Hydrogen: Energizing the Energy Industry

By Greg Vesey, President, Technology Ventures
ChevronTexaco Corporation

Fuel Cell Summit

Hannover, Germany

Read Testimony by Greg Vesey to the Subcommittee on Energy and Air Quality of the U.S. House of Representatives Energy and Commerce Committee

I'm pleased to be here in Hannover to share some thoughts on the rapidly evolving world of hydrogen and fuel cell technology.

As the only representative from the energy industry on today's program, I welcome the opportunity to explain how our industry views the advent of hydrogen as a fuel and how we're responding to the range of opportunities that it presents. As you may know, producing hydrogen is nothing new for those of us in the oil business. We've been doing it for decades — making hydrogen for use in our refineries and for bulk sale to industrial customers, such as fertilizer manufacturers. So producing hydrogen for use as a fuel is a natural extension of what we already do. In other words, when you're talking hydrogen — or more specifically, hydrogen made from hydrocarbons — you're talking our language.

Today, I'll cover a range of topics, including:

  • the challenges the energy industry faces related to responsible growth,
  • some developments in the U.S. market that are spurring advances in hydrogen technologies,
  • some of the things we're doing at ChevronTexaco to accelerate energy innovation in general and hydrogen systems in particular.

ChevronTexaco is a global company providing energy and chemical products and services vital to the growth of the world's economies. Our core values include a commitment to protecting the safety and health of people and the environment. This commitment is a critical component of the value we deliver to our stockholders, customers, partners and employees.

In addition to contributing to economic growth, the use of fossil fuels to meet the world's energy needs has contributed to an increase in "greenhouse" gases — mainly carbon dioxide and methane — in the earth's atmosphere. Concern is growing that this increase is leading to climate change with adverse effects on the environment. We at ChevronTexaco recognize the increasing public and government concerns about global climate change and integrate these concerns into our business decisions.

ChevronTexaco works proactively with governments and others to create environmentally, technically and economically sound solutions for responsible growth.

In short, ChevronTexaco is responding to the concern about climate change.

That effort begins by improving our current energy technologies. In the transportation sector, that means achieving the full potential of advanced internal combustion engines and familiar fossil fuels such as gasoline and diesel, as well as hybrid power train systems.

Automakers and energy companies are working together to meet strict new environmental regulations in Europe, North America and elsewhere. The auto companies are developing better engine designs, better emission-control systems, and we are working on ultra-clean gasoline and diesel fuels — all of which are helping to reduce pollutants and increase fuel economy and performance.

For example, last year more than 90 gasoline-fueled cars — both conventional and hybrid -currently on the market met California's tough standards for ultra low emission vehicles. These cars reduce many pollutants to almost undetectable levels — an achievement that seemed impossible just a decade ago.

So gasoline and diesel will be part of the world's fuel mix for a long time. That's not surprising, since many new technologies tend, at least initially, to be additive rather than subtractive. That is, a new technology will compete against the existing technology but usually won't immediately supplant it.

Consider television: It didn't replace radio. The fluorescent lamp didn't eliminate the incandescent bulb. Likewise, we doubt hydrogen and renewables will completely replace hydrocarbons anytime in the foreseeable future.

However, the energy industry does understand that, in the search for cleaner energy, it must look at resources in addition to hydrocarbons.

As you know, companies in our industry are working to commercialize a wide variety of advanced energy technologies, such as solar, wind, biomass and, of course, hydrogen.

Several European energy companies have hydrogen initiatives under way. But, since I'm most familiar with the U.S. market, let's look at recent hydrogen developments there.

As many of you know, the U.S. government is backing a new initiative that complements the existing FreedomCAR program, which promotes the development of fuel-cell vehicles. After the government launched the FreedomCAR program in early 2002, it realized that it couldn't fund work on fuel-cell cars "in a vacuum." Government also had to help develop the infrastructure for fueling these vehicles.

It's the fundamental chicken-and-egg scenario. Before people will buy fuel-cell vehicles, they'll need to know they can refuel them safely and conveniently. So, the new federal initiative supports pre-competitive research on the technology required to produce, store, distribute and deliver hydrogen.

My company, ChevronTexaco, intends to participate in both of these federal hydrogen programs.

By way of background, ChevronTexaco is an integrated global energy company operating in more than 180 countries. We are the second-largest U.S.-based energy company and the fifth-largest in the world, based on market capitalization.

We have made a basic commitment to provide whatever mix of fuels is required for the world's transportation and power generation systems — now and in the future. We recognize that this mix will change and evolve and will be shaped by market forces and advances in energy technology. Still, the commitment remains.

If a customer needs energy — whether in the form of hydrocarbons, hydrogen or power — we will be there to supply it.

ChevronTexaco is responding to the concern about climate change. We are integrating a four-point action plan into our business strategy:

  • Reduce greenhouse-gas emissions and increase energy efficiency.
  • Invest in research and development in improved technology.
  • Pursue business opportunities in promising energy technologies.
  • Support flexible, economically sound policies and mechanisms that protect the environment.
  • Let's look at a few of the many ways we are using advanced technology to put this plan into action.

