microfractures called ''cleats.''

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         Gas recovery from coalbeds depends on three processes. Coalbed methane exists as a monomolecular layer on the internal surface of the coal matrix. Its composition is predominately methane, but can also include other constituents, such as ethane, carbon dioxide, nitrogen, and hydrogen. Gas content can range from approximately 20 SCF gas per ton of coal in the Powder River Basin of Wyoming to 600 SCF per ton in the Appalachian Basin. Gas recovery begins with the desorption of gas from the internal surface of the coal matrix and micropores. The gas then diffuses through the coal matrix and micropores into the cleats. Finally, gas flows through the cleats to the production well. The flow rate depends, in part, on the pressure gradient in the cleats and the density and distribution of cleats. The controlling mechanisms for gas production from coalbeds are the rate of desorption from the coal surface to the coal matrix, the rate of diffusion from the coal matrix to the cleats, and the rate of flow of gas through the cleats to the producing well.
         The production performance of a coalbed methane well typically exhibits three stages. The reservoir dewaters and methane production increases during the first stage of pressure depletion. Methane production peaks during the second stage. The amount of water produced is relatively small compared to gas production during the second stage because of gas-water relative permeability effects, and desorption of natural gas provides a counterbalance to permeability loss as a result of formation compaction. The third stage of production is similar to conventional gas field production in which gas rate declines as reservoir pressure declines.
         Given the abundance of coal resources in the U.S., there should be increased attention to recovery of methane from coalbeds. Just 20 years ago, recovery of methane from coal beds was considered on the fringe of reason in the oil and gas industry. Today, it has become a vigorous and growing contributor.

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    C. Gas Hydrates

       The entrapment of natural gas molecules in ice at very low temperatures forms an ice-like solid. The ice-like solid substance is a metastable complex called a gas hydrate. Gas hydrates are clathrates, a chemical complex that is formed when one type of molecule completely encloses another type of molecule in a lattice. In the case of gas hydrates, hydrogen-bonded water molecules form a cage-like structure in which mobile molecules of gas are absorbed or bound.
         The presence of gas hydrates can complicate traditional oil and gas field operations. For example, the existence of hydrates on the ocean floor can interfere with drilling operations in deep water. The simultaneous flow of natural gas and water in tubing and pipelines can result in the formation of gas hydrates that can impede or completely block the flow of fluids through pipeline networks. Heating the gas or treating the gas-water system with chemical inhibitors can prevent the formation of hydrates, but increases operating costs.
         Gas hydrates are generally considered a problem for oil and gas field operations, but their potential commercial value as a clean energy resource is changing the industry perception. The potential as a gas resource is due to the relatively large volume of gas contained in the gas hydrate complex. In particular, one cubic meter of gas hydrate contains 164.6 m of methane. This is equivalent to one barrel of gas hydrate containing 924 ft of methane, and is approximately six times as much gas as the gas contained in an unimpeded gas-filled pore system. The gas in gas hydrates occupies approximately 20 percent of the volume of the gas hydrate complex. The remaining 80 percent of the gas hydrate complex volume is occupied by water.
         Gas hydrates can be found throughout the world. They exist on land in sub-Arctic sediments and on seabeds where the water is near freezing at depths of at least 600 to 1,500 feet. For instance, favorable conditions for gas hydrate formation exist at sea floor temperatures as low as 39F in the Gulf of Mexico and as low as 30F in some sections of the North Sea. More than 700 trillion m in identified accumulations of methane in the hydrate state exist. Difficulties in cost-effective production have hampered development of the resource to date, but research for commercial beneficial use continues.

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Recovering gas from natural gas hydrates could become a significant part of our energy future, but the technology for this resource is in its infancy. It will take years to develop.

Drilling Technology

Q3. Can you describe for us what it was like to drill for oil in Colonel Drake's day, and how the process has gotten more complex as the ''easy'' oil is tapped out?

A3. Drilling in Colonel Drake's day consisted of literally pounding the rocks at the bottom of a hole with a heavy weight on a wireline. This process, called cable tool drilling, is known as percussive drilling, and even today it has a place in the drilling toolbox. However, it is a slow process. At the turn of the last century, the rotary drilling system basically revolutionized the drilling operation. The rotary system consists of a drill bit that either is dragged across the bottom of the hole or a rolling cutter drill bit is pushed and rotated against the bottom of a hole. This bit is connected to the surface with a rotating string of pipe through which drilling fluids are pumped. This drilling fluid generally consists of a liquid, water or oil, and solids, generally bentonite, a viscosifying agent, and barite, a densifying agent. The revolution occurred because the drilling was faster and, because of the drilling fluid, maintained well control from high downhole pressures.

Since that time, the rotary process has evolved into a major industry with significant improvements in all aspects of drilling. These include safer operations for rig crews and operators, environmentally benign drilling fluids, direct measurements of drilling operating parameters and rock and fluid properties in real time, precise trajectory control to follow a path as determined by real time geology knowledge, multiple wellbores from a single main bore in a process called multi-lateral drilling, extended reach drilling that can reach out from a surface location to more than six miles away. Obviously, these improvements come with a cost in both economics and with complexity. Yet, these, and many other improvements made in the business are routinely accomplished all across the world.

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    Also, proposals for tunneling into reservoirs have appeared every ten or so years, but have not been pursued aggressively. Advances in tunneling technology have reduced the cost of this approach to gaining access to reservoirs. Hence, it would be prudent for the U.S. government to initiate a pilot project in an appropriate reservoir with tunnels. From the tunnels, thousands of wells can be drilled at close spacing to overcome the obstacles of reservoir heterogeneity. Such close well spacing would lead to very efficient oil production. In addition, there could be many environmental advantages to sub-surface facilities. The list of advantages could be very long—we need to explore those possibilities.

Q4. Finding oil is an expensive and time-consuming process. Can you elaborate on how technology has improved the success rate and reduced the cost of prospecting and exploration?

A4. Recent and new technologies have brought down prospecting and exploration costs, enabled us to explore and drill in more hostile and expensive environments, and improved the exploration success rate. The more significant technologies are, and will continue to be:

       1. Improved 3–D seismic subsurface visualization and more powerful and faster computers enable us to create clearer pictures of potential oil and gas reservoirs, locations of gas-oil or gas-water contacts, faults, permeability variations, and ''subsalt'' geologic character of productive formations lying underneath thick salt formations.

       2. Time-lapse 4–D seismic visualization helps us find unproduced reserves hiding in older reservoirs.

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       3. These 3–D and 4–D seismic improvements have significantly increased exploration well success rates, thus reducing the number, costs, and environmental impact of dry holes.

       4. Remote sensing and image-processing.

       5. Improvements in geographical information systems (GIS) and global positioning systems (GPS).

       6. Deepwater drilling and production techniques which enable operations in new deep ocean environments.

Q5. In your testimony you discuss synthetic muds. How do these muds improve the drilling, and are they more environmentally friendly?

A5. A synthetic mud is a drilling fluid that consists of highly refined oil. Oil based muds have many useful properties, such as less damage to formations from chemical and physical reactions with the rocks and improved drilling. However, they have an environmental cost and are not easy for crews to handle. The drilling industry came up with drilling fluids that had the ''good properties'' of an oil-based drilling fluid without the ''bad properties.'' The result was synthetic muds.

       1. These synthetic muds are defined as drilling fluids that have been synthetically developed from chemical feedstocks. The first synthetics were mineral oil based. Since then, other synthetics have been developed with the base fluid consisting of esters, ethers, poly-alpha and linear-alpha olefins, glycols, and many other chemicals. They all have the advantage of being environmentally benign and improving drilling operations while minimizing formation damage. The only disadvantage of synthetic muds is that they can be ten times more expensive than general water based muds. So these muds are used in highly sensitive areas, such as offshore Gulf of Mexico.

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Increased Recovery of Petroleum

Q6. You indicate that a one percent increase in recovery of oil from a well equals 5 billion barrels of oil. That would provide all the United State's needs for over a year. What is the potential for such life extension technologies, and where do you see the limit on further recoveries? Does development of these promising technologies simply require greater funding levels?

A6. Your question number 6, first line, states ''. . .from a well. . .,'' but that is a misquote from my written testimony I submitted for the June 12 hearing. The line should read ''. . .from known oil reservoirs has the potential to add 5 billion barrels of oil to our producible reserves.''

Today's estimate of the ultimate oil recovery of our oil reservoirs is approximately one-third of the original-oil-in-place (OOIP), in oil reservoirs which we have discovered and placed on production to date. The two-thirds of this OOIP, approximately 350 billion barrels, which will remain unproduced in the ground is a significant target for further research and improved technology. If successful efforts could improve the overall average recovery efficiency even by only one percent of the OOIP, the result would be an additional 5 billion barrels of oil recovery for our Nation's use, approximately a one-year supply. Potential improvements in recovery efficiencies in old and new oil reservoirs could add significantly to our energy supply.

This potential is significant. The upper limit on increasing oil recovery efficiencies is at least several percentage points, or at least 5 to 20 billion barrels of oil. But this potential cannot be met without significant financial investments for research, development, and field trials and demonstrations.

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Success will not come simply from greater funding levels. Coordination of efforts, open access to information, and sharing the results are required, also. However, it is certain that without government funding and participation, very little progress will be made, and the optimum result will not be approached.

Q7. Please elaborate on the process of injecting CO into wells to increase production. Does this method hold promise for not only increasing production, but for long term carbon sequestration?

