Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 03:00 PM

Mr. Jeremy Bentham

Chief Executive Officer , Shell Hydrogen B.V.

 

Oral Summation of Jeremy Bentham, Vice President Royal Dutch Shell & chief executive Shell Hydrogen

Testimony to U.S. Senate Subcommittee on Energy

July 27, 2005

 

Good afternoon Senators.   My name is Jeremy Bentham. I am the Vice President of Royal Dutch Shell responsible for the hydrogen business and the chief executive of Shell Hydrogen. Thank you for the invitation to testify before this committee. I’ll provide my oral summation here and ask that my written testimony be entered into the record.

 

SUMMATION:

Clearly, we must underestimate the scale, durability and seriousness of commitment required to grasp the related energy, security, environmental, and economic challenges we collectively face.  Alongside the efficient use of ever-cleaner and more advanced familiar fuels, we are convinced that a national energy portfolio that includes significant use of hydrogen fuel and fuel-cell applications will make important contributions to addressing these fundamental issues.  Hence we believe the United States Senate is showing responsible leadership in helping develop hydrogen as a transportation fuel, as we’ve seen in the Senate’s version of the energy bill. 

 

We must recognize that the goal of introducing hydrogen as a fuel on a significant scale requires an unprecedented joint undertaking by government, the automotive industry, and energy companies. 

 

First, the technical and operational challenges:

The real key to this undertaking is the promise of attractive, affordable, and commercially successful hydrogen-powered fuel cell vehicles.  This must be the primary focus of attention, and it is the vehicles themselves that are the furthest from commercial readiness. R&D attention should be directed to inexpensive on-board hydrogen storage solutions, to the fuel cell powerplant itself, and to low-cost manufacturing systems. While technological challenges remain in these areas, however, there is increasing confidence that vehicles with the necessary performance will be introduced in the next few years.  The core challenge to making these affordable will be achieving sufficient levels of mass production to drive down costs.  This will require a period of market-based government incentives to build up vehicle demand and supply, and the necessary component supply businesses, in a rapid and timely fashion.  We need to start building these supply chains and designing these incentives now. 

 

From a fuel supply perspective, it should not be forgotten that there is already a hydrogen economy and hydrogen infrastructure.  Globally, 50 million tonnes are produced and consumed every year, mainly in industrial settings, such as in our own refineries for producing clean traditional fuels.  Just to put this number into perspective, this amount of hydrogen could power all the family cars in the USA if they were fuel cell vehicles.  Also, most areas of significant population are already close to significant hydrogen production (as shown in this satellite photograph of the USA at night overlaid with the areas within 100km of current production sites).  The new element is to bring hydrogen into the everyday life of customers.  That this can be done in an attractive way has already been demonstrated, for example, with our Benning Road station here in Washington DC. 

 

We are also confident that we already understand how to supply hydrogen fuel at an attractive price in a commercially sustainable way into a reasonably established market.  The main challenge to fuel suppliers will come during the earliest phases of demand growth when the utilisation rate of individual facilities will be low.  To get the ball rolling will take both ingenuity from companies such as my own and some limited market-based incentives from governments. 

 

From a public policy standpoint, one of the attractions of hydrogen fuel is that it can be produced from a wide range of primary energy sources, including natural gas, coal and renewable sources such as solar and wind energy.  We anticipate that the bulk of hydrogen will initially be produced, as now, from natural gas, with increasing use of coal over the course of time.  We also believe that there must be a goal over the longer term of not adding to the carbon loading of the atmosphere; whether through CO2 geological sequestration or through the use of renewable energies such as wind and solar--but we believe that none of these are challenges are unsolvable.

 

Secondly, some comments on Public- Private partnership and federal government programmes:

Strong government support and structures are required to shape a coordinated and geographically concentrated introduction of vehicles and deployment of fueling infrastructure. 

Government action is also critical in addressing potential early roadblocks such as codes and standards, insurance and liability, and intellectual property rights. 

And there is a most definite need to promote public awareness and understanding—an educational effort that can be effectively fostered by government.  We’ve certainly noticed a difference between working in communities like Iceland - where support and desire have really been built up over several years – and here in Washington DC, where our project was initally greeted with both community and regulatory suspicion.

