Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 02:30 PM

Dr. Donald Paul

Vice President and Chief Techonology Officer, Chevron Corporation

Dr. Donald L. Paul

Vice President and Chief Technology Officer

before the

Senate Energy and Natural Resources Committee

"The Hydrogen Energy Economy"

July 17,2006

Mr. Chairman and Members of the Senate Energy Committee:

 

Chevron is pleased to have the opportunity to testify before the Senate Energy and Natural Resources Committee on the future of hydrogen as a transportation fbel as well as DOE 's hydrogen program and the impact of the Energy Policy Act (EPACT) in advancing hydrogen as a fuel.

 

As Chevron's Chief Technology Officer, I oversee all 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, Chevron 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 world-wide. Chevron is the second-largest U.S.-based energy company and the fifth largest in the world, based on market capitalization. We are also involved in a wide-range of advanced clean energy and fuel technologies.

 

Chevron is committed to diversifying our nation's fbel supply. Although there is no "silver bullet", we are actively pursuing new energy and fuel sources including biofbels, gas to liquids and hydrogen to name just a few. As Chevron's Chairman and CEO David J. O'Reilly, has discussed on numerous occasions, including at a speech over two years ago at the U. S. Chamber of Commerce here in Washington, D.C., we are facing a new energy equation as the world's demand for energy grows. I believe that we are going to need every form of energy, we must develop new types of energy, and we must increase energy efficiency and conservation. We at Chevron are committed to providing U. S. citizens reliable and affordable supplies of energy.

 

Before discussing Chevron's extensive and innovative work in the hydrogen infrastructure area over the past 5 years, I would like to briefly mention that just over a month ago Chevron announced the formation of a new biofbels business unit to specifically pursue opportunities for supply of biofbels, and development of cellulosic ethanol. We have biofbel projects underway, including investing in development of a large scale biodiesel plant in Galveston, Texas and an E-85 demonstration project in California.

In terms of hydrogen fuel, we believe that fbel-cell technology and related infrastructure technology will continue to evolve. In current use are stationary fuel cells which generate high reliability and quality power and are commercially available today. Chevron has installed two stationary fuel cells at our facilities in San Ramon, California, and Houston, Texas. These fbel cells convert hydrogen from natural gas into electricity, clean water and usable heat, and provide secure, digital-grade power to select data 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. Our subsidiary, Chevron Energy Solutions, has installed fuel cells in many facilities, including at US Postal facilities.

 

In addition to stationary power, we believe that hydrogen may provide a viable transportation fuel under certain conditions in the nearer term, such as for transit systems, while future widespread use for passenger vehicles will be dependent on resolving technological and economic challenges. We believe that central vehicle fleets and transit systems are the most practical means of using hydrogen in the near future in addressing both infrastructure as well as vehicle challenges. Fleets, such as buses, use a centralized fueling point and hydrogen storage can be overcome by vehicle size. Although hydrogen has many positive attributes as a transportation fuel, as I will discuss, there are still some major challenges that must be overcome before hydrogen will be an integral component of the fuel mix. We are still very much in the learning and demonstration mode.

 

CHEVRON'S RESEARCH AND DEVELOPMENT INITIATIVES

 

Chevron has been a leader in researching and demonstrating the potential for using hydrogen as a transportation fuel, including using proprietary reforming technology developed at our labs to generate hydrogen on-site. We are the only major energy company leading projects under DOE's "Controlled Hydrogen Fleet and Infrastructure Demonstration and Validation Program" with our auto partner, Hyundai and fuel cell partner, UTC. This demonstration program is a unique five-year cost-share program in which autos and energy company partners develop demonstration sites, test vehicles and infrastructure, and share information in coordination with the DOE. Currently participating are all three major U.S. auto companies and Hyundai, three major energy companies and a number of fuel cell companies and other related businesses, many of whom are smaller, new technology suppliers.

 

We believe that this demonstration program is the centerpiece of DOE's hydrogen program, and is critical to advancing hydrogen as a practical transportation fuel. Often times, we see the infrastructure part of the energy equation being ignored or forgotten entirely. Our current infrastructure for fuels took over 100 years to fully develop - and given the complexities, it is absolutely critical that both the fuel cell vehicles and the hydrogen infrastructure be developed simultaneously. In Title VIII of EPACT, there is also a demonstration program included, and we believe that it needs to be complementary to the one now well underway for the past three years, rather than competitive and creating potential duplication. The Hydrogen Fleet and Infrastructure Demonstration program must be completed, results evaluated, and shared among all parties to better define a roadmap for the future.