A7. One of the most pressing environmental concerns facing society today is global climate change. A purported cause of adverse global climate change is the greenhouse effect, whereby increasing levels of carbon dioxide in the atmosphere absorb infrared radiation rather than letting it escape into space. The resulting atmospheric heating is attributed to excessive emissions of carbon dioxide into the atmosphere. One possible solution is to collect and store carbon dioxide in geologic formations as part of a process known as CO sequestration. Carbon dioxide may be sequestered in a variety of subsurface environments, such as CO injection into an oil field as an improved recovery process; CO injection into a mature oil field as a storage process; and CO injection into an aquifer. Miscible CO injection into an oil field can be used to both recover additional oil and sequester CO.

Carbon sequestration by injection of CO requires that it be economically separated from exhaust streams from fossil-fuel power plants, fertilizer plants, and cement plants. It is unlikely that CO could be captured economically from automobiles.

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    The sequestration of CO in subsurface formations is a gas storage process that must satisfy the three primary objectives in designing and operating natural gas storage reservoirs. Those objectives are verification of injected gas inventory, monitoring of injected gas migration, and determination of gas injectivity. Timelapse seismology is one advanced technology for monitoring the subsurface storage of CO.

    Time-lapse seismic images are obtained by comparing two 3–D seismic surveys conducted at two different points in time in the same region of interest.

    Differences in seismic response between the two surveys provide information about changes in reservoir properties that affect the transmission of seismic disturbances. These differences are especially useful when they are significant, because they provide information about the distribution of fluids between wells. Time-lapse seismic monitoring, also called 4–D seismic, is becoming a cost-effective tool for improving reservoir characterization, locating bypassed oil reserves, and identifying the movement of fluid interfaces.

Future Technologies

Q8. Please discuss some of the exciting technological improvements you see in the future, and what they may mean for the oil and gas industry around the country and around the world. Are you optimistic about the future of the industry?

A8. Am I optimistic about the future of the industry? Absolutely yes! Just as I am optimistic about the future of the United States; indeed, the future of the world. These optimistic futures will not be easy to attain nor automatic, but will require hard work, sacrifice, education, risk, sensibility, and balance. The public needs to be better educated regarding many realities of the earth, societies, economics, and technological capabilities.

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    Imagine a large pipeline from the North Slope of Alaska, east to the Mackenzie River delta, south along the Mackenzie River through Canada into the northwestern part of the United States. Imagine natural gas flowing into the U.S. from Alaska and Canada through the pipeline over a period of several decades. After serving a useful life for transporting natural gas, the pipeline could be converted to handle fresh water as part of a large aqueduct system forever.

    I participated in a meeting on June 4 and 5 with 20 domestic and international oil companies, 15 U.S. universities and 5 international universities, and a representative of the Department of Energy to discuss petroleum research. The companies presented their current and anticipated needs, while the universities shared their current activities and areas of interest. The attendees plan to meet again in the near future to establish a framework for expanded communication. We recognize that only by working together can we succeed.

    Some people don't think of the petroleum industry as high tech, but it is. We locate oil and gas as much as 7 miles below the surface and beneath oceans up to 9,000 feet deep. We produce oil and gas safely and efficiently so that consumers will have the energy to take them wherever they need to go, to heat their homes and schools, and make thousands of medicines, plastics, and other daily products derived from petroleum.

    The best way to give you an idea of the importance and potential of research and technology is through examples of our recent successes. There are many technical success stories, but I will confine myself to a few examples. More are included in my written statement submitted earlier for the hearing on June 12.

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      Three-dimensional seismic provides a 3–D image of the geological formations below the earth's surface and provides clues as to where hydrocarbons may be trapped or have moved.

      The newest development is 4–D visualization, through the application of timelapse monitoring of 3–D seismic. The technique is proving highly successful in identifying bypassed reserves in existing fields.

      Technology developed by the U.S. Navy during the Cold War for stealth submarines has been applied successfully to enhance seismic images, below the salt in the Gulf of Mexico subsalt play.

    The U.S. Gulf of Mexico area has benefited from new deeper water technology resulting from new platform design, subsea completions, dynamic positioning systems, and synthetic-based drilling muds.

    Imagine, currently we can drill horizontally up to 7 miles. Directional drilling allows for several bottom-hole locations to be reached from a single well pad. For new developments in sensitive environments, such as wetlands or wildlife habitats, directional drilling techniques mean that the drilling rig does not have to be placed directly over the oil or gas reservoir, but can be placed in a less sensitive location.

    Even with our current advanced technology and experience, we can recover only a third of the original oil-in-place, on average, leaving two-thirds of the U.S. oil resource base still in the ground. Enhanced oil recovery, or EOR, is a shorthand term for wide range of technologies designed to improve the recovery from existing oil wells. EOR injection techniques add fluids such as hot water, steam, nitrogen, CO, surfactants, or polymer to the reservoir. The number of active EOR projects in the United States totaled 170 in 2000, producing a total of nearly 750,000 barrels per day, or 12 percent of current domestic oil production.

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    Many of the technologies on the horizon look like science fiction novels. Use of lasers to replace conventional drilling techniques holds the potential to reduce drilling time, decrease waste volumes, and have a significantly smaller ''footprint.'' My university, Colorado School of Mines, is currently active in laser drilling research. Smart wells can be equipped with downhole sensors with continuous data transmission and have the capability to make adjustments automatically and immediately to enhance efficiency and safety. Downhole processing of fluids into a better formulation has wide-ranging potential. Viscous heavy oil can be converted into better quality oil. Unwanted water or hazardous constituents could be removed before fluids are brought to the surface.

    Ultimately, it may be possible to convert the natural hydrocarbon resource within the reservoir and bring only hydrogen or electricity to the surface.

    Oil and gas related research has benefits and applications reaching far beyond the petroleum industry. For example, my university is currently working with NASA to develop miniaturized drilling equipment for future drilling operations on the Moon and on Mars to assist in furthering scientific understanding of the Lunar and Martian subsurface. Also, we are assisting the National Science Foundation in ice coring operations in the Antarctic in the study of earth's climate history.

    Continued research is crucial to meeting our Nation's energy needs. Yet technology alone will not get us there. As the National Petroleum Council reported, there are adequate resources, but restricted access limits the availability of supply.

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    The petroleum industry has reorganized the way it does research, with a general migration of the R&D function from the producers to the service industry and universities. DOE has played a crucial role in funding the development of many technologies. Continued and increased government funding for oil and gas recovery research is critical, more so now than ever before.

    The U.S. petroleum industry works closely with universities in researching and developing many new technologies. My university, the Colorado School of Mines, and other leading research universities across the country combine petroleum engineering, geology, geophysics, and environmental science regularly through integrated multidisciplinary teams.

    A technologically advanced, well-trained and educated work force is most important. Universities play a crucial role in educating and training the future leaders of the oil and gas industry. The Department of Education has a grant program that supports the work of graduate students in PE. I would like to see the government continue and expand programs such as this. Also, I strongly recommend that support for science and engineering education should extend to the elementary grades, assuring that we have a scientifically grounded, technologically capable work force in the future.

    Success needs government, industry, universities, and others working together through interdisciplinary cooperation. This is our best path to success in meeting the Nation's energy needs and controlling our country's destiny.

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

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Responses by Alan R. Huffman, Manager, Seismic Imaging Technology Center, Conoco, Inc.

Source of the ''Energy Crisis''

Q1. What are your perceptions of the current energy shortage? Would you characterize the current situation as an energy supply constraint, an infrastructure constraint, a regulatory constraint, or some combination of the above? Based on your characterization, what is the quickest, most effective way to address energy shortages?

A1. To understand the nature of the current energy crisis, we must look back at the last 25 years of history. After the Arab oil embargo of 1973, the energy industry began a massive and frenzied investment in supply and infrastructure that lasted until the early 1980's when oil prices collapsed. At the time of the collapse in prices, the United States had a significant excess capacity in our oil and gas transportation infrastructure and in electrical power generation that allowed the Nation to manage power supply during peak power demand periods. The collapse in oil prices caused an implosion in the U.S. oil industry that led to the loss of a huge number of jobs, and to a dramatic reduction in the rate of capital spending and investment in both new supply and transportation infrastructure. In the years since the price collapse, oil prices have remained well below the inflation-adjusted value for most other commodities, which has led to significant under-investment by the industry as returns on capital declined to historically low levels. These low returns on capital led to massive consolidation and loss of more jobs as large companies restricted capital spending and found it easier to regain their health through acquisitions. Nearly twenty years of chronic under-investment in new energy supplies and infrastructure has not kept pace with increasing demand, which has reduced our excess capacity to zero and has created a simultaneous shortage in both supply and infrastructure. This shortage has occurred in the oil and gas markets, as well as the electricity markets that are driven in part by the cost of energy supplies.