It is also critical that we begin to establish a framework of economic incentives that will give all parties the confidence to invest in these new technologies, and establish supply chains, while the economies of large-scale production and reasonable facility utilisation build up

 

The current Department of Energy vehicle and fuel validation programme, and other DOE programmes, are a useful platform for the future, as far as they go.  However, to move from Research to Reality, now requires further attention to the bridge that needs to be built in the next ten years from small-scale demonstrations towards commercial operation.

 

So finally, what will it take to accelerate the commercialisation of hydrogen fuel cell technology?:

Shell has called for the establishment of a small number of large-scale, integrated pre-commercial activities, which we call Lighthouse Projects. We recommend focusing on a limited number of large-scale projects, mainly focused on transport applications involving hundreds of vehicles and several combined hydrogen & gasoline refuelling stations operating on a realistic, integrated, basis.  Significant numbers of vehicles are required for 'real world' operational validation not only of the vehicles themselves, but also to test network supply and refuelling operations under realistic conditions.  These projects would involve several different companies, in partnership with government authorities. 

 

The next question is simply which governments and public authorities will provide the environment for this step, and which businesses will respond.  Where these lighthouse projects are established will determine whether North America, Europe or Asia will build a lead in these industries and, through that lead, secure the greatest benefits to their economies and environments. 

 

In summary, therefore, I believe the primary challenges are vehicle technology and mass production, with the effective utilisation of refuelling facilities being an important secondary consideration, and that public-private Lighthouse Projects will be an important bridge towards commercialisation.

 

This concludes my comments and I’ll be happy to answer any questions you may have.

 


 

 

Jeremy Bentham, Vice President Royal Dutch Shell & chief executive Shell Hydrogen

Testimony to U.S. Senate Subcommittee on Energy

July 27, 2005

 

 Good afternoon Senators.   My name is Jeremy Bentham. I am the Vice President of Royal Dutch Shell responsible for the hydrogen business and the chief executive of Shell Hydrogen.. Thank you for the invitation to testify before this committee and share my views on how the hydrogen & fuel cell industry could - and should - develop over the coming years.

 

Clearly, we must not underestimate the scale, durability and seriousness of commitment required to grasp the related energy, security, environmental, and economic challenges we collectively face.  Alongside the efficient use of ever-cleaner and more advanced familiar fuels, we are convinced that a national energy portfolio that includes significant use of hydrogen fuel and fuel-cell applications will make important contributions to addressing these fundamental issues.  The U.S. Senate has shown leadership in helping develop hydrogen as a transportation fuel as we’ve seen in the Senate’s version of the energy bill, but we  should not underestimate the scale of developments required.

 

First of all, I think we should all acknowledge that the goal of moving to hydrogen is an unprecedented undertaking by government, auto industry, and energy companies and just importantly, such an effort is needed to address the long term energy needs of the US and the world. 

 

Even a brief look at a simplified overview of the current energy picture of the United States highlights key features such as the almost complete dependence of transport on a single, primary, imported energy source – oil, and also the high amount of energy which goes to waste rather than useful service, which is an environmental as well as an economic burden.

 

Hydrogen fuel and fuel-cell applications can make important contributions to addressing these fundamental issues, such as providing a transport fuel that can be derived from a wide range of present and future primary energy sources, to be used in vehicles with high efficiency, low emissions, and high customer attractiveness.  Also, this technology enables electricity generation in widely distributed locations where much of the currently wasted heat generation can be usefully applied.  Such a portfolio can provide much-needed options for national policy-makers, and attractive choices for customers.

 

That’s a positive outlook.  But we have to be realistic.  It comes at a cost.  It requires long-term investment, and it requires long-term commitment from both industry and government.  Everyday incremental developments and ongoing market influences will bring everyday incremental changes, but I think most people are looking for more than this.  Governments want those bigger challenges to be met as quickly as possible. 

 

As businessmen and industrialists we need to get down to the practicalities of how to invest private and public resources wisely to making this happen.  And to begin with, that means looking at what we’ve achieved so far; what we’ve learnt from it; and what we need to do next to make that positive outlook a reality.

 

Shell: a wealth of experience in hydrogen

For an energy company like Shell, dealing with hydrogen is, of course, nothing new.  We have many decades of experience using hydrogen in our refineries, where we handle over 7,000 tons a day as part of the production of ever-cleaner and better traditional fuels.