 

Under the DOE's Hydrogen Fleet and Infrastructure Demonstration program, we currently have two demonstration projects in full operation in California and are planning two additional sites, including a cold weather site in Michigan in coordination with the Department of Defense. The first demonstration site opened in Chino, California, in February, 2005, at the Hyundai Research Center. We provided our on site reforming technology and hydrogen pumps for the station, and are testing three passenger vehicles. The second demonstration site is at the AC Transit Bus headquarters in Oakland, California, and again we installed reforming technology and pumps for three fuel cell buses that travel in daily operation throughout the city. The site will be expanded in the future to incorporate the next generation of reforming technology and provide increased hydrogen production. The benefit of this demonstration project is that it allows citizens to actually experience riding the buses and directly benefit from the technology. Our infrastructure portions of these projects are unique-- as I mentioned, we produce the hydrogen on-site, on-demand. We believe that decentralized production is a very important infrastructure pathway for a number of reasons - not only do you save transporting the hydrogen which is very difficult (unlike gasoline), but also it allows you to control how much is manufactured and stored for consumption when it is needed. In addition, having the hydrogen production on-site provides the potential for hydrogen to be supplied to power a stationary fuel cell.

 

We have learned many lessons from the demonstrations that we can share, and believe these could not have been learned had the DOE program only operated in laboratory and research settings. For example, our station systems are designed to run safely in an unattended remotely monitored production mode, (such as a fueling station would in the future), and therefore, the scope and sophistication of the technology we installed for the demonstrations is aligned with the path towards commercial reality. Another example is leak detection systems -- these are particularly important for hydrogen production and storage systems and our demonstration facilities employ state-of-the-art, industrial-grade systems. We are now beginning to understand both the detailed and broad engineering factors which must be incorporated to meet commercialization standards. This knowledge is being used for future system improvements, and to gain the cost efficiencies essential for eventual commercial implementation. Because this is a new fuel infrastructure, the supplier community is new, often comprised of smaller companies, and needs to be developed to industrial-scale standards and size. The demonstration program has been an essential mechanism in developing this community. At this point, we have also learned that site location is very important, and permitting can be challenging due to various levels of understanding by local officials. We understand the value of public consultation and education as part of developing a demonstration site and the need for this as the technology develops. Also we are familiar with how to build confidence with important stakeholders, such as our site host, fire marshal and vehicle operators, in using the technology.

 

 

 

 

CHALLENGES TO COMMERCIALIZATION PRODUCTION AND DISTRIBUTION OF HYDROGEN

 

Hydrogen must be available when and where it is will be needed. 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, Chevron and the industry have been engaged in the large-scale 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. Additional industrial uses are for chemicals, metals, and electronics manufacturing. Approximately 9 million tons of hydrogen is produced for industrial applications in the United States (world-wide production is about 40 million tons). The core technical and business challenge is to transform and adapt the hydrogen production and distribution system to support a much broader energy supply system for transportation and distributed power. The hndamental properties of hydrogen create both opportunities (it can be made from a variety of sources) and challenges (distribution and storage).

 

In Chevron's hydrogen program, we are adapting long-standing core competencies and proprietary technologies in fuels, catalysis, and process engineering to explore the development of a new distributed fuel-processing and delivery infrastructure. The fundamental technolonv model relies on distributed, ondemand production of hydrogen, thereby materially reducing the costs and logistical barriers associated with large-scale transportation of hydrogen and significant onsite storage. Distribution and storage are the two primary cost components for hydrogen (as compared to production). It is important to note that this is essentially the opposite of gasoline, where production costs dominate distribution and storage. For the current generation of hydrogen infrastructure demonstrations, Chevron has concentrated on miniaturizing and distributing natural gas reforming and processing technology. This creates maximum use of the existing and extensive natural gas grid, resulting in dramatically reduced costs for the early stages of developing the infrastructure. Successful current R&D programs would allow for the extension of the small-scale reformer technology to utilize other light hydrocarbon feedstock as well.