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As these simultaneous problems in supply and infrastructure have increased, the regulatory environment has also evolved toward increasing restrictions and requirements on any energy-related construction and operations. Thus, even if the industry increases its capital investment dramatically, there are regulatory limitations on how fast growth can occur. For example, the NPC noted in its gas supply report that the Nation will require 38,000 miles of new pipeline in the next ten years to meet the increasing demand for clean-burning natural gas. This is in addition to the significant cost of maintaining the existing infrastructure of aging pipelines across the Nation. In some areas, several hundred permits are required before a new pipeline can be laid. The regulatory hurdles for new infrastructure are restricting some developments across the country, but this hurdle is not as significant as the barrier created by the low return on capital for many projects. Operators will address regulatory requirements as we always have, but the challenge of these regulations becomes less significant if the return on capital improves due to higher product prices. In a recent speech at the annual meeting of the American Association of Petroleum Geologists, Mr. Matthew Simmons, President of Simmons and Company International and a member of the NPC, confirmed that the expansion of our national energy supply and infrastructure will require significantly higher prices so that the industry and its shareholders can be assured of a reasonable return on the massive investment that is required for the task at hand. I have attached the text of Mr. Simmons' speech as an addendum to this statement so that you can also read the perceptions of one of the leading investment experts in the energy field.

In that same speech, Matt Simmons noted that we have allowed our energy infrastructure to decline to a point where it is not only beginning to fail structurally because of under-investment, but where it has no spare capacity for peak demand. For example, there has not been a new refinery built in the United States in nearly two decades. While productivity improvements at existing refineries have been able to keep up with base-level demand, the ability to supply significant increases in refined product in a period of national crisis is not possible under current conditions. This simultaneous lack of excess capacity in the oil, gas, coal and electricity markets is very important to the stability of energy prices, and is part of the reason that we have seen such significant volatility in global and national energy prices in the last 2 years. Such volatility is not healthy for the national economy, and can cause price and supply shocks at multiple levels in all industries that rely on stable energy supplies. To correct this situation will require the Nation to make massive investments in new energy infrastructure and supply sources that will restore sufficient excess capacity to handle periods of peak energy demand. This will require a massive new domestic investment in the next 10–20 years that Mr. Simmons estimated could be as large as $5 Trillion dollars, and will require that industry, government agencies and regulators work together synergistically instead of acting antagonistically toward each other as has been the case historically.

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To resolve this national challenge, we must change our behaviors and work together to meet the national need for energy. This will require a rational evaluation of the economic value of resources on state and federal lands, and a coordinated conservationist approach to realizing that value in a safe and environmentally-sustainable manner. This will require that national leaders from industry and government begin to address (1) access to key federal and state lands that contain significant energy resources, (2) economic incentives to assure that the petroleum industry can attract the massive amounts of capital that are required to provide a stable infrastructure and supply base, (3) regulatory barriers to the development of new energy supplies and infrastructure, and (4) technology challenges that must be met to achieve long-term stable production from state and federal lands and waters. The United States is the only industrialized country that still operates on the outdated premise that government and industry should act as antagonists toward each other. America must adopt the same strategy as Japan and Europe, and develop an operational framework where government, industry, academia and NGO's work together to solve national problems. It is time for our Nation to evaluate the holistic cost and strategic risk posed by a weak energy industry, and accept the fact that a secure economic future for America requires a stable and healthy energy industry that can assure long-term stable supplies of oil and gas in an environmentally-sustainable manner. The government should determine the value created for the Nation from 20 years of cheap energy, and invest a significant portion of these savings to restore the national energy infrastructure through an integrated and coordinated program with industry.

Unconventional Sources of Natural Gas

Q2. It appears that increasing quantities of natural gas are going to come from unconventional sources that may require the development of new technologies. Please describe how technologies may help us develop these resources?

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A2. It is true that unconventional sources of natural gas will supply a larger percentage of total U.S. gas production in the future. Resources such as coal-bed methane, coal gasification, gas hydrates and other sources will be required to meet the Nation's continuing thirst for clean fossil fuels. However, as I am not an expert in this technology area, I can't provide specific comments on which technologies may have the greatest impact.

Potential for Ultra-deep Water Technologies

Q3. Please discuss the potential of ultra-deep water technology to produce oil and gas. Can some of these technologies be adapted to other deep-sea resources such as gas hydrates?

A3. Globally, the deepwater resource is quite significant. To date, over 10 billion barrels of oil equivalent (total oil and gas) have been discovered in the deepwater Gulf of Mexico, and over 100 billion barrels have been discovered in deepwater basins globally. Estimates for total deepwater reserve potential includes roughly 30 billion barrels in the U.S. Gulf of Mexico and 250–300 billion barrels globally. These data support the contention that deepwater reserves are one of the last significant frontiers available to the energy industry. Along with these huge reserve estimates comes a commensurately large technical challenge that includes (1) water depths up to 10,000 feet with severe pressures, (2) freezing to sub-freezing temperatures, (3) strong ocean currents, (4) severe seafloor topography, (4) marine hazards including submarine landslides, shallow flowing sand hazards that can cause gas and water blowouts, and (5) environmental sensitivities related to specific marine life and deepwater ecosystems.

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In economic terms, the potential of deepwater technology can be determined simply from the reserve numbers above. If we assume a $20 price for crude oil and equivalent gas products, the 30 billion barrels in the Gulf of Mexico has a total direct value of $600 billion dollars. The global reserve base of 250–300 billion barrels has a total direct value of $5–$6 trillion dollars. When the trickle down effects from production of these reserves are included, the total impact of these reserves is in the tens of trillions of dollars and is significant enough to affect the U.S. and global economies, and have a dramatic positive impact on federal tax and royalty revenues.

The technology needed to produce these deepwater reserves in a safe and environmentally-sustainable manner will require an investment of around $5–$10 billion over the next 8–10 years. These investments should be made by industry and government working together to solve the great technical challenges defined above. Many people will ask why the Federal Government should invest in such technology. The reasons are clear. First, the deepwater reserves of the United States are in federal waters offshore. As such, the Federal Government is the owner of those reserves and should take an active role in developing those resources. Second, the risk in deepwater is significant as demonstrated by the recent sinking of the P–36 platform at Roncador field in Brazil. As I testified in the committee hearing, the P–36 accident will cost Petrobras $500 million for facilities replacement and another $500 million in lost production from the field. A loss of this magnitude would bankrupt all but the largest petroleum companies, and emphasizes the scale of the risk that deepwater imposes on the industry. The simple fact is that industry can't afford to take many risks of this size alone, and needs the partnership of government to achieve success. Third, many of the technologies required for deepwater involve field testing and commercialization activities with investments ranging from $10–$100 million dollars. Such investments are beyond the financial reach of all but the largest operating and service companies, which requires a consortium approach to technology deployment and commercialization that should include the royalty owner of the reserves, in this case, the Federal Government. Fourth, mid-size and smaller independents are continuously assuming a larger role in the deepwater exploration and production business. Many of these smaller operators do not have internal R&D capabilities, and must rely on external technology support to achieve results. The Federal Government should work with industry to provide leveraged funding for such technology programs to assure that all operators have access to the best technology that will deliver value to the American people from our federal waters.

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Many of the technologies required for deepwater oil and gas production will be applicable to other deep-sea resources such as gas hydrates, and environmental challenges such as carbon sequestration in deepwater reservoirs. However, the production of gas hydrates in the deep oceans faces many other hurdles, both economic and technical, that will probably prevent deepwater hydrates from becoming a significant resource for another 50 years.

Proposed Operations of the U.S. Energy Center

Q4. The U.S. Energy Center proposal recommends $25 million in FY 2002, of which $5 million would be for operations and $20 million for the deepwater program elements, therefore overhead would be 20 percent under this proposal. Assuming a significant percentage of the FTE's and material would be attributable to a deepwater project, isn't this operation's budget high?

A4. The USEC proposal that was appended to my testimony did assume a $25 million dollar budget for the first year of the program including $5 million for operations and $20 million for the first year of the offshore technology program (OTP). However, the proposal also included an assumed ramp in federal funding up to $250 million dollars over several years. The $5 million dollars in operating budget was assumed to be sufficient to support the current year program and to cover planning for an increased program in each succeeding year. The final program size of $250 million dollars in federal funding with matching funds from industry would provide a $500 million dollars in total program funds. The federal funds of $5 million dollars would be matched by industry to yield a $10 million dollar operating budget that would be used to manage the total $500 million dollar deepwater program. This is only two percent of the total program size and is far less than the typical seven percent (or $35 million dollars in this case) that is normally spent to manage such programs. The USEC proposal includes a well-conceived planning process that requires the higher initial operations funding to assure the success of the program as it expands. In actuality, the operational budget could be run initially with less money if required.

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Q5. Critics of this proposal claim that $25 million is a pittance and that a bona fide R&D effort requires a budget an order of magnitude greater. How would you respond?

A5. I agree with this assessment, which is why the USEC proposal included the increase in funding over several years to achieve a program size of $500 million dollars in federal and matching industry funds. I believe that the passage of H.R. 4, which included enabling legislation and authorizing language in Title IV, subtitle C, sections 2441–2451 titled as ''The Natural Gas and Other Petroleum Research, Development, and Demonstration Act of 2001'' provides for a more immediate and full implementation of the full OTP. The reason that I did not recommend a fully-funded initial program to the Committee was a sincere belief that such a program would not pass the Congress at the higher initial funding level due to current budgetary constraints. A smaller alternative was proposed that could still lead to the full program over several years if the program demonstrated early success.

In the weeks since H.R. 4 passed the House, my colleagues in industry have been working on an updated version of the USEC proposal to manage the deepwater component of H.R. 4 in the event that it passes the Senate and is signed into law by President Bush. I have attached this updated proposal with this testimony for your consideration. Please note that the USEC name in the original proposal has been changed to the United States Energy Institute (USEI) because of a naming conflict with the existing federally-authorized corporation called the United States Enrichment Corporation (also called USEC).