From a fuel supply perspective, it should not be forgotten that there is already a hydrogen economy and hydrogen infrastructure.  Globally, 50 million tonnes are produced and consumed every year. Just to put this number into perspective, this amount of hydrogen could power all the family cars in the USA if they were fuel cell vehicles.  Also, most areas of significant population are already close to significant hydrogen production (as shown in this satellite photograph of the USA at night overlaid with the areas within 100km of current production sites).  Industrial hydrogen production is already widespread and close to those who would want to use it.  We only have to compare the locations of major cities with those of facilities where hydrogen is produced to see how significant these nodes are.  Indeed, in the US, and throughout the industrialized world, few people are more than 60 miles away from major hydrogen production site.  This deserves exclamation points because I’m sure many us had not come to realize this until recently. 

 

So we already have an initial hydrogen platform.  The challenge now is to bring it out of its industrial setting and into convenient, consumer-friendly locations.  That this can be done in an attractive way has already been demonstrated, for example, with our Benning Road station here in Washington DC. 

 

We are also confident that we already understand how to supply hydrogen fuel at an attractive price in a commercially sustainable way into a reasonably established market.  The main challenge to fuel suppliers will come during the earliest phases of demand growth when the utilisation rate of individual facilities will be low.  To get the ball rolling will take both ingenuity from companies such as my own and some limited market-based incentives from governments. 

 

From a public policy standpoint, one of the attractions of hydrogen fuel is that it can be produced from a wide range of primary energy sources, including natural gas, coal and renewable sources such as solar and wind energy.  We anticipate that the bulk of hydrogen will initially be produced, as now, from natural gas, with increasing use of coal over the course of time.  We also believe that there must be a goal over the longer term of not adding to the carbon loading of the atmosphere; whether through CO2 geological sequestration or through the use of renewable energies such as wind and solar--but we believe that none of these are challenges are unsolvable.

 

Shell Hydrogen was established six years ago to bring a focus on hydrogen as an ordinary fuel in itself, in transport and distributed power applications.  And from what we have learned since, we believe that it can indeed become an important element in the future energy mix, along with the cleaner, traditional fuels, and important advances such as modern bio-fuels and gas-to-liquids components. 

 

To get there, however, a number of factors need to be in place, such as inexpensive and compact hydrogen storage and purification, and cheap large-scale production. Hence our active role in a range of technology ventures in these areas.  For example, Shell is proactively involved in unconventional solutions to the storage issues.  If more familiar methods – such as ultra high pressure storage – remain too expensive, then we already have an advanced role in seeking alternatives.

 

We’ve also established Venture Capital enterprises and partnerships within and across industries; and worked with government organizations at local, regional and national levels worldwide.  And finally - and most conspicuously - we’ve been involved in demonstration projects that span Europe, North America and Asia. 

 

My main message for today is that we now need to move beyond the small isolated demonstration projects we’ve seen so far, but before addressing this central topic let’s remind ourselves how far we have come with the demonstrations to date.

 

Demonstrating in all the major hydrogen markets

An important step for us, of course, was opening the very first publicly accessible Shell-branded hydrogen refuelling station in the world in Reykjavik, just 2 years ago.  In Europe, since then, we’ve helped set up hydrogen stations for fuel cell buses in Amsterdam and Luxembourg, as part of the Clean Urban Transport for Europe initiative

 

On another continent, the Japan Hydrogen and Fuel Cell Demonstration Project - or JHFC - is progressing well, with 10 refuelling stations around the Tokyo metropolitan area serving more than 50 FCVs.  The Ariake station that Shell operates is the most highly used of these stations, which means it’s probably the most utilised hydrogen station in the world.  Indeed, when I last visited Japan, I actually saw a queue of FCVs waiting to be refuelled!  And these from as many as eight different auto manufacturers.

 

In North America, we are active in California and we have launched our plans to build an ‘East Coast Corridor’ – starting with our station on Benning Road here in Washington DC, to be extended with a station in New York and a station connecting these important cities in 2006.  These form part of our infrastructure validation project with our partners General Motors and the Department of Energy.  I would like to emphasise the importance of our station here in Washington. This station showcases the first hydrogen dispenser fully integrated at a regular retail gasoline station in the United States, servicing a fleet of six FCVs from General Motors.  It’s well worth a visit to sample the customer experience of the future.