 

STORAGE OF HYDROGEN

 

Storing hydrogen in the car, at the refueling station and throughout the delivery infrastructure is a significant critical path challenge. The nature of the storage problems vary by application and each deserve the attention of R&D and demonstration by industry, national labs and the DOE. While much attention is given to storing hydrogen on board the vehicles, and rightly so, similar attention is needed in the other critical locations in the hydrogen infrastructure. In particular, cost effective dynamic storage in moderate volume is essential at the production and fueling sites. Today, all hydrogen storage is essentially in high-pressure vessels, typically at 5,000 pounds per square inch. Even at these pressures, the energy stored is far lower than with typical liquid hydrocarbon fuels. Where space is not a pressing limitation, such as with our production sites or on large vehicles, such as busses, the current technology is functional, but expensive. For the evolution to light duty vehicles, most believe that cost effective solidstate storage will be required. This is an important focus area for R&D programs. The bottom line is that the development of the infrastructure for hydrogen as a he1 will require advancements across a full system including production, distribution, and storage.

 

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 that limit the locations where hydrogen can be manufactured, stored and dispensed. This was appropriate for hydrogen applications and applications of the 2oth 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.

 

PATHWAY TO COMMERCIALIZATION

 

We at Chevron anticipate that, realistically, the hydrogen supply of the hture will have to be produced by a blend of energy sources -both hydrocarbons and renewable sources. This is the only scenario we can foresee that will enable hydrogen markets to emerge at scale, to adapt to diverse market structures, and allow hydrogen businesses to become profitable over the long term.

 

An avenue that leverages using the existing current infrastructure to produce hydrogen will be a critical step. We believe that using a distributed generation model will provide the most cost effective way to support the development of a fuel cell market. The technology to make this happen is small reformers and small electrolyzers. Providing consumers with this practical solution may help remove fuel availability as a near-term impediment to commercial adoption of fuel-cell vehicle systems. Greenhouse gas emissions are being reduced using current reforming technology to produce hydrogen, and, in the future, those emissions may be further reduced by adding renewable energy sources, such as solar or wind, to produce hydrogen through electrolysis.

 

In sum, to develop a commercial-scale infrastructure, the cost of using hydrogen to consumers needs to be competitive in the market with other energy fuels. Large scale deployment requires that energy suppliers be convinced that hydrogen can compete with other hels in the market. While there is reason for encouragement in special markets, broad commercial applicability has not been demonstrated. Participation by auto companies, energy companies, and communities in the development of demonstration fleets of fuel-cell cars and buses will be important to get the infrastructure started and to prove the value and functionality. 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 pathway. One opportunity in this area may be for use of the hydrogen and fuel cell 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 are likely to be a significant user of this technology.

 

PUBLIC POLICY RECOMMENDATIONS

 

To pursue commercialization of hydrogen infrastructure and fuel cell technology, we believe that there are several critical areas for policy action. We recommend the following:

 

1. Continue to Support DOES Hydrogen Fleet and Infrastructure Demonstration and Validation Program: It is absolutely critical that DOE work on the infrastructure issues simultaneously with fuel cell vehicle development and storage technology which is being done with these demonstration projects. Energy companies have a key role to play in the development of the fuel cell market and Chevron is committed to helping the U.S. market move towards safe and cost competitive solutions. This should be a high priority in terms of DOE and other government R&D support.

 

2. Fund Kev Basic Research: We believe that fundamental research must continue to be supported by Congress for this technology to move towards commercialization. Basic research performed by DOE national laboratories, the private sector, and academia will create the essential science and technology base needed for long-term, sustained advancement of hydrogen. We believe that the number one priority for this should be hydrogen storage. Without resolving the significant technology challenges, it will be very difficult to move forward on the large-scale implementation of hydrogen as a fuel.

 

3. Engage Private Industry In Commercialization: We believe that this will help make the technology commercial, and also focus government priorities on areas where there is the most need. Chevron has already significantly invested in R&D in the areas of hydrogen generation and storage. However, public - private sector partnerships are needed to provide the resources necessary to create conditions to allow commercialization of technologies that may not see economic returns for decades.

 

4. Public Education: 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 and cost benefits and challenges associated with each stage of the transition. The physical reality in the community provided by demonstration projects can uniquely educate the public.

 

5. 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. We believe that this is addressed by EPACT in the roadmaps and studies required by the law. Periodic reviews will be necessary to assess progress, to steer or change policy as needed, and to implement appropriate mid-course corrections.

 

EPACT, for the first time, provides an authorized path forward for the hydrogen program which is very positive. It is appropriate that Congress oversee the DOE program and that public-private partnerships continue. We find that a partnership-based approach gives the most flexibility, delivers the best value for the dollars invested, and speeds the pace of technological innovation.

 

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