Two issues that are critical to the success of the USEI and the deepwater program as defined in H.R. 4 are (1) the selection of the research organization (RO) that will lead the effort and (2) the management structure of the program. The selection process in H.R. 4 is a viable mechanism because it calls for a selection panel of industry experts that will make a fair determination before selecting the RO and submitting it to the Secretary of Energy for approval. It is my considered opinion that some existing RO's and Universities will have a strong desire to manage the large deepwater component of the program authorized in H.R. 4. Several of these research organizations are highly qualified to manage the unconventional gas and petroleum technology component of the program in coordination with the National Energy Technology Laboratory (NETL) and the National Petroleum Technology Office (NPTO). However, the hybrid technology-commercial nature of the OTP program (see the description in the reply to question #6 below), combined with the requirement for significant deepwater commercial and operational expertise, means that these traditional research institutions are not qualified to manage the program by themselves. If the deepwater program is to be successful, it must be managed by an industry-led consortium of industrial, academic, federal agency and NGO partners similar to the Joint Oceanographic Institutions (JOI) that manages the Ocean Drilling Program (ODP) for the National Science Foundation (NSF). The JOI model and the contract between JOI and NSF have been the basis for one of the most successful large collaborative federal science programs in U.S. history. USEI should be structured like JOI but with the operating and service companies replacing the deepwater universities on the Board of Governors. This mechanism will allow all of the major RO's like the Gas Technology Institute, Southwest Research Institute, and others to join the USEI as full members and participate in the program, while assuring that all stakeholders in deepwater are fairly represented in the management of the program. The details of the USEI management structure are included in the USEI Executive Summary attached with this document. I believe that the USEI, if created and managed properly, can change permanently how government, industry and academia work together to maximize the value of our energy resources in federal waters.

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One other issue that should be addressed to assure that The Natural Gas and Petroleum Research, Development, and Demonstration Act of 2002 survives in the Senate is how the program is scored for appropriations purposes. As with any program, there is a tendency to score only the outflows of funds rather than consider the long-term positive impact of the program from federal taxes and royalties. In the USEI Executive Summary attached with this statement, there are two economic models included that demonstrate the positive impact of the program under a reasonable set of assumptions. Even though the program will expend about $5 billion dollars over a 8–10 year period, the impact from royalties and tax revenues on increased production of only one million barrels per day results in a positive impact on federal cash flow after about 3 years and a total net revenue gain of $13.5 billion dollars in the first ten years. The production that results from this program could be much higher than the assumptions in the models.

Q6. Your testimony states ''The main office. . .will be managed by an industry expert in deepwater technology.'' Is a technological expert the best business manager?

A6. If the deepwater program authorized in H.R. 4 is created as envisioned in my earlier testimony before the Committee, it will be the first organization to fully integrate technology development, demonstration and commercialization through a collaboration between government, industry and academia. As such, it will be a hybrid operation that will embody components of a research corporation and components of a venture capital firm. This will be a major breakthrough in how government and industry work together because it will fill the gap that has always existed between R&D and the commercial marketplace. This task will require an Executive Director who has expertise and experience in technology development, experience in commercial development, and a solid understanding of federal science programs. This leader will have to manage the interests of all stakeholders in deepwater. This kind of multifaceted expertise resides only in the industry which is why the program must be led by industry and not by government labs or research corporations. There is a large group of senior technology leaders in the operating and service companies who have these skills and who would be very interested in managing such a program and assuring its success. Therefore, I do not believe that finding such a leader will be difficult, as they will flock to the new USEI concept and vision once it is created.

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In closing, I would like to thank the committee once again for taking the time to consider my views on the future energy security of our Nation. I will be pleased to answer any additional questions or appear before you again in the future if you wish.

Part 2

Panel I Questions

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Responses by David K. Garman, Assistant Secretary, Office of Energy Efficiency and Renewable Energy, Department of Energy

Hydrogen Funding Levels

Q1. As you are aware this Committee's past authorizations for hydrogen R&D have greatly exceeded the actual appropriations (appropriations have been approximately 50 percent of authorization). H.R. 2174, the Robert S. Walker and George E. Grown, Jr. Hydrogen Energy Act of 2001, significantly increases authorization for appropriation in each fiscal year 2002 through 2006. If the appropriators meet these authorized levels, will the U.S. Department of Energy (DOE) and industry programs be able to respond in a productive, meaningful and coherent way?

A1. Funding levels do not affect DOE's ability to respond in a productive, meaningful, and coherent way. The Hydrogen Program has been supporting industry activities in the low-cost production of hydrogen, low-weight hydrogen storage systems and end-use systems, including the development of codes and standards. In recognition of hydrogen's potential, there has also been significant industry investment in fuel cells for stationary power generation, and by the automobile and oil companies in hydrogen fuel cell vehicles and hydrogen infrastructure. There are still significant remaining issues that are associated with the cost and durability of fuel cells, the establishment of the hydrogen infrastructure, advanced hydrogen storage systems, and the acceptance of the codes and standards for hydrogen systems. The industry is proceeding with test programs for stationary fuel cells and fuel cell vehicles and buses.

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Q2. How does the U.S. Federally funded hydrogen R&D programs compare with other countries that are committed to a hydrogen-based energy future?

A2. The Department's Hydrogen Program includes research and development activities for production, storage and utilization and technology validation efforts that include hydrogen/renewable systems, hydrogen refueling stations and power park projects. The Department's Program is the largest national effort at $27 million for FY 2001, more than two times the next closest national competitor (Japan).

    Japan's program is centered around a fully-integrated hydrogen society. The portfolio of technologies under development mirror the range of technology currently planned for the U.S. DOE Hydrogen Program: the funding level for FY 1998 through FY 2003 is about $13 million annually. Japanese industry also supports a number of large hydrogen research efforts, particularly in the automotive arena.

    The European Union appropriated $25 million for 1998–2002, or approximately $5 million per year. Many of the larger-scale hydrogen demonstration projects taking place in Europe are part of the European Union Framework Programmes.

    Canada combines Hydrogen and Fuel Cells into a single program that receives approximately $4 million per year. The program is geared toward technologies with short-to-medium term commercial potential. Several Canadian companies, such as Ballard and Stuart Energy, are world leaders in hydrogen technologies and have received a great deal of external funding from other governments and industry. For example, Ford contributed $400 million to Ballard's Fuel Cell development program.

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    Germany has a unique position with regard to hydrogen R&D. Today, the bulk of the research effort resides with companies like BMW and Daimler and with regional governments, particularly Bavaria. The national government continues to support some development efforts, but at a vastly reduced level (approximately $1 million).

    Switzerland's Hydrogen Energy and Technology Program supports hydrogen as an important secondary energy carrier and chemical commodity that is funded at approximately $3.8 million. Private funding is around $300,000 per year.

    Norway's funding is on the order of $600,000 annually. The bulk of Norway's hydrogen development efforts comes from industry (about $2.5 million). Electrolysis and fuel cells receive the bulk of the government support.

    The Netherlands funds an estimated $2 million per year toward hydrogen-specific technologies.

    Sweden is funding more than $5 million in hydrogen or hydrogen-related research, including fuel cells. The Swedish portfolio includes renewable production, including direct water splitting (both electrolysis and biological), solid-state storage materials and utilization.

Hydrogen Infrastructure Concerns

Q3. Is it correct that current codes: require explosion-proof light and electrical fixtures in a hydrogen environment? If so, how will consumers be able to use hydrogen in distributed generation in homes or for transportation?

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A3. There are no requirements in current residential building codes for explosion-proof light and electrical fixtures. The International Code Council's (ICC) Hydrogen Ad Hoc Committee (HAHC) is now preparing amendments to the ICC model building, fire, and fuel gas codes to accommodate the use and storage of hydrogen in residential structures, including hydrogen-fueled vehicles in garages. There is no contemplation by the HAHC to require explosion-proof lighting or electrical fixtures in residential or commercial structures where hydrogen may be used in applications typically associated with such structures.

Hydrogen Program

Q4. In your testimony, you described the strategic review of all of your Office's programs. Will this review be completed in sufficient time to be considered in the formation of the fiscal year 2003 budget request?

A4. I expect that the Strategic Program Review (SPR) process that was described in my testimony will be completed prior to the Department's submission of the budget.

Hydrogen R&D

Q5. Your testimony states, ''. . .the Vice President's National Energy Policy Development Group specifically highlights hydrogen as an important, next-generation technology, and recommends that R&D efforts be focused on integrating current programs regarding hydrogen, fuel cells, and distributed energy.''

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Q5.1. What is the scope of that you referred to, i.e., within your Office's programs, within the Department of Energy (DOE) across Federal government or between the Federal, state and local governments and the private sector?

A5.1. During my testimony, I referred to those program actions primarily within the Office of Energy Efficiency and Renewable Energy (EERE), DOE. These programs are mission-driven, and therefore directed at distinct applications or end-use sectors. EERE's program activities are pursued, however, within the context of the broader portfolio of efforts across DOE, the Federal Government, States and the private sector. Whenever possible, EERE seeks to work either in collaboration or complementary with other organization including the DOE's Office of Fossil Energy (FE) in order to achieve better results and to maximize the return for each Federal dollar invested. For example, the Office of Fossil Energy is conducting research for the production, separation and storage of less expensive hydrogen (primarily from natural gas and coal). Fossil fuels are expected to continue to be the major, low cost important source for production of hydrogen. In the future, technology for the sequestration of carbon will become an important element of fossil fuel hydrogen production processes. The development of low-cost hydrogen production processes and high density hydrogen storage technologies are critical to the successful development and commercialization of fuel cells for transportation and distributed energy systems.