ChevronTexaco has developed a proprietary system to gather, estimate and manage data about our company's energy usage and greenhouse-gas emissions. Since we believe it's essential to measure and calculate such data on a consistent, comparable basis, we're offering this system, called the SANGEA Energy and Emissions Estimating System, free-of-charge to the worldwide energy industry.

We are also partnering with governments, universities and other energy companies to develop ways to capture and sequester carbon dioxide.

A ChevronTexaco joint venture with Sasol Synfuels International is moving ahead with gas-to-liquids technology, which turns natural gas associated with oil production into superclean diesel fuel.

Previously, this gas would have been flared, producing greenhouse-gas emissions.

Another joint venture is producing advanced batteries for use in electric and hybrid vehicles as well as stationary applications. This joint venture recently completed a state-of-the-art plant that will be the largest of its kind in North America.

We are investing in renewable energy as well. For example, we just installed one of the largest photovoltaic systems in the United States to supply 500 kilowatts of clean power to an oil field in Bakersfield, California.

With BP, we built and are operating a 22.5-megawatt wind farm at our jointly owned oil refinery in the Netherlands. The refinery is using some of the electricity internally and selling the rest back to the grid — helping the Dutch reach their national target for renewable energy generation. Bottom line: The wind farm displaces 20,000 tons of carbon dioxide a year.

And, of course, we are pursuing numerous hydrogen initiatives.

Our hydrogen programs are part of our effort to accelerate energy innovation. In other words, we are always pushing the envelope, figuring out new and better ways to meet the world's rising demand for energy.

We research and develop new technologies and products with two goals in mind:

  • Extend and enhance our existing businesses.
  • Create substantial and sustainable new businesses.

Some of our competitors are quite vocal about the work they're doing in advanced energy. In comparison, you may not have heard much from ChevronTexaco.

Still, through our legacy companies, we have a long history of innovation, and we continue to be very active in emerging energy technologies. Let's look a little deeper.

ChevronTexaco has previously and continues to invest in advanced energy, renewable energy and improvements in energy efficiency. And we're very careful about how we spend those dollars.

We make sure that every research and development (R&D) project, no matter where it originates within the company, makes smart business sense and supports our strategic direction. Every dollar we invest must work hard to deliver strong financial returns at some point in the future. That's the promise we make to our stockholders — a promise we are determined to keep.

So, we find the best opportunities for investment or direct involvement from a business point of view, and we form strong strategic alliances with internal and external partners for every R&D project we undertake.

We find that this business-focused, partnership-based approach gives us the most flexibility, delivers the best value for the dollars invested and speeds the pace of technological innovation.

For example, let me explain how ChevronTexaco Technology Ventures, which I head, operates.

We concentrate on emerging technologies that have the potential to create substantial and sustainable businesses for ChevronTexaco. And we don't limit ourselves to a certain stage in the development process. Instead, we operate across the entire venture value chain.

We identify promising new areas and make direct and indirect investments in start-up companies and venture capital funds. In the business development phase of the cycle, we also form joint ventures and alliances.

In other words, we're open to working with our partners through whatever business arrangement makes the most sense.

When the cycle is complete, a business might exit our venture portfolio in any of several ways. For example, we might sell the business outright, arrange an initial public offering or even create a new ChevronTexaco operating company.

Take the field of hydrogen and fuel cells, for example. We are entering this business in stages — targeting specialty markets at the outset and preparing to participate in whatever mass-market opportunities lie ahead, realizing that some of these may be decades away.

I think all of us are aware of the challenges that must be met before "the hydrogen economy" can reach its full potential. Those of us who are working in this field must strive to:

  • reduce costs to make fuel-cell systems more affordable,
  • reduce the carbon-dioxide emissions associated with the production of hydrogen from fossil fuels,
  • develop codes and standards for the safe use of hydrogen,
  • develop safe, cost-effective hydrogen storage systems;
  • most important — develop an infrastructure for delivering hydrogen to consumers and businesses as conveniently as we now deliver gasoline, natural gas and electricity.

It's critical that we overcome these hurdles, because hydrogen-based systems will continue to face stiff competition from current fuels and energy technologies. This is particularly true in the transportation market, where, as I mentioned, the performance is improving at a rapid rate for internal combustion engines, hybrid vehicle systems and fuels.

With those hurdles in mind, ChevronTexaco is looking at stationary fuel-cell applications as a nearer-term hydrogen opportunity, with mass transportation markets on a much longer development timeline, given the complexity of the issues.

In both of these market segments, we confront many unknowns. As Don Paul, our chief technology officer, has said, "For the next five or 10 years, our strategy is based on living with a great deal of uncertainty."

But we are certain of one thing. In the near term, virtually all hydrogen will continue to be made from fossil fuels, such as natural gas. We see the conversion of readily available hydrocarbons into hydrogen as the most realistic method for enabling fuel-cell technology to mature and markets to develop.

In the future, we may be able to reduce greenhouse-gas emissions further by using renewable energy sources, such as solar or wind, to produce hydrogen through electrolysis. But the technology simply isn't there yet to make renewables an economically viable choice for hydrogen generation.

