The Hydrogen Energy Economy

By Greg Vesey, President, Technology Ventures
ChevronTexaco Corporation

Subcommittee on Energy and Air Quality

Read Remarks by Greg Vesey at the Fuel Cell Summit

Chairman Barton, ranking member Boucher and members of the subcommittee:

ChevronTexaco is pleased to have the opportunity to testify on the Department of Energy's (DOE) hydrogen programs and the future of advanced energy technologies.

As ChevronTexaco's president of Technology Ventures, I oversee many facets of our company's new energy technology development and commercialization, including hydrogen generation and hydrogen infrastructure, and can share our experience as well as our views regarding the critical steps required in the development of this technology.

By way of background, ChevronTexaco is an integrated, global energy company that produces oil, natural gas, transportation fuels and other energy products. We operate in 180 countries and employ more than 53,000 people worldwide.

ChevronTexaco is the second-largest U.S.-based energy company and the fifth-largest in the world, based on market capitalization. We consider ourselves to be an environmentally responsible company. In addition to supplying global energy, we are also involved in a whole host of advanced clean energy and fuel technologies.

We believe that ChevronTexaco's Worldwide Power and Gasification business unit is a world leader in gasification technology — reliable, efficient and clean technology that converts hydrocarbons, such as coal, for the production of power, fuels, chemicals and industrial gases, such as hydrogen. Commercial examples of the use of our technology include Tampa Electric Power Co.'s Polk facility, which produces electricity, and Eastman Chemical Co.'s Kingsport, Tennessee facility, which produces chemicals.

With regard to fuel cell technology, we believe that fuel-cell technology will continue to evolve. Stationary fuel cells to generate high-quality power are commercially available in selected operations today, and there are transportation demonstrations under way.

ChevronTexaco has installed two stationary fuel cells at our facilities in San Ramon, California, and Houston, Texas. These fuel cells convert hydrogen from natural gas into electricity, clean water and usable heat and provide secure digital-grade power to select information technology systems and laboratories. We undertook these projects to gain experience with designing and installing stationary fuel-cell systems and to help us translate this experience into other types of fuel-cell projects. We are working on hydrogen infrastructure development issues, including production, storage and distribution.

ChevronTexaco's Research and Development Initiatives

We continue to support development of hydrogen generation and hydrogen storage systems. We are active in research and development to create safe methods for storing and delivering hydrogen. New opportunities to develop the technology may be presented through demonstrations, including the DOE's recently announced "Controlled Hydrogen Fleet and Infrastructure Demonstration and Validation Project."

To meet the challenges involved with this new technology, we are involved in partnerships, participate in government and private workshops, and we privately fund basic and applied research for hydrogen fuels, storage and refueling sites. These efforts were under way prior to President Bush's announcement of the Hydrogen Initiative in this year's State of the Union address and the subsequent DOE solicitation on infrastructure. The administration's actions provide an impetus for the private sector to focus more attention on the development of this technology.

California Fuel Cell Partnership

We view new DOE programs as an excellent opportunity to work in partnership with the auto companies, states, the U.S. government and other critical parties, especially with regard to fuel production and distribution infrastructure. Developing a hydrogen infrastructure requires the cooperative efforts of the government, auto manufacturers, major energy companies and others.

An example of the type of activity that we are involved in includes the California Fuel Cell Partnership: We continue to work with auto companies, other energy partners and government agencies to provide hydrogen to operate a project facility that safely delivers high-pressure hydrogen to demonstration vehicles. In addition, as part of this effort, ChevronTexaco engages and supports important research and development (R&D) initiatives including the following:

  • Hydrogen Production

    Hydrogen is a fuel — not a natural resource. It must be manufactured from other sources, so how the supply system is developed is critical. The two primary sources of hydrogen are water and hydrocarbons.

    For the past 50 years, we have been engaged in the conversion of hydrocarbons to hydrogen through refinery and gasification processes. As you may be aware, oil refineries are the largest current producers and users of hydrogen. We are leveraging long-standing core competencies in fuels, catalysis, proprietary gasification and process engineering technology to explore the development of a fuel-processing business. This includes understanding the total environmental consequences and costs of making hydrogen from many different sources.

    Though many fuel-cell systems include reformers that convert natural gas or other fuels to hydrogen at the site, cost-effective hydrogen production and distribution technologies will enable a wider range of fuel-cell systems to operate. We are also looking at electrolysis to produce hydrogen from water, however as we focus on the transition to a hydrogen-based market, it is clear that making hydrogen from readily available hydrocarbon fuels is currently far more cost-competitive with today's fuels. We have developed relationships with leading fuel-cell developers, utilities and technology companies in an effort to introduce competitive fuel-cell systems into the market. We have hydrogen generators in long-term testing that will convert a hydrocarbon feedstock, such as natural gas or liquid hydrocarbons, into hydrogen.

  • Delivery of Hydrogen

    One other challenge is how hydrogen would be distributed in a decentralized manner. We are working to design a delivery infrastructure that is economic and safe. We are developing infrastructure systems to incorporate and integrate a range of new technologies including hydrogen extraction from natural gas, safe-site storage technologies as well as advanced hydrogen-detection and control systems to ensure safe handling and use. This is an array of technical challenges that will require involvement of many industry technology providers as well as public and government agencies.

  • Hydrogen Storage

    Hydrogen storage is a critical part of the infrastructure development. Distribution of fuels for commercial use must provide for hydrogen storage. We are currently engaged in the R&D and commercialization of new hydrogen-storage technology through partnerships and internal efforts. Our objective is to provide safe, reliable products capable of meeting a wide range of applications, including small portable, automotive and bulk-storage applications.