Within that context, EERE has recognized the importance of hydrogen as an interdisciplinary program. In the areas of distributed generation and proton exchange membrane (PEM) fuel cells, the Hydrogen Program supports research, development and engineering validation of reversible PEM fuel cell systems that can co-produce hydrogen and electricity. The Distributed Energy Resources Program, which is coordinated with the Office of Fossil Energy, has the responsibility for reformatting PEM fuel cells to provide combined heat and power. Transportation application PEM fuel cells are also being developed by the Fuel Cells for Transportation Program for vehicles and buses. These programs coordinate their technology development when they are complementary, but conduct independent research when they are not. These first two programs are located within EERE's Office of Power Technologies and the latter within the Office of Transportation Technologies. Collectively, these sector offices have the responsibility to ensure coordination on all research and development of hydrogen and PEM fuel cells applications that include co-sponsored solicitations. In addition, other work on fuel cell development based on molten carbonate and solid oxide (ceramic) technology is being conducted by the Office of Fossil Energy.

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All of the Department's efforts are coordinated via several mechanisms, including joint workshops, Annual Operating Plan reviews and the interagency's Fuel Cell Coordinating Council which represents the Departments of Energy's EERE and Office of Fossil Energy, Defense, Transportation, Commerce, National Air and Space Administration, the National Science Foundation, and the Interagency Advanced Power Group (IAPG), which includes all of the above agencies except the National Science Foundation.

Q5.2. H.R. 2174, the Robert S. Walker and George E. Brown, Jr. Hydrogen Energy Act of 2001, was drafted with such integration in mind. Would you please discuss, and provide written recommendations, as to how the bill may facilitate the recommended integration of hydrogen programs?

A5.2. The programs within the Office Energy Efficiency and Renewable Energy (EERE) are coordinating their activities to achieve the performance goals outlined in the President's National Energy Policy (NEP). This coordination role was established per Section 106 of the Matsunaga Hydrogen Research, Development and Demonstration Act of 1990, (P.L. 101–566), and amended in Section 105 of the Hydrogen Future Act of 1996, (P.L. 104–271). The Department implemented this coordination process at the time it assigned responsibility for its Hydrogen Program to EERE in June 1991. Each EERE sector office's cross-cutting technology programs are directed to meet regularly to discuss accomplishments, plan collaborative projects and meetings, and present their programs to the Hydrogen Technical Advisory Panel. In addition, EERE program managers report regularly to their respective Deputy Assistant Secretary on their collaborations achievements.

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Cross-cutting technology programs within other agencies are more difficult to coordinate. The Department has recently completed an investigation of all Federally funded hydrogen projects using the RAND database. Total funding for all hydrogen and hydrogen related research is approximately $120 million per year. The agencies funding projects include the Department of Agriculture, Commerce, Defense, Energy and Transportation. The Department's recommendation is to allow the President's National Policy Development Group determine the best way to improve interagency coordination of hydrogen and hydrogen related research and development.

Q5.3. Later in your testimony you state, ''The Administration believes a coordinated interagency effort will strengthen our ability to move toward commercial use of hydrogen. . ..'' Is this the same or a different approach from the program integration mentioned earlier in your testimony? How would such an interagency approach be structured? Does an appropriate model currently exist? Is legislation required? Section 7 of H.R. 2174, the Robert S. Walker and George E. Brown Jr. Hydrogen Energy Act of 2001 provides that the Secretary of Energy shall ''develop, with other Federal agencies as appropriate and industry, an information exchange program to improve technology transfer for hydrogen production, storage, transportation, and use, which may consist of workshops, publications, conferences, and database for the use by public and private sectors. . ..'' Is this a sufficient interagency effort? If not, please provide comments on how to strengthen this language.

A5.3. In addition to coordination within DOE, the Administration has elected to continue the work of the National Energy Policy Development Group, which is acting as the coordinating body for all interagency energy efforts; no legislation is required.

The programs within EERE support a number of outreach activities to transfer technology information to the private sector, per Section 105 of the Hydrogen Future Act of 1996. These include competitive support for domestic and international conferences; peer review meetings using industry members as technical reviewers; websites for specific technologies; publishing of technical papers in peer reviewed journals; and the production of brochures, compact discs, and videos that illustrate recent accomplishments. Other agencies use their own internal policies for dissemination of information.

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Q6. Critics of the Federal level of funding for hydrogen R&D claim that European and Pacific Rim nations are subsidizing industry participation in the development of hydrogen energy systems and infrastructure and the U.S. Federal government is not. If the international ''playing field'' is not level, how can U.S. companies hope to compete internationally or even capture U.S. market share?

A6. The development and implementation of equipment standards is a critical trade issue, especially with new energy systems, such as hydrogen and fuel cells. The U.S. uses engineering or design standards to define what is acceptable for different connectors, refueling station tanks, vehicular tanks, and instrumentation, respectively. The Europeans refuse to use U.S. standards developed by such organizations as the American Society of Mechanical Engineers (ASME). Through the European Union, they have chosen to take this issue to the United Nations and bypass the International Standards Organization (ISO). Since the Europeans have a larger voting block, the U.N. could adopt the European version of all hydrogen and fuel cell standards, to which the U.S. manufacturers would have to comply if they are to compete effectively in the world market. In order for the U.S. to counter this situation, it would have to organize under the North American Free Trade Agreement to oppose the European vote.

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Submitted to Dr. H.M. Hubbard, Chair, Committee on Programmatic Review, Office of Power Technologies, National Research Council

These questions were submitted to the witness, but were not responded to by the time of publication.

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Hydrogen R&D

Q1. As you are aware this Committee's past authorizations for hydrogen R&D have greatly exceeded the actual appropriations (appropriations have been approximately 50 percent of authorization). This discussion draft significantly ''ramps up'' the authorization levels. If the appropriators meet these levels, will the DOE and the industry programs be able to respond in a productive, meaningful and coherent way?

Q2. How do the U.S. Federally funded hydrogen R&D programs compare with other countries that are committed to a hydrogen-based energy future?

Hydrogen Infrastructure Concerns

Q3. Is it correct that current codes require explosion-proof light and electrical fixtures in a hydrogen environment? If so, how will consumers be able to use hydrogen in distributed generation in homes or for transportation?

Recommendations of the NRC Panel on Hydrogen

Q4. As Chair of the National Research Council Committee that produced the report titled, ''Renewable Power Pathways,'' would you please elaborate on an issue raised in the report that ''. . .the tension between the short-term and long-term objectives is perhaps even greater for the Hydrogen Research Program than it is for other programs.''

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Q5. You stated in your testimony that the NRC committee's review, ''approached the subject from a renewable energy program perspective although the committee recognized from the start that the hydrogen program has broader implications for energy systems generally.'' The Administration has recommended ''integrating current programs regarding hydrogen, fuel cells, and distributed energy'' and ''a coordinated interagency effort will strengthen our ability to move toward commercial use of hydrogen. . ..'' What are your thoughts on these recommendations and is there an expanded role for the NRC committee to conduct a review across the Federal Government?

Q6. Please comment on the discussion draft provision to sunset the Hydrogen Technical Advisory Panel and establish a Hydrogen Advisory Board at the National Academy of Science.

Q7. Your testimony stated, ''OPT should de-emphasize optimistic, short-term deployment goals as the metrics for defining success.'' Does this recommendation stem from particular examples or from program management theory and how does this statement comport with the OPT's program element of ''validation''? Please elaborate?

Q8. Please explain specifically why the committee recommended that the OPT office secondarily concentrate on hydrogen storage for distributed power and where might this activity be better conducted?

Q9. Would a Hydrogen Advisory Board at the National Academy of Science be better prepared and suited to advise OPT on the committee's second recommendation to ''establish a systematic method of setting priorities focused on how resources can best be used. . .regular performance-based reviews of projects. . .''?

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ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Submitted to Mr. Arthur T. Katsaros, on behalf of the National Hydrogen Association

These questions were submitted to the witness, but were not responded to by the time of publication.

Hydrogen R&D
Q1. As you are aware this Committee's past authorizations for hydrogen R&D have greatly exceeded the actual appropriations (appropriations have been approximately 50 percent of authorization). This discussion draft significantly ''ramps up'' the authorization levels. If the appropriators meet these levels, will the DOE and the industry programs be able to respond in a productive, meaningful and coherent way?

Q2. How do the U.S. Federally funded hydrogen R&D programs compare with other countries that are committed to a hydrogen-based energy future?

Hydrogen Infrastructure Concerns

Q3. Is it correct that current codes require explosion-proof light and electrical fixtures in a hydrogen environment? If so, how will consumers be able to use hydrogen in distributed generation in homes or for transportation?

Q4. Your testimony stated that, ''hydrogen can be handled safely when guidelines for its safe storage, handling and use are observed.'' Air Products and other industrial users of hydrogen are heavily regulated and have a long history of experience in using hydrogen for industrial applications. As the consumer infrastructure takes shape and grows and we have ''hydrogen filling stations'' in congested city centers or hydrogen pipelines under residential housing, how can we ensure that 'guidelines for hydrogen's safe storage, handling and use are observed' by the average American?

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Q5. Please discuss current hydrogen liability issues in your industry and what the liability implications might be for commercial and residential use in the future.