 

Making the most of lessons learnt and Technical Challenges

So…we’ve been very busy and we’ve learnt a great deal; and, I’m pleased to say, the results continue to be positive.  True, we see the technological hurdles still to be overcome – in particular, the development of inexpensive, on-board hydrogen storage systems; and affordable, mass-produced fuel cell systems.  But we believe that none of these are unsolvable. 

 

The real key to this undertaking is the promise of attractive, affordable, and commercially successful hydrogen-powered fuel cell vehicles.  This must be the primary focus of attention, and it is the vehicles themselves that are the farthest from commercial readiness. R&D attention should be directed to inexpensive on-board hydrogen storage solutions, to the fuel cell powerplant itself, and to low-cost manufacturing systems. While technological challenges remain in these areas, however, there is increasing confidence that vehicles with the necessary performance will be introduced in the next few years.  The core challenge to making these affordable will be achieving sufficient levels of mass production to drive down costs.  This will require a period of market-based government incentives to build up vehicle demand and supply and the necessary component supply businesses, in a rapid and timely fashion.  We need to start building these supply chains and designing these incentives now. 

Our experience indicates that there is every likelihood that our industries will be able to bring hydrogen-powered FCVs to the point where both vehicle and fuel are attractive and affordable.  The trick will be achieving mass production to drive down costs, as indicated in this estimate of the impact of production volume on drive-train affordability.  We also believe that the public benefits resulting from this justify the considerable government interest and investment required to reach this point.

 

And, of course, we see that public response to the introduction of hydrogen-powered technology developments still varies enormously - from enthusiastic to fearful, depending on how effectively public engagement has been conducted locally, or how politicised the subject has become.  We’ve certainly noticed a difference between working in communities like Iceland - where support and desire have really been built up over several years – and here in Washington DC, where our project was initally greeted with both community and regulatory suspicion. 

 

Building public confidence as early as possible is important, so that we have the fertile ground of public support and regulatory experience when take-off does, eventually, becomes possible.  Otherwise, progress will suffer long and unnecessary delays. There is a most definite need to promote public awareness and understanding—an educational effort that can be effectively fostered by government. 

 

So where do we go from here?  Let me return to the central theme I mentioned earlier.  While we have made tremendous progress, it’s clear we can’t rest on our laurels.  And instructive though our demonstration projects have been, continuing to serve a handful of vehicles from single sites doesn’t move us forwards. 

 

So our thoughts on the next move are very clear – we need to replicate more realistic scenarios.  Hence Shell’s proposal last year for the establishment of a small number of large-scale, integrated demonstration activities, which we call Lighthouse Projects.

 

Lighthouse Projects bridge the gap

Strong government support and structures are required to shape a coordinated and geographically concentrated introduction of vehicles and deployment of fueling infrastructure. 

Government action is also critical in addressing potential early roadblocks such as codes and standards, insurance and liability, and intellectual property rights. 

It is also critical that we begin to establish a framework of economic incentives that will give all parties the confidence to invest in these new technologies, and establish supply chains, while the economies of large-scale production and reasonable facility utilisation build up

 

The current Department of Energy vehicle and fuel validation programme, and other DOE programmes, are a useful platform for the future, as far as they go.  However, to move from Research to Reality, now requires further attention to the bridge that needs to be built in the next ten years from small-scale demonstrations towards commercial operation.

 

As mini-networks of consumer-friendly retail sites, we believe that Lighthouse Projects will play a crucial role in bridging the gap between the current demonstration projects and commercialisation.  In our view, they will act as the stepping stone to a commercial infrastructure roll-out.

 

We recommend focusing on a limited number of large-scale projects, mainly focused on transport applications involving hundreds of vehicles and several combined hydrogen and  gasoline refuelling stations operating on a semi-commercial basis.  Other relevant applications may also be included to maximise synergy. 

 

Involving several different companies - in partnership with government authorities - Lighthouse Projects will not only significantly increase coverage and mobility, they will provide us with the real-world operational and economic data we desperately need.  As such, they will enable us to address the biggest barriers that face the development of this industry. 