Commercial and Infrastructure Challenges

We have operated in the refining and marketing business segment for over 100 years. The financial investment has been very large. The current level of discretionary capital spending on the refining business segment by integrated oil companies has been close to zero, and investments are being minimized. Integrated energy companies have generally been reducing their exposure to this business because of our inability to achieve an adequate return on capital. This has created an environment where refining assets have been sold for about 20 percent to 40 percent of replacement cost.

It is estimated that six to nine refineries may be up for sale in the United States within the next 12 months, either because of weak business conditions or Federal Trade Commission mandates. It is unlikely that U.S. refiners and marketers would create a substantial new infrastructure investment without believing they could obtain a satisfactory economic return to compensate for this risk.

The introduction of fuel-cell cars must be coordinated with the introduction of the infrastructure. We know that the infrastructure must be in place before customers buy these cars. We also know that this will require significant investment and that to be successful the auto companies and energy companies must work together to co-develop solutions with support of government in private/public partnerships.

Hydrogen Must Be Available When and Where It Will Be Needed

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

  • produce the hydrogen at a reasonable cost,
  • make it available over a broad geographic area,
  • store it at the sales point,
  • fuel the cars,
  • employ the technology in a safe manner to achieve total consumer confidence.

Nine million tons of hydrogen are produced per year and used in the United States. This is equivalent to only 1 percent of the crude oil produced in America. Worldwide production is 40 million tons per year. Most of this hydrogen is used in refineries, chemical plants, metals processing and the electronics industry. Hydrogen right now is a specialty chemical, and it must be transformed into a broader energy fuel if it is to be used for transportation.

Storing Hydrogen Is a Sizable Challenge

Storing hydrogen in the car, at the refueling station and throughout the delivery infrastructure is a sizable challenge that is unmet thus far. The problems are different at each location, and they each deserve the attention of industry, national labs and the DOE.

Much attention is given to storing hydrogen on board the car, and rightly so, but similar attention is needed in the other places that hydrogen needs to be stored. We are working to develop this technology, but there is still more work to be done before a standard is embraced.

Eventually, the hydrogen market may be big enough that we can make hydrogen in large centralized plants, similar to refineries today. But then the hydrogen still needs to be distributed across the country. Once large centralized plants are built, it will be possible to capture a significant portion of the carbon dioxide made as a byproduct. Capturing, inertly storing or sequestering large volumes of carbon dioxide are two distinct challenges yet to be overcome.

New Codes and Standards for Infrastructure Development

New codes and standards need to be developed that permit the development of the infrastructure. Existing building codes and hydrogen-system design standards were not developed with consumer applications in mind.

Today's codes provide large distance "setbacks" from other facilities — limiting the locations where hydrogen can be manufactured, stored and dispensed. This was appropriate for the technology and hydrogen applications of the 20th century, but they make retrofits of existing sites with limited area for expansion impractical for future hydrogen facilities.

Codes and standards will need to be updated to reflect the developments in safer hydrogen technologies arising from the new storage and control system technologies. In some cases, building codes will need to be strengthened to ensure safe maintenance facilities. Through research and demonstration of hydrogen-generation and -storage technology, we will be able to gain the necessary safety knowledge which will lead to data-driven codes and standards that do not currently exist.

Cost of Hydrogen to Consumers Needs to Be Competitive

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

Coordination between the auto companies and energy companies for decisions on optimal geographic demonstration fleets of fuel-cell cars and buses will be important to get the infrastructure started and to prove the value and functionality of the fuel-cell vehicle and infrastructure.

Specialty applications and niche markets that use much of the same technology but in different products are going to be important and will be a signpost along the path. One opportunity in this area would be for use of the technology by the military. In addition, applications, such as airport ground equipment vehicles and fleets of industrial vehicles with centralized and stationary refueling, need to be successful before consumers become a significant user of this technology.

Public Policy Recommendations

We believe that there are several areas that are critical to the development of this technology. We recommend the following:

  • Support Technology Development and Validation for Hydrogen Infrastructure

    We see DOE's sponsored "Controlled Hydrogen Fleet and Infrastructure Demonstration and Validation Project" as a positive step that will create opportunities to move the technology forward. It is essential that DOE integrate the infrastructure issues simultaneously with fuel-cell vehicle development.

    Major energy companies that already support this nation's fuel infrastructure have a key role to play in the development of hydrogen-based energy. ChevronTexaco is committed to helping the United States move toward safe and cost-competitive solutions. This should be a high priority in terms of DOE and other government R&D support.

  • Educate the Public

    When new technologies are on the horizon, there is a lot of fanfare and media attention surrounding the development of the technology. Unfortunately, this leads to unrealistic public expectations. As the hydrogen market evolves over the next few decades, technology breakthroughs will change the way hydrogen is made and supplied to the consumer. It is important that the public understand the market drivers, environmental benefits, costs and challenges associated with each stage of the transition.

  • Leverage Private Industry Stakeholders

    We believe that this will help make the technology commercial and also focus government priorities on areas where there is the most need. ChevronTexaco has already invested in R&D efforts in the areas of hydrogen generation and storage, however the private sector alone cannot provide the resources and capital necessary in a technology that may not see any sort of return for decades. The only way to accelerate efforts toward commercialization of this market is for private industry and government to share the development costs.

  • Monitor Market Signals

    Often we see that factors can change the need for a particular technology — either increasing or decreasing demand. Some of these factors may include competing technologies, availability of resources and public opinion. To embark on a long-term major government initiative without doing mid-course reviews would be a mistake. Periodic reviews will be necessary to assess progress and steer or change policy as needed and implement appropriate mid-course corrections.

I should note that this year's energy bill, H.R. 6, passed by this committee and the U.S. House of Representatives, does include several provisions to address infrastructure issues with this energy technology as well as other advanced energy technologies.

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

Updated: May 2003