Q6. You called in your testimony for the Federal Government to develop standards and regulations to ensure public confidence. Don't industrial standards and regulations exist and at this stage of commercial and residential R&D and deployment, isn't it still early?

Release of COI in Hydrogen Production

Q7. In the production of hydrogen, is any CO released?

Hydrogen Production Costs by Feedstock

Q8. What is the hydrogen production cost difference between different fuel stocks, for example renewable sources, nuclear energy, or fossil fuels?

Q9. What is your estimate of hydrogen production costs without the release of CO at any point in the production process?

ANSWERS TO POST-HEARING QUESTIONS SUBMITTED BY MAJORITY MEMBERS

Submitted to Mr. David P. Haberman, Chairman, DCH Technologies, Inc.

These questions were submitted to the witness, but were not responded to by the time of publication.

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Hydrogen R&D

Q1. As you are aware this Committee's past authorizations for hydrogen R&D have greatly exceeded the actual appropriations (appropriations have been approximately 50 percent of authorization). This discussion draft significantly ''ramps up'' the authorization levels. If the appropriators meet these levels, will the DOE and the industry programs be able to respond in a productive, meaningful and coherent way?

Q2. How do the U.S. Federally funded hydrogen R&D programs compare with other countries that are committed to a hydrogen-based energy future?

Hydrogen Infrastructure Concerns

Q3. Is it correct that current codes require explosion-proof light and electrical fixtures in a hydrogen environment? If so, how will consumers be able to use hydrogen in distributed generation in homes or for transportation?

Competitiveness in the Face of Foreign Subsidies

Q4. Please describe difficulties you face as a business competing with European companies, and how do European subsidies, and codes and standards hinder your ability to compete? To what degree do you predict European companies will be able to gain U.S. market share as a result of government subsidies?

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Hydrogen for Distributed Generation

Q5. How does hydrogen help to respond to electricity price fluctuations? I understand that your company is engaged in aspects of fuel cell development. In your opinion, when will stationary fuel cells be ready for residential on-site coupling with solar and wind generation?

Changes needed to Implement Large-scale Hydrogen Projects

Q6. In your testimony you stated that small-scale hydrogen applications are commercial right now, but that larger scale applications are gaining a lot of attention, but will require changes in infrastructure. Can you describe those changes and how they may be achieved?

The Government's Role in Hydrogen Commercialization

Q7. You indicated in your testimony that you feel that government has an important role in developing hydrogen technologies ''outside of the harsh justification of market economics.'' Would you say that there is a market imperfection or a market failure that would prevent development and commercialization of hydrogen technologies?

Q8. You spoke in your testimony of government's role in standards setting. Is this an essential role of government, or could it be performed by a non-governmental organization similar to Underwriters Laboratory (UL) or ASTM?

Q9. Some may suggest that the R&D money poured into hydrogen is corporate welfare. How do you address that charge?

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Onboard Reformers and Automotive Fuel Cells

Q10. Are onboard gasoline or other hydrocarbon reformers practical for transportation applications? Will they be?

ANSWERS TO POST-HEARING QUESTIONS

Responses by Dr. Peter Lehman, Director, Schatz Energy Research Center, Humboldt State University

Hydrogen R&D

Q1. As you are aware this Committee's past authorizations for hydrogen R&D have greatly exceeded the actual appropriations (appropriations have been approximately 50 percent of authorization). This discussion draft significantly ''ramps up'' the authorization levels. If the appropriators meet these levels, will the DOE and the industry programs be able to respond in a productive, meaningful and coherent way?

A1. Most of the R&D needs for hydrogen and fuel cells are being funded adequately in the private sector, and these investments will repay themselves as fuel cell products enter the mass market. Where federal funding can play a crucial role is in R&D on renewable hydrogen. Renewable hydrogen systems combine solar photovoltaic or wind equipment, electrolytic hydrogen generators, hydrogen storage, and fuel cells. Given the intermittent availability of renewable solar and wind energy resources, hydrogen acts as a needed storage medium to match these renewable resources to our daily and seasonal energy requirements.

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As non-renewable fossil fuels become scarcer and more expensive, renewable hydrogen will need to replace our existing energy systems. In the short-term, development of solar hydrogen technologies is not yet economically attractive to the private sector. Federal funding can help lay the groundwork for renewable hydrogen technology and ensure its speedy translation to the marketplace in the coming decades.

Q2. How do the U.S. Federally funded hydrogen R&D programs compare with other countries that are committed to a hydrogen-based energy future?

A2. Most of the world's industrialized countries are conducting some form of government-supported hydrogen energy program. The Japanese World Energy Network (WE–NET) program is now in the second phase of its projected twenty-year program lifespan. Japan has committed $88 million over the four-year period of Phase II to research hydrogen generation and stationary and transportation uses of hydrogen. This works out to $7.80 per year per million dollars of Japan's GDP. U.S. funding for DOE hydrogen research for FY 2001, by comparison, was $27 million, or just $2.80 per year per million dollars of U.S. GDP. Iceland has established the widely publicized goal of converting its entire energy economy to hydrogen. The first three-year phase of this program will spend $8 million to demonstrate fuel cells on public buses. This works out to a staggering $400 per year per million dollars GDP. Clearly the U.S. is not the world leader in public-sector hydrogen R&D spending relative to the size of its domestic economy.

Hydroeen Infrastructure Concerns

Q3. Is it correct that current codes require explosion-proof light and electrical fixtures in a hydrogen environment? If so, how will consumers be able to use hydrogen in distributed generation in homes or for transportation?

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A3. Article 500 of the National Electrical Code (NEC) defines hazardous locations within ''classes'' and ''divisions'' according to the likelihood of a fire or explosion. The NEC does require explosion-proof lights and fixtures in locations where flammable gases are used and where combustion might occur under either ''normal'' or ''abnormal'' (i.e., equipment failure) operating conditions.

Hydrogen systems designed for residential or commercial use would be built to meet the NEC's ''nonclassified'' criteria, i.e., such that an ignitable gas mixture would not be likely to occur under normal or abnormal operating conditions. The NEC allows the use of non-explosion-proof light and electrical fixtures in ''nonclassified'' locations. Multiple design strategies would be used to achieve this degree of safety. For example, where electricity from fuel cells is used indoors, the hydrogen storage and fuel cell would be housed in an isolated portion of the building or a separate structure vented directly to outdoors. What the consumer or business owner would end up with would be an ordinary appliance in a safe, normal setting—nothing special or new from a safety perspective.

Q4. You mentioned in your testimony public concerns over the safety of hydrogen infrastructure. What special precautions need to be taken when handling hydrogen, and please address its explosive nature and the fact that it is odorless?

A4. Hydrogen is a safe fuel. Its reputation as ''dangerous'' stems mainly from memories of the Hindenburg disaster. However, studies have shown that it was not hydrogen but the highly flammable zeppelin shell that was responsible for that fire. When hydrogen detonates or burns, the lightweight gas moves quickly upward, which may help to explain why nearly two-thirds of the people aboard the Hindenburg survived.

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Hydrogen is safer than fuels we're accustomed to using, such as gasoline and natural gas. Nonetheless, it is a combustible fuel and certainly needs to be handled with caution. Hydrogen has an exceptionally wide range of combustibility in air, has a very low ignition energy, and burns with a nearly invisible flame. These characteristics can make hydrogen more dangerous to work with than other fuels under some circumstances. On the other hand, hydrogen is light and highly diffusive, which makes it unlikely to reach flammable or explosive concentrations. As a gas at room temperature, it cannot puddle or contaminate soils and groundwater. It is non-toxic, and its combustion produces only water.

Reliable and inexpensive hydrogen sensors are available that can be used with alarms or automated shutoff devices to protect hydrogen users. Hydrogen used in fuel cells cannot be odorized like natural gas, because fuel cell membranes are highly sensitive to gas impurities and would be ''poisoned'' by any known odorizer.

Renewables in Base Load Generation

Q5. One of the problems with including renewable forms of energy in the nation's base load electricity supply is that they are intermittent. How can hydrogen be used to address this shortcoming and how quickly can we start considering renewables as part of base load?

A5. This question addresses the very reason that the Schatz Energy Research Center and others are demonstrating and advocating the merger of renewable energy and hydrogen. Hydrogen offers a safe, clean, and relatively simple means of storing and transporting energy. A renewable hydrogen economy would allow us to transport energy generated using wind turbines located offshore or in the windy upper plains for use in urban areas on the west and east coasts. It would also allow us to store energy captured with photovoltaic modules during the summer for use during the cloudy winter months.

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Renewables are ready for base load use in many circumstances right now. For example, recent analyses in California and Texas have shown wind energy to have the lowest marginal energy cost among all technologies for bringing new power production on line. Federal support for renewable hydrogen development will provide increased opportunities for renewable energy to contribute to base load energy needs.

Future Hydrogen Infrastructure

Q6. Do you envision a distribution infrastructure that could operate like gasoline stations and what are the technical and safety impediments to such a widespread distribution scheme?

A6. Transportation uses of hydrogen will call for a refueling infrastructure similar to our existing gasoline filling stations. However, planning and building such a network may not be a necessary precursor to putting hydrogen vehicles out on the street. Recall that Henry Ford was mass-producing automobiles over a decade before the birth of a nationwide gasoline filling station network. Several public and private entities are now at work, particularly in California, designing, building and testing prototype hydrogen distribution infrastructure. The California Energy Commission has just issued an RFP calling for a statewide hydrogen fueling infrastructure study.

