Statement of Bernard S. Lee, President Before the Senate Energy & Natural Resources Committee March 17, 1986 Mr. Chairman and Members of the Subcommittee: My name is Bernard s. Lee. I am President of IGT, a not-for-profit energy R&D organization in Chicago. Having spent my entire career in energy research, I am concerned that energy is no longer viewed as an important issue today. There are those who say that funding of energy research should be cut drastically or even eliminated. They see the trends of the recent past falling prices, supply surpluses - as irrefutable proof that forecasters who predicted the world was running out of fossil fuel resources were wrong. Yet the current energy surplus situation is no more proof that the "experts" were wrong than the supply interruptions of the '70's were proof that their predictions had suddenly come true. Despite the recent decline in oil prices, our long- or even medium-term domestic energy availability is not one whit better than it was ten years ago; in fact, it is worse. Even before the current "free-fall" in oil prices, drilling for oil and gas in the U.S. had begun to decline rapidly. Well completions were off 20% in 1985 from the previous year and down nearly 30% from the 1981 record. The current drop parallels last year's decline in the rig count and 1986 has gotten off to a bad start with 31% fewer operating rigs than a year ago. Domestic spending on exploration and development has plummeted from almost $40 billion in 1982 to $27 billion in 1984 and dropped another 15% in 1985. If oil prices stay down for 2-3 years, investment in exploration and development will decline even more. When you consider that drilling is increasingly moving to remote and difficult locations that are expensive to develop, the magnitude of the decline becomes even more serious. All the Persian Gulf producers are doing is pushing the oil price down to the point where we will again be addicted to "cheap" oil, while totally neglecting alternative energy developments. It's worth noting that despite the $250 billion spent by the petroleum industry on domestic exploration over the 1980-84 period, proved oil reserves declined from 30 to 28 billion barrels and the U.S. has the lowest ratio of proved oil reserves-to-production (only 9 years) of any major oil producing country. Our nation's proved gas reserves in the lower 48 states have similarly declined and are now equivalent to only 18 years production. INSTITUTE O F GAS TECHNOLOGY - 2 Several months ago, even when the universal prognosis was that oil prices would remain stable, several industry and government forecasts were published that foresaw a significant decline in domestic oil production from nearly 9 million bbl/day in 1984 to 7-8 million bbl/day by the end of the century, and a concomitant rise in imports from 30% to half of our total oil demand over the same period. Oil imports are already our single largest import item - three times greater than the second largest, automobiles and could cost as much as $100 billion annually by 2000. However, even these forecasts are outdated by recent events, since lower prices will boost consumption and further discourage exploration and production investments. Lower prices will also discourage private sector research and development outlays because they constrain energy companies' cash availability, and postpone the prospects of commercialization of alternative energy sources and innovative production techniques. Further, oil company research budgets have been hit in some instances by the double whammy of drastically lower crude prices, coupled with significant debt loads and redeployment of fiscal resources. They are not just cutting exploration, but in even greater measure, R&D efforts. Excellent laboratory facilities and professional research capabilities are being decimated. The argument has been made that increased dependence on oil imports would not adversely affect our energy security, since we and our allies have switched our sources away from the Persian Gulf to non-OPEC producing areas and more secure suppliers". But, a recent GAO report cautions against the U.S. taking for granted the ability and willingness of individual Caribbean countries to sustain or increase oil supplies to us. Mexico and Venezuela were our number one and number three crude oil suppliers. The GAO report stressed the limits both of these countries have placed on exports to the U.S., and that they have either curtailed or delayed maintenance of existing oil facilities as well as development of new fields. An increase in U.S. demand could force a resumption of Middle Eastern petroleum imports. It's also important to keep in mind that the major non-OPEC discoveries the North Sea, the North Slope - were the result of exploration expenditures made before 1973-74 and that similar investments are not being made today. Thus, unless major new discoveries are made outside the Persian Gulf and this seems unlikely we may be back on bended knee to the Persian Gulf producers. Dependence will increase not only in the U.S. and other industrialized countries but in the developing countries as well. This indeed is part of OPEC's strategy oil demand