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Senator Evans. Thank you, and thank you all on the panel. Let me ask just a few questions and indicate that we may have other questions, or other members of the subcommittee may have other questions to submit in writing to which we wish you to respond.

Mr. Webb, first for a general comment, I noticed in I do not know how many of the testimonies, at least half, maybe more, made direct reference to Gramm-Rudman-Hollings cutbacks or Gramm-Rudman-Hollings minimums. Let me say again as I did earlier in the session that Gramm-Rudman-Hollings puts no limits whatsoever on spending for fiscal year 1987. It only puts a limit on the size of the deficit at $144 billion.

Does anyone think that is too difficult? That is the fourth highest deficit in the Nation's history, and it is hardly a hard target to hit.

I think it is much more accurate to say that these are the choices the administration made when they submitted their budget to us; their belief in the priorities of energy research as related to all of the other elements that go into the budget making, including increasing taxes. So I think we ought not to blame my three colleagues who, I think, came up with really a splendid act, especially in the first half which is to set fixed targets for us to aim at rather than the flexible targets we have had in the past that got us into the trouble we are in.

The cutbacks again frankly I think will be unusual, and we probably ought not ever to see them simply because if we do the front half well we will omit the targets and there will be no cutbacks. But be that as it may, let us give the administration all the credit and none to Congress for the cutbacks in the proposal they have made to us. We will see what we can do in response, knowing that we also have all of those elements at our disposal, priority setting as well as the unenviable task of raising taxes if we think that priorities would collectively require that.

With that beginning, Mr. Webb and perhaps Mr. Lawrence as well, whoever would like to comment on it, we heard testimony earlier from Mr. Lawrence on mechanical technology of this vast market out there, a $13 billion a year market in gas heat pumps for only a $60 million investment needed to get there.

Were you that close? Is that an accurate statement of the potential market and the investment necessary to get there?

Mr. WEBB. Senator Evans, first of all the program Mr. Lawrence is referring to would be one of the projects we are proposing under this joint DOE-Gas Research Institute cofunded heat pump program. What we have proposed to the Department of Energy and before budget this year was finalized, what they were talking to us about was a 5-year program where we would put up between 55 and 60 percent of the research funds to develop these technologies.

Senator EVANS. Yes.

Mr. WEBB. I think you could probably build a prototype perhaps within 3 years. I do not think you can develop a cost competitive, if you would, initial commercial unit within 3 years. I think that is a 5 to a 7-year project.

Regarding the size of the market that he is referring to, I think he has oversimplified it in that, first of all, after we once get to the point where-let us say we have a program in DOE until 1991. There is a couple of heat pump units that are cost competitive and ready to go on the market. At that time, some manufacturer has to step forward with about $250 million to set up a production line to manufacture these units. That is a risk capital that industry will have to bring forward at that time.

The market in heat pumps, the electric heat pump market is about 500,000 to 600,000 units a year. When you talk about 50 million units, and you talk about there is only maybe 1.5 to 2 million new homes built a year and there are so many retrofits, it is a very long-term project to get to this $13 billion market. It is not something that happens in a very short period of time.

It is a very sizeable market. There are over 40 million homes heated with gas. That is the reason the gas industry is putting in $13 million a year of our own funds into this research. But it is in fact a very high risk, long-range proposition.

Senator EVANS. Dr. Larsen, you talk about reprogramming some money from special clean coal, a special appropriation for clean coal into some of the other elements that you mentioned. I have two questions.

First, how similar are the technologies involved as they are described in the clean coal program? If you want to reprogram them, you want to reprogram them to something quite similar or compatible.

Dr. LARSEN. The technologies, I think, are quite different. You mentioned before that there is this research continuum, and our view on this is that in the clean coal technology program the funding is at the rather applied end of the continuum. These are pilot plant or demonstration units that are fairly near commercialization. We feel there is a more important Federal role farther back from the commercialization end. Basically, if the processes are very attractive, we feel the private sector will see that they get there.

Within the coal community, the very long-range fundamental work currently has to rely on the Federal Government and one or two others.

Senator EVANS. I might even agree with you as to the wisdom of that reprogramming. I am not sure that I want to be the one to go to my colleagues who got that put in the budget and suggest that it be reprogrammed out.

Dr. LARSEN. I was warned that it was going to be unpopular.

Senator EVANS. It might be popular with me, but I do not think I will go to Mr. Byrd and Mr. Warner and suggest that.

Dr. LARSEN. I tried it on Mr. Warner's staff first, and no, I would not try that.

Senator Evans. There is a lot around here that does not go precisely according to priorities.

Dr. Lee, you mentioned a number of new technologies of things coming along. If you had to put all your money on one horse in that race as being the one that is most likely to really produce an effective impact on our energy situation, which one would it be? Which one of those do you think looks the most promising?

Dr. LEE. I hope you are not putting me into the box of putting all the eggs in one basket, which is precisely what we do not want to do.

Senator EVANS. No, as a matter of fact, I believe we ought to let the winners appear, rather than funding a broad array.

Dr. LEE. If you are looking for things that could have an impact over the shortest time in the future, I would suggest that we look at the fine coal technology, because coal is being utilized mostly in power generation and we are concerned about environmental impact. So the clean coal technology we are speaking of, fine coal is not quite ready to go into the initiative you just spoke of. That requires demonstration scale operation. We are talking about R&D to clean as much of the organic sulphur out of the coal to start with before the combustion, using existing technology which already removes most of the ash, finding advanced ways to burn the coal and do the post-cleanup as required. We feel this will give the shortest time to utilize a large resource.

So without limiting myself to all the other possibilities, let me suggest that is one.