We have already learned from experience that the best starting point for introducing an alternative fuel is by switching over fleet vehicles such as buses. These vehicles can be refueled at a single, central location. Such fueling sites can be supplied economically today using deliveries of industrial hydrogen from existing producers. A logical next step will be to begin dispensing industrial hydrogen at specially-equipped public filling stations.

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In the future, these facilities could gradually be switched over to decentralized, self-sufficient hydrogen generation using renewable electricity, electrolyzers and water to generate and dispense hydrogen on-site. Such facilities are already being built on a demonstration scale. Our research center successfully designed and built a turnkey solar hydrogen generation and refueling facility for SunLine Transit Agency in Thousand Palms, California, as well as a small fleet of hydrogen vehicles that use the refueling station on a daily basis. Where on-site generation is not feasible, hydrogen will be delivered to dispensing stations either by truck (as we now resupply gasoline stations) or by pipeline (as we now deliver natural gas to homes and businesses).

By and large, the technical and safety impediments to creating a hydrogen distribution network have already been addressed and overcome in the past century as we have developed our gasoline and compressed natural gas infrastructures. The small size and high diffusivity of hydrogen do call for tighter plumbing than compressed natural gas, but hardware for handling hydrogen safely is widely available now.

Q7. Are widespread and readily available hydrogen ''filling stations'' necessary for fuels cells to gain acceptance? Could these ''filling stations'' be located in a congested downtown area?

A7. For transportation uses, there will certainly need to be a refueling infrastructure analogous to the network of gasoline filling stations across the United States. As discussed above, hydrogen is in most ways safer to handle than gasoline. It would certainly be feasible and safe to install hydrogen refueling stations in urban sites, just as gasoline stations are found in cities now. In addition to transportation uses, fuel cells are also being developed for stationary and portable applications. For these uses, other strategies for supplying hydrogen may prove appropriate, such as generating hydrogen on-site with electrolyzers or piping hydrogen to individual homes and businesses.

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Q8. What obstacles do you see to establishing Codes and Standards for a ''consumer'' hydrogen economy, give that we have Codes and Standards for the industrial economy? Would they necessarily be different?

A8. In building the SunLine hydrogen refueling station described above, we consulted and applied codes and standards developed by the Compressed Gas Association (CGA), the National Fire Protection Association (NFPA) and other organizations. We were able to produce a safe, functional facility that satisfied local fire marshals and building officials using a combination of standards for consumer and industrial hydrogen facilities and referring to standards for consumer compressed natural gas facilities for additional guidance.

Future designers and builders of consumer hydrogen facilities will certainly have an easier task than we did if they have access to a concise, specific and consistent set of codes and standards written for consumer hydrogen facilities. The National Hydrogen Association is spearheading ongoing efforts to create such a set of codes and standards. NHA's partners in these efforts include CGA, NFPA, IEEE, UL, ANSI, and ASME.

Hydrogen Production Today and in the Future

Q9. What are the most common ways to produce hydrogen today, and what are the most promising technologies for the future?

A9. Fuel Cell Systems by Blomen and Mugerwa (1993) estimates world hydrogen production to be 20 million tons per year. About three-fourths of industrial hydrogen is derived from natural gas. Most of the remainder is derived from petroleum. Only about one percent comes from other sources, including electrolysis of water. The technique most commonly used for extracting hydrogen from fossil fuels is steam reforming. Other methods include coal gasification, methanol conversion, ammonia cracking, and recovery of hydrogen as a by-product from industrial processing of other gases.

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In the short-term, natural gas reformation will continue to be the most important hydrogen source. In the long term, renewable electricity-powered water electrolysis will increase in importance, as it produces no emissions and does not consume fossil fuels.

Part 2

Panel II Questions

ANSWERS TO POST-HEARING QUESTIONS

Responses by William D. Magwood, IV, Director, Office of Nuclear Energy, Science and Technology, U.S. Department of Energy

Administration View of H.R. 1679 and H.R. 2126

Q1. Your testimony stated that the Administration supports the objectives of Representative Biggert's bill, H.R. 2126. What would be the recommended funding level?

Q2. We hear a lot about the trained workforce shortage for nuclear engineers and scientists. If your program expands as a result of passage of H.R. 1679 and H.R. 2126 how will you staff these programs with trained professionals?

Non-Proliferation and Gen-IV Reactor Designs

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Q3. Part of the Department's non-proliferation efforts in Russia includes developing a U.S.-based gas reactor technology in Russia for the purpose of weapons plutonium disposition. Can this technology, referred to as GT–MHR, be converted into a civilian Gen IV reactor which could be ready for deployment in the U.S. and around the world within this decade—when we need it most and how would you describe the level of coordination and information exchange between this DOE non-proliferation program and your office?

A3. The Gas Turbine-Modular Helium Reactor (GT–MHR) is a leading candidate technology for possible deployment in the U.S. within the next ten years. The GT–MHR technology currently under development in Russia is being evaluated as potential plutonium-burning reactor and is being actively evaluated by both U.S. power generation companies and DOE as a potential technology for electricity production. In FY 2001, the Department initiated several activities in support of preparing the GT–MHR technology for deployment in the U.S.

The Office of Nuclear Energy, Science and Technology is working with the National Nuclear Security Administration's Office of Fissile Materials Disposition to leverage our knowledge and expertise on the GT–MHR technology so that there will be no duplication of effort between our offices.

Q4. Since the Administration is very supportive of new nuclear power development, what is the Administration's position on leveraging U.S. funded work on gas reactor technology for weapons plutonium disposition in Russia as a relatively inexpensive way to develop a new reactor type for civilian power production?

A4. The Department of Energy is very interested in leveraging the U.S.-funded work on gas reactor technology in Russia for weapons plutonium disposition as a cost effective approach to deploying gas reactor technology for commercial electric power generation in the United States. Gas reactor technology is among the technologies that are being considered as part of the Office of Nuclear Energy, Science and Technology (NE)'s development of a Generation IV Technology Roadmap. The completion of the technology roadmap next year will result in the identification of the most promising technologies for further development and international collaboration. Additionally, NE's Advanced Accelerator Applications (AAA) program is also evaluating the use of gas-cooled reactors for waste transmutation. The fuel work being conducted in Russia is being coordinated with the AAA program office.

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The Department plans to leverage all of these activities under the coming years to evaluate the potential benefits of gas-cooled reactor technology, and if appropriate, encouraging its commercial application.

ANSWERS TO POST-HEARING QUESTIONS

Responses by Joe F. Colvin, President, Nuclear Energy Institute

LNT and Yucca Mountain

Q1. As you know, this subcommittee held a hearing last year on the scientific basis for the linear no-threshold model for radiation exposure. Also, EPA has recently issued the final rule for Yucca Mountain standards and your organization has brought suit over that rule. Please discuss the significance of this issue with respect to Yucca Mountain, commercial plant decommissioning and DOE sites.

A1. The nuclear energy industry maintains its long-standing position that radiation standards should be based on sound science, should be practical and should be uniformly and consistently implemented. This would assure protection of public health and safety and of the environment. EPA, the Nuclear Regulatory Commission and the Department of Energy are the principal federal agencies responsible for establishing radiation safety regulations. While these agencies often work cooperatively, the EPA and the NRC have a fundamental disagreement over what the appropriate radiation safety standards should be for the proposed Yucca Mountain repository for used nuclear fuel and for cleanup of nuclear sites.

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    The NRC has established a 25-millirem per year all-pathways standard for the general public as the criteria for cleanup of NRC-licensed sites, as part of an overall 100-millirem per year safety standard for the general public. NRC also proposed a 25-millirem per year all-pathways standard for licensing the Yucca Mountain repository. EPA's standard for the uranium fuel cycle is 25 millirem per year.

    However, EPA's radiation safety standard for the Yucca Mountain repository has been established at 15 millirem per year, with a separate groundwater standard of 4 millirem per year. EPA has not demonstrated any increased protection to public health and safety that would result from the adoption of this different standard for Yucca Mountain from the standard it established for uranium fuel cycle impacts or the standard that the NRC has established for all facilities under its regulatory authority. Although the EPA standard is being challenged in court, the NRC is modifying its rules to conform to the EPA standard, as required under the law. However, the NRC continues to believe the EPA standard is not based on sound science.

    Similarly, the NRC and EPA remain in dispute over the NRC's 25-millirem all-pathways standard for cleanup and decommissioning of NRC-licensed facilities. The DOE proposed a similar standard for cleanup of federal nuclear facilities.

    The EPA proposed a 15-millirem standard, with a separate groundwater standard of 4 millirem per year, for cleanup of civilian and federal nuclear sites. The differences between the NRC and DOE approach and that of the EPA has been of concern to the Office of Management and Budget (OMB). Ultimately, the EPA withdrew its cleanup standard proposal, reportedly because the large projected costs associated with meeting the standard could not be justified. The DOE has not finalized its cleanup standard, reportedly due to continuing objections from the EPA. The EPA, through policy directives to its regional offices and to states, continues to challenge the NRC cleanup standard.