 

Why so many vehicles? Well one reason is that an effective component supply chain is going to be essential for vehicles and other applications to move down the cost curve towards mass production.  And this means giving component suppliers a realistic outlook on activity and investment levels over the next few years, while applications achieve the necessary performance and attractiveness criteria.

 

And from a fuel provider’s position, we need to build experience in conditions where facilities are utilised at levels much closer to future realities.  And last, but certainly not least, we need to demonstrate these facilities on a scale that will really inform and interest the public – our future customers.

 

In short, we believe that if we don’t take the step to full Lighthouse Projects, we cannot build and test the strategies, disciplines and incentive mechanisms we need to coordinate our activities for the next phase of development and allow the industry to grow. 

 

While the current United States Department of Energy infrastructure validation projects and other US initiatives are very positive and valuable developments, the JHFC project in Japan is probably the closest current example to our proposal, and we’re watching it closely to see how it develops; and particularly the growth in the number of vehicles involved.

 

We believe that failure to take the next step to full Lighthouse Projects could have serious consequences. 

 

Keeping the focus

First, there is a real danger that we don’t focus our efforts, government funding and industry attention will become hopelessly fragmented; with valuable time being lost through duplication and re-inventing the wheel. 

 

This is entirely possible - we’ve already experienced the issue of infrastructure “earmarks” in the US; and in Europe, there will be a strong push from all 25 individual member states to site activities in their own country.  But if our next move sees five or six vehicles scattered in each of 100 places throughout the world, we’ll end up going nowhere fast.

 

Utilisation Hurdles

The second danger is that even if we get over the technology and mass production hurdles for fuel cell vehicles, we will run into a huge infrastructure ‘utilisation hurdle’ that significantly increases hydrogen supply costs. 

 

For example, we have results from a series of scenarios from a study of the roll-out of vehicles and fuel infrastructure in a major metropolitan area.  In one set of scenarios retail stations are located in areas and sites where they do not stimulate good additional demand for fuel cell vehicles, and experience low facility utilisation.  In other scenarios, however, there is closer coordination with vehicle manufacturers on their anticipated customer needs, and with local authorities on effective site development, and this is built on better experience with effective utilisation of facilities through realistic Lighthouse Projects.  This leads to much better alignment of capacity with anticipated demand, and more cost-effective matching of customer interests.

 

 

 

From our analysis of these scenarios, it is clear that a coordinated infrastructure roll-out, making good use of existing manufacturing and retail assets, realises much lower full supply costs - up to a factor of two lower!  The alternative is higher hydrogen fuel prices, but that will simply discourage vehicle purchase. 

 

Looking forwards, therefore, there is a great need for mechanisms like larger scale Lighthouse Projects that encourage coordination between vehicle and fuel suppliers – with suitable investment incentives - to enable the industry to grow from its pre-commercial beginnings, to the next phase of early commercial development.

 

This means having fiscal and other economic incentives that give manufacturers, infrastructure providers and users the confidence to invest in these new technologies and establish supply chains while the economies of large-scale production build up.  It also means having more flexible, dynamic financial instruments aimed at fostering industry growth.

 

It means establishing regulations, codes and standards, and intellectual property rights, to encourage new technology and protect investment in R&D.  It also means building up human capital - trained scientists and engineers.  And it most definitely means promoting public awareness and education.

 

And to achieve all of this requires very substantial public-private-partnerships.

 

Conclusion

Lighthouse Projects as we have defined them are the catalyst to fulfilling all these conditions, for overcoming fragmentation, and for realising the next step towards commercialisation of the industry.

 

Building on our experience and valuable lessons so far, the next question is simply which governments and public authorities will provide the environment for this step, and which businesses will respond.  Where these lighthouse projects are established will determine whether North America, Europe or Asia will build a lead in these industries and, through that lead, secure the greatest benefits to their economies and environments.  I look to our current industry and government partners, and other serious parties, to join with us in developing innovative partnerships to realise these lighthouse projects.

 

In summary, therefore, I believe the primary challenges to developing the hydrogen opportunity are fuel cell vehicle technology and mass production, with the effective utilisation of refuelling facilities being an important secondary consideration, and that public-private Lighthouse Projects will be an important bridge towards commercialisation.

 

Thank you.