Senator EVANS. Does anybody else wants to tackle it as to where you think the most promising things are?

Mr. GEORGE LAWRENCE. If I might, Senator, I would kind of like to pick up on a little bit of your question on the gas heat pump to Mr. Webb.

Senator EVANS. Fine. Mr. GEORGE LAWRENCE. But in the context of your last question, because I think the contribution of the gas heat pump, there is such a thing as a desiccant system here, and the way of the conservation technology can contribute to gas cooling, and the contribution this would make to two industries and the customers of two industries, if we actually commercialize the gas cooling so the electric industry does not have to have those needle peaks, then I think it is going to be of tremendous benefit in efficiency for both the electric and the gas industry. That is on the conservation side.

On the supply side, I really think the priority goes to this focus in that $35 million to the geosciences, because that spreads across so many areas of absolutely huge potential contribution.

Senator EVANS. We are really talking more in the field of stationary energy supply both for home, commercial or industrial purposes. Would anyone like to get into that on the transportation side where we have a huge petroleum use? What alternatives appear to have the most promise out there for cutting back on petroleum use for transportation?

Mr. GEORGE LAWRENCE. If I might, Mr. Chairman, the American Gas Association today as we speak is conducting a rally for compressed natural gas vehicles from San Diego across the southern tier of the country that will end up in Richmond the middle of next month. A similar rally occured in the fall of 1984 which started in Washington and went to Seattle and San Francisco.

The contribution that natural gas-fueled vehicles can make, particularly in the commercial vehicle market-there are 16 million commercial vehicles out there that travel an average of 37 miles a day that are natural. Most of these are in the metropolitan areas and would lend themselves to CNG vehicles.

We think this is a tremendous contribution and a growing one, and we can certainly take a lesson again from our neighbors to the

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north in Canada, because they are promoting this much more rapidly than we are.

Senator Evans. That is a different kind of nonrenewable resource, however. Mr. Schora.

Mr. SCHORA. Mr. Chairman, to revisit a little bit on eastern oil shale, this is a resource we in fact came to understand and know through the funding of the American Gas Association when in fact some of their members were interested in the use of eastern shales for the production of synthetic natural gas.

The technology led to realize that eastern shales convert very readily to liquid fuels much more easily than in fact they do to methane by proper processing. We feel that this resource, which has not I think been adequately analyzed at this point in time, which is tremendous in nature and which is in a beautifully located spot to provide for practical commercialization, as some of the problems they have in the western shale do not occur with the eastern shale.

This fuel form in some modes of refining can produce as much as 90 to 95 percent of jet fuel as opposed to kerosene and gasoline. We feel this is of tremendous import, because it avoids the problems of western shale, water problems, the environmental problems, and it is in an area where in fact I think it would fit in very well with the economy.

Some of the concerns of open cast mining I think can be addressed readily by some of the practices now underway in Germany where they go to very deep cast mining and can reconvert the land site to very useable and in fact improved farming land. We think that with adequate funding at this point in time this technology and this resource could be made ready, so that when the price of liquid fuels, the transportation fuels start to rise again, we will have a great potential resource in place and ready to be utilized by the commercial sector.

Senator EVANS. Dr. Holland, I know you would like to make a comment, but let me ask a question that fits in with that.

You mentioned $25 a barrel oil. Is that $25 a barrel figure taking into account all of the environmental concerns over mining and land restoration and all the other elements that accurately ought to be applied to any kind of energy source? We have had great trouble all the way along. I know I did sitting on the power council trying to ensure that, as we analyze the developed cost of coal versus nuclear or any other source, we had to try to make sure that we had all the costs involved.

I am curious as to what the $25 refers?

Dr. HOLLAND. I understand what you are talking about. We had our mining staff look at that very question in terms of mineability, processing, et cetera, all the elements are included in the cost associated with restoration and reclamation of land. That would include that element of the cost. I cannot tell you just exactly today what percentage of that is really reclamation and restoration, but it is in fact part of the cost.

Let me underscore what Dr. Schora had to say about eastern oil shale because it bears a vital supply of material for transportation use and for liquid fuels. '

In addition to that, I would like to bring your attention to the fact that liquified natural gas has a great deal of potential as a fuel for diesel engines. We are engaged in some research and develop ment at the moment that shows great promise in terms of using liquified natural gas, and it applies particularly to the barge users of fuel, particularly fishing trawlers and mining operations where you have concentrated use and you do not have to put in the infrastructure the barge infrastructure for the distribution of the liquefied natural gas.

On our projections we are looking at a cost equivalent for liquefied natural gas for diesel purposes of the equivalent to about 40 cents a gallon for fuel. In the fishing trawler industry in the gulf coastal region, that amounts to about a $40,000 a year savings for a fishing trawler or shrimper trawler of 65 feet, which could be the salvation of the shrimping industry in the South and in the gulf coast region.

Senator EVANS. Can you use that liquefied natural gas in current diesel engines without modification?

Dr. HOLLAND. There is some modification that is required. The modification is fairly straightforward. We are currently building a fishing trawler using Caterpillar diesel engines to test this concept out and get a better handle on what the maintenance and service requirements might be for the operating practice. We think there is a large savings in terms of engine life because of the cleaner burning fuel.

Senator EVANS. Thank you very much. All of this has been a very interesting afternoon and a particularly interesting program from this panel.

We have lots ahead of us, and I sometimes wonder why we cheat on the research side and then wonder what we do when we are short with a whole lot greater expense. It does not seem to be a very hot set of priorities we have gotten ourself into. We will see what we can do about it.

Thank you very much.

(Whereupon, at 5 p.m., the hearing was adjourned, subject to the call of the Chair.)

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