worldwide and to discourage new discovery efforts, heightening worldwide dependence on OPEC. to boost This nation is on a collision course between growing dependence on expensive imports and a contraction of investments in the development of viable alternatives. Although this may not be the time for massive expenditures on development, this is certainly not the time to savage the federal energy research effort. Rather, the Congress should "stay the course" in continuing to provide for a cost-effective federal presence in the support of energy research. Now is the time to channel INSTITUTE O F GAS TECHNOLOGY funding into next-generation technologies so that we have them "on the shelf" to be deployed when they are needed. But, you can't put a technology "on the shelf" for later use if there is an incomplete data base. One result of omitting critical links in technology development, is that the government will be unable to receive an adequate return on its investment in energy R&D of previous years. We have suggested in past testimony that we need a mature national energy policy that directs a balanced and sustained program to develop appropriate technologies to meet our future energy needs. This policy should ensure a smooth flow of technology from the laboratory to commercial use. There is a need for a sustained federal role in energy research. The private sector is unlikely to continue the development of a broad array of energy technologies once federal support is interrupted, because the private sector can only concentrate on the short term in view of the arbitrary and politicized nature of the world energy arena. The private sector cannot risk its resources to strive for long-term stability when faced with the uncertainties and fluctuations of a world market controlled by different national governments. A level of funding close to the Appropriation levels of FY '85 and FY '86 would appear to be appropriate to ensure that only the best research ideas are pursued. We do not seek expansions, rather we seek a sustaining of federal energy research efforts consistent with due concern for the federal budget deficit. Bear in mind the impact of adequate energy supplies on the Nation's economy: employment, GNP, the homeowner. We have already witnessed the impact of crude prices on the world economy. For example, with every $5 drop in the price of oil, our cost of living drops by 1%. The reverse is also true. Therefore, Congress and the Executive Branch should establish a sound energy policy and set priorities in the federal budget accordingly. IGT has followed rigorous procedures in formulating recommendations to Congress for assistance on the budget. Each year we apply a thorough technical evaluation of the Nation's future energy requirements and the funding sources available from both government and industry. With this in mind, we are proposing a suite of research efforts which are small scale, inexpensive approaches to a variety of energy problems. As part of the gas industry position on energy RD&D for FY '87, we recommend the following specific programs in which IGT is involved: Advanced Research and Technology Development IGT recommends $2.0 million to study biocleaning, the IRM bed, and burn profiles to increase the utilization of fine coal as a new fuel form. Surface Coal Gasification IGT recommends $3.0 million to test pollutant recycle and particulate removal at 500 psi pressure in an existing PDU. IGT also recommends $2.0 million for the continuation of the ash chemistry and fluidization behavior research programs which provide fundamental data necessary for better understanding of fluidized bed coal gasification processes. INSTITUTE O F GAS TECHNOLOGY 4 Unconventional Natural Gas IGT recommends $1.0 million to continue dye penetrant/CORAL analyses to better understand gas flow in Devonian shales, tight gas sands, and coal seams. Geopressured Resources IGT recommends $4.2 million be provided for DOE to fulfill its contractual obligation in FY '87 for the continued operation of the Pleasant Bayou, Hulin, and Gladys McCall field wells to resolve technical issues on production of hydrocarbons and brine, and generation of electricity from the fluids produced. Fuel Cells IGT recommends $2.0 million to continue the development of a contaminant resistant molten carbonate fuel cell capable of processing gases containing sulfur and chlorine. Biofuels IGT recommends $1.35 million for the joint funding of an ongoing GRI program at the Walt Disney World to biologically convert municipal solids waste (MSW), industrial wastes and sewage sludge to methane gas. IGT also recommends $2.0 million for the thermal conversion of MSW or refuse-derived fuel (RDF) in the existing high-pressured, inert-solid fluidized-bed PRU. Thermal Energy Storage IGT recommends $2.0 million to continue research in industrial applications of the composite-phase-change TES technology by conducting tests of the composite media in a PDU, and then using the data obtained to design a cost-shared, proof-of-concept facility to be located at an industrial site. Thank you for the opportunity to present my views. I will be happy to answer any questions. INSTITUTE O F GAS TECHNOLOGY |