Even when costs fall and renewable energy becomes more economic, electrolysis alone will not be able to produce sufficient hydrogen to meet the world's rapidly increasing demand for energy.

We at ChevronTexaco anticipate that, realistically, the hydrogen supply of the future will have to be produced by a blend of energy sources — both hydrocarbons and renewables. This is the only scenario we can foresee that will enable hydrogen markets to emerge and hydrogen businesses to become profitable over the long term.

In terms of fuel cell development, we believe in learning by doing, so we have installed fuel-cell systems at two company locations to supply electricity around the clock.

One fuel cell supplies digital-grade power for information technology systems at our headquarters in Northern California. The other fuel-cell system supplies electricity to company laboratories in Bellaire, Texas. In both locations, we are gaining valuable first-hand experience in installing, operating and evaluating the performance of distributed power systems.

We are also working diligently to integrate fuel processing technology with fuel-cell systems. The hydrogen generators we are developing use hydrocarbons, such as natural gas and propane. Again, because these fuels are widely available, safe, affordable and perform well, they are the most logical fuel choice in the near term.

The first fruit of our labors is named Halias. It is a stand-alone fuel processor that turns pipeline-quality natural gas into hydrogen fuel. It integrates with a proton-exchange-membrane (PEM) fuel-cell system to produce 7.5 kilowatts of electricity. Several production-ready prototypes are now in long-term testing.

We are also busy developing several integrated fuel processor systems for commercial, government and military markets. These systems will use hydrocarbon fuels ranging from natural gas and propane to gasoline and diesel.

Creating a whole new infrastructure for hydrogen-powered vehicles is much more challenging. The investment required is enormous, and it is difficult to see how energy companies would take this risk without believing they could obtain a solid economic return.

In addition, a number of issues must be evaluated, including safety, and codes and standards for various infrastructure models. We belong to several associations that are addressing those issues, and we've been involved in joint industry studies, as well.

As a founding member of the California Fuel Cell Partnership operating in Sacramento, ChevronTexaco helps provide the hydrogen for a hydrogen refueling station, which serves about a dozen fuel-cell vehicles. Along with our partners, we are learning how to safely dispense hydrogen and how to design the best interface for refueling fuel-cell vehicles.

We are putting this knowledge to work as we build a hydrogen fueling facility in Canada this year for a government-owned utility.

We also plan to build several hydrogen infrastructure sites in the next few years, where we will generate much of the hydrogen from natural gas. Most of the hydrogen will supply fuel cells that provide electricity for clean power at the stations. The rest of the hydrogen will be purified and used for on-board storage in fuel-cell vehicles.

In the area of hydrogen storage, we are working through our joint venture, Texaco Ovonic Hydrogen Systems, to commercialize stable, solid metal hydrides. This technology stores hydrogen at low pressure and ambient temperature — two very important benefits over current technologies.

Our three product lines include:

  • hydrogen storage for small portable applications;
  • bulk storage for stationary applications, such as distributed power facilities and hydrogen service stations;
  • on-board storage for vehicles.

As I said, we plan to phase in our hydrogen technologies as the market expands.

Near-term opportunities include specialty markets in which vehicles, such as municipal bus fleets, industrial forklifts, military vehicles and airport ground-equipment transport, are maintained and refueled in a central location.

Fuel cells can offer significant benefits for these customers. For example, forklifts powered by conventional batteries run for only eight hours or so after a charge. A fuel cell can quadruple that run time.

In distributed power markets, there are opportunities with customers that demand a steady supply of clean power that won't be interrupted — for example, large data-processing operations.

So that's a whirlwind tour of hydrogen and fuel cells from the energy industry's point of view. I think it's fair to say that the industry is energized by the possibilities of this new energy source but not mesmerized by it.

I'd like to close by considering where hydrogen and fuel cells fall in the evolution of energy technologies. In considering how fuels have evolved over the past 200 years, it is important to note that fuels have continued to become cleaner — that is, less carbon-based.

But it hasn't been the introduction of these cleaner fuels that has driven shifts in energy technology. Instead, it's been the introduction of superior end-use equipment — from the steam engine to the fuel cell.

So, as the fuel cell market expands, we expect to see hydrogen and renewables take a well-deserved place next to hydrocarbons in a broad and flexible spectrum of clean energy resources. However, I think we all agree that the full-scale commercialization of hydrogen energy systems will require untold resources, numerous technological breakthroughs and years of persistent effort.

In the end, market forces will determine how far and how fast the hydrogen economy develops, as they should.

There is one thing we've learned over the past century in the oil and gas business: Innovation alone does not guarantee success. Unless a new product or technology makes smart business sense, unless we can profitably produce and market it, it will not enter the mainstream and endure.

But judging by the level of talent, creativity and prudent risk-taking that is evident here in Hannover, I'd say hydrogen and fuel cells are off to a good start. I believe that this clean, efficient form of energy will soon provide a portion of the world's energy requirements — a small portion at the outset, but one that will grow as the years unfold.

Thank you.

Updated: April 2003