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    The Government Accounting Office (GAO) said in a June 2000 report (Radiation Standards: Scientific Basis Inconclusive, and EPA and NRC Disagreement Continues [GAO/RCED 00–152, June 2000]) that meeting the proposed EPA radiation standard for Yucca Mountain will increase the repository costs by billions of dollars with no commensurate increase in public safety. GAO estimates that the costs of Yucca Mountain have increased by $10 billion since 1993 as a part of DOE's effort to plan for meeting stricter radiation safety standards and many billions more may be spent in order to comply with the EPA's proposed standards. The GAO report's overall conclusion is that the long-term costs related to complying with current and prospective U.S. radiation standards ''will be immense, likely in the hundreds of billions of dollars,'' and that ''site-specific compliance costs can vary significantly depending on the restrictiveness of the standards.''

    The GAO report illustrates that science-based radiation standards should be consistent because of the tremendous implications to project costs without any commensurate benefit to public health and safety.

    The nuclear energy industry has challenged EPA's Yucca Mountain radiation standard because a separate groundwater standard is not necessary to fully protect public health and safety. Moreover, the groundwater standard is not based upon sound science, and a separate groundwater standard violates the Energy Policy Act of 1992, which requires that EPA's radiation standard be consistent with the recommendations of the National Academy of Sciences. The Academy explicitly concluded that establishing a separate groundwater standard is not appropriate.

Nuclear Science and Engineering Workforce Needs

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Q2. Please discuss the trained nuclear engineering and science workforce shortfall and the implications.

A2. Attracting and maintaining a skilled workforce is essential to the future success of the nuclear industry. Staffing our nation's 103 nuclear power plants—along with the Nuclear Regulatory Commission and other government agencies, reactor design and equipment suppliers, engineering service and educational communities—constitutes a significant demand for skilled personnel.

    NEI is conducting a systematic, industry wide assessment of workforce issues. NEI collected, and is currently analyzing, workforce supply and demand information for 13 disciplines, including nuclear engineering, health physics, mechanical and electrical maintenance, plant operation and welding.

    The industry's objective is to establish a credible estimate of staffing demand and supply through 2011 for the nuclear power generation industry, including generating companies, reactor vendors, architect engineering firms, equipment suppliers, contractors, governmental agencies and academic institutions. NEI will use that information to address any potential workforce shortfalls. The analysis and plan of action will be complete by year-end.

    Preliminary results indicate that the demand for degreed health physicists and nuclear engineers will outstrip supply by as much as two to one over the next decade. Reduced enrollment in these university programs during the past decade is well-documented and reported.(see footnote 54) ^, (see footnote 55)

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    The expected shortfalls in these two areas have significant implications. First, the industry's tremendous performance improvements in the 1990s resulted from a focus on excellent human performance and self-critical, prompt corrective action programs. The continued performance improvement is attributable to the industry's highly skilled and talented workforce. Our workforce must continue to have this level of skill and talent to ensure the industry's long-term success.

    Second, labor shortfalls will drive up salaries and labor-related costs. By their nature, nuclear energy requires higher staffing levels than other power plants, and to continue to compete with other electrical energy sources, labor costs must keep in line.

    Increases in the numbers of new graduates in fields such as mechanical and electrical engineering, and skilled crafts, can help the industry meet its long-term personnel needs—provided the nuclear energy industry recruits aggressively. The industry will have to compete intensely for these resources against other industries, emphasizing the excellent compensation and career opportunities available.

    NEI will coordinate industry efforts to strengthen alliances with trade unions and trade schools to address the need to develop the skilled craft workers for the future.

    NEI is assisting its members in identifying programs to make students and educators aware of more opportunities in the nuclear industry by better integrating the recruiting activities—and identifying best recruiting practices—of member companies, universities, the Department of Energy, the Institute of Nuclear Power Operations, etc. NEI is also initiating programs to raise awareness of the promise that careers in nuclear energy hold for young people.

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NEPO and Other DOE Program Performance

Q3. To what degree has the DOE's NEPO program, or other DOE programs, contributed to the exemplary performance of nuclear power plants in the 1990s?

A3. In the late 1980s and the very early 1990s, the Department of Energy was very helpful to the nuclear industry in early efforts on the issue of license renewal. Only recently, however, has DOE launched programs to support industry programs to further improve stellar performance at 103 commercial reactors.

    The Nuclear Energy Plant Optimization (NEPO) program and other Department of Energy programs, such as the Nuclear Energy Research Initiative (NERD, are still in their infancy. NEPO, a public-private partnership between DOE and private industry, was launched in fiscal year 2000. NERI, which brings together the talent and resources of the Nation's universities, national laboratories and the nuclear energy industry, was launched in fiscal year 1999.

    Although the NEPO program had no impact in the 1990s, it is one of the most important DOE programs of value to U.S. nuclear facilities.

    Nuclear plants have been able to make these strides by sharing information on new technologies and operating procedures. This cooperative effort will continue to provide reliable, safe and needed energy to U.S. residents and businesses as their demand for it grows.

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    The nuclear energy industry is confident these programs will have significant positive impacts in the future, identifying additional ways to improve plant performance and developing new technologies. During the past decade, however, the industry achieved performance improvements through cooperative industry-wide efforts.

    U.S. nuclear power plants generated a record 754 billion kilowatt-hours of electricity in 2000, operating at an average capacity factor of 90 percent. This dramatic rise in efficiency and production at U.S. nuclear plants during the 1990s is the equivalent of adding 22 new 1,000-megawatt power plants to the electricity grid. The power from this increased generation was enough to meet 22 percent of all new electricity demand during the 1990s.

Construction Lead Times for Nuclear Plants

Q4. What is the realistic lead-time for construction of an NRC-certified nuclear power plant, based on the Japanese experience with the AL WR?

A4. The U.S. Nuclear Regulatory Commission certified the General Electric Advanced Boiling Water Reactor (ABWR) design under a very successful industry/DOE cost-shared program. The first ABWR units were built in Japan at Kashiwazaki-Kariwa, with 51 months between the first concrete pour and commercial operation. Both units are operating at world-class levels. Other ABWRs are planned or under construction in Japan, and similar construction schedules are expected. Two ABWRs also are being built in Taiwan. The Taiwanese estimate that they can reduce the construction schedule by one to three months.

    DOE has begun to recoup its investment through royalty checks as the advanced light water reactors (ALWR) are being ordered.

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Based on the overseas experience, NEI expects that a large ALWR can be built in the United States in four years. The smaller ALWR (the 600-megawatt AP600) can be built in three years. This will require that the Nuclear Regulatory Commission have in place a revised and efficient construction inspection program.

ANSWERS TO POST-HEARING QUESTIONS

Submitted to John F. Kotek, on behalf of American Nuclear Society

These questions were submitted to the witness, but were not responded to by the time of publication.

Nuclear Science and Engineering Workforce Needs

Q1. Please discuss nuclear science and engineering workforce shortfall concerns, particularly with respect to R&D.

Nuclear Materials Issues

Q2. The greatest fear voiced by nuclear critics is the risk of transporting nuclear materials. Please educate me on the safety concerns of these shipments.

Q3. Will used fuel and other waste be safe at plant sites until a repository is ready to receive used fuel?

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Value of Further Nuclear R&D

Q4. The PIRG witness claimed that as of 1998, the government had spent $66 billion on nuclear energy R&D, and that further expenditures are unwarranted. Please comment.

Nuclear Safety

Q5. In prior testimony before the House Energy and Commerce Committee, PIRG cited a 1982 study by Sandia National Laboratories and claimed that this study showed hundreds of thousands of people could die in the near-term as a result of a serious accident at a U.S. nuclear reactor. Please comment.

ANSWERS TO POST-HEARING QUESTIONS

Submitted to Anna Aurilio, Legislative Director, U.S. Public Interest Research Group

These questions were submitted to the witness, but were not responded to by the time of publication.

PIRG Opposition to Nuclear Programs

Q1. You are opposed to the Federal nuclear and commercial nuclear power program, including education and waste disposal. How shall we safely handle nuclear waste clean-up around the DOE complex, carry out needed medical procedures, support the Naval Nuclear Propulsion program and so on without this industry?

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Use of Weapons Grade Materials for MOX Fuels

Q2. You stated in your testimony that use of Mixed Oxide fuel that uses diluted down weapons material is three to four times as expensive as regular fuel. Isn't that just the cost of destroying the weapons material forever and isn't that a desirable goal for nonproliferation?

Spent Fuel Storage Strategies

Q3. In PIRGs' written and oral testimony, it dismissed geologic disposal of spent nuclear fuel as unsafe, yet criticized advanced spent fuel management technologies such as electrometallurgical treatment and transmutation as dangerous and expensive. If geologic disposal or treatment of the fuel are not acceptable to PIRG, what spent fuel management strategy would be?

PIRG's Position on H.R. 2126

Q4. The Committee understands that PIRG does not support the use of nuclear power. However, nuclear engineers and other nuclear-trained professionals are needed in many non-power areas such as environmental restoration, nuclear medicine, nonproliferation and national security programs. Given the importance of nuclear-trained professionals to these critical missions, please explain why PIRG does not support increased federal funding for training nuclear professionals as proposed in H.R. 2126.

Appendix 2:

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Additional Material for the Record

Next Hearing Segment(4)

(Footnote 53 return)
IZIGLOBE, ''Index of the World Countries by Global Gross National Product,'' http://www.izitime.com/iziglobe–liste–pib–en.html

(Footnote 54 return)
Manpower Supply and Demand in the Nuclear Industry, a publication of the Nuclear Engineering Department Heads Organization, November 1999.

(Footnote 55 return)
Nuclear Engineering in Transition: A Vision for the 21st Century, J. Freidberg and M. Kazimi, editors, Nuclear Engineering Department Heads Organization, December 1998.