SPECIAL REPORT: Oil industry researching diverse energy sources

Feb. 5, 2007
Integrated oil and gas companies have established subsidiaries to research and develop alternative and renewable energy sources, anticipating a global need for diverse new supply.

Integrated oil and gas companies have established subsidiaries to research and develop alternative and renewable energy sources, anticipating a global need for diverse new supply.

Simultaneously, the majors are working to improve energy efficiency and lower operational costs throughout their production, shipping, refining, and marketing segments.

Since 2000, Chevron Corp. has spent $1.5 billion on geothermal, hydrogen, biofuels, advanced batteries, wind, and solar technologies. It plans to spend a further $2 billion on these efforts by yearend 2008.

BP PLC launched BP Alternative Energy (BP AE) in November 2005, and the parent company expects to invest up to $8 billion over 10 years on the subsidiary, which is based in Sunbury, Middlesex, the UK.

ExxonMobil Corp. invested $712 million in 2005 in research and development, a category from which it does not break out spending on renewable energy. Although 2006 numbers were not available at press time, the company has invested more than $600 million/year on R&D since 2001.

Investments in this category are split between technology extensions for use in existing operations and breakthrough technology to help meet future demand and reduce greenhouse gas (GHG) emissions, an ExxonMobil spokesman said.

In 2002 at Stanford University, ExxonMobil cofounded the Global Climate and Energy Project (GCEP), in which ExxonMobil, General Electric Co., Schlumberger Ltd., and Toyota Motor Corp. together plan to invest up to $225 million over 10 years.

Thirty research projects are under way at GCEP, including research into hydrogen; advanced internal combustion; solar energy; carbon dioxide capture, storage, and separation; biomass; and advanced materials and catalysts.

Royal Dutch Shell PLC formed Shell Renewables and has invested more than $1 billion since 2000 on alternative energy.

“We have focused our alternative-energy portfolio on the most promising technologies: two for transport (biofuel and hydrogen) and two electricity sources (wind and thin-film solar),” a Shell spokeswoman said.

Low-carbon energy

Vivienne Cox, BP chief executive of Gas, Power & Renewables, said worldwide corporate interest is escalating in a quest by oil companies and others toward producing low-carbon energy.

“At the moment, alternative energy can sound like a fringe activity,” Cox said. “But 200 years ago so did coal, 100 years ago so did oil, 30 years ago so did natural gas. The mix is constantly changing and is responsive to price, technology, and need.”

One motivation behind BP AE was the realization that there are consequences to what type of electric generation is built. This is key to tackling GHG emissions, Cox said, noting that power plants now generate 40% of the world’s CO2 emissions, double the transportation sector’s emissions.

Shell WindEnergy operates the 80-Mw, 80-turbine White Deer wind farm northeast of Amarillo, Tex. The wind farm is surrounded by agriculture, oil wells, and natural gas pipelines. Photo from Shell Wind- Energy.
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“We don’t tend to feel so guilty about the kettle as the car, do we? We should,” Cox told a conference at the London Business School last year. “Worldwide, around half of the power capacity needed in 2030 is still to be built.... Replace a traditional coal-fired power station with a gas one, and you halve the emissions. Replace it with a series of wind farms, and you eliminate [carbon emissions].”

Rex W. Tillerson, ExxonMobil chairman and chief executive officer, told the Chief Executives Club of Boston in 2006 that fossil fuels will remain dominant for decades, although energy from alternate sources will play a growing role.

“Some-such as wind and solar-are likely to see double-digit growth over the next 25 years, due in large part to government mandates and subsidies,” Tillerson said. “However, these alternatives build upon a relatively small base...and are expanding within a world energy system that is itself expanding significantly. For this reason, they will not fundamentally change the world energy mix, despite their impressive growth.”

In its “Outlook for Energy, A View to 2030,” Exxon- Mobil forecast that global energy demand will increase almost 60% by 2030 from its 2000 level. Energy demand growth is driven by economic progress and population growth.

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Oil, gas, and coal are forecast to remain the predominant energy sources, maintaining about an 80% share of total energy demand through 2030. Biofuels, wind, and solar will grow rapidly, contributing about 2% of total energy supply by 2030, ExxonMobil said.

Alternative energy sources must achieve economies of scale and overcome cost and technical challenges before they can contribute significantly to overall energy supply, Tillerson said, adding that no such source now offers the availability, affordability, and adaptability of fossil fuels.

Chevron Chairman and Chief Executive Officer David O’Reilly emphasizes conservation, calling it the easiest, cheapest, and most reliable near-term energy source.

“If we want to continue to promote economic growth, conservation will help keep energy supplies plentiful and affordable,” O’Reilly said in comments posted on Chevron’s web site. “There are environmental benefits to conservation as well. It may be the single most effective way to reduce greenhouse gas emissions.”

Wind power increasing

A fast-growing source of alternative energy worldwide is wind power.

In the US, wind power generating capacity increased by 27% in 2006 and is expected to increase an additional 26% in 2007, the American Wind Energy Association (AWEA) said in a forecast released Jan. 24.

The US wind industry installed 2,454 Mw of new generating capacity in 2006, representing a $4 billion investment. Wind was second to natural gas for a second consecutive year as the largest source of new US power generation, AWEA said.

“Wind is a proven, cost-effective source of energy that also alleviates global warming and enhances our nation’s energy security,” said AWEA Executive Director Randall Swisher. Wind energy continues to attract both public and private funding.

Shell WindEnergy is a partner in 750 Mw of global wind capacity, of which Shell’s share is 350 Mw. The company belongs to London Array Ltd., a consortium planning to build a 1,000-Mw wind farm off Kent. Other partners are E.On UK Renewables Ltd. and CORE Ltd., a joint venture of Farm Energy, the project’s originator, and Danish utility DONG Energy.

The UK government recently issued a preliminary authorization for the offshore section of the wind farm, which could displace nearly 2 million tonnes/year of CO2 emissions.

Andrew Murfin, a London Array director, said, “The UK government has a target of 10% of energy generation from renewables by 2010 and an aspiration to double that by 2020. To help reach these targets, it is imperative that large-scale wind farms such as London Array get the go-ahead and are built in the not-too-distant future.”

Elsewhere, Shell signed a memorandum of understanding in 2006 with Guohua Energy Investment Corp. to examine potential wind energy developments in China. In the US, Shell has projects in Texas, Wyoming, Idaho, West Virginia, California, and Hawaii.

BP plans major wind-power investments and holds interests in two operating wind farms, both in the Netherlands. One is a three-turbine wind farm at Amsterdam, and the other is a nine-turbine wind farm at the Netherlands Refining Co. BV’s Rotterdam refinery. Chevron also holds interest in that 22.5-Mw wind farm at Nerefco.

“These are small-scale, industrial-setting wind farms, to give us experience of the technology, planning processes, operational issues, etc.,” said a BP spokesman in London. “We also have a planning application in for a seven-turbine farm in the southeast of England at the site of our former Kent refinery, now a fuel terminal.”

BP AE accelerated its US wind-power business in two transactions last year. In July, BP AE reached an agreement with wind developer and wind-turbine manufacturer Clipper Windpower to acquire a 50% stake in a 2,015-Mw wind development involving projects in New York, Texas, and South Dakota.

In a separate turbine-supply agreement, BP committed to buy up to 900 Clipper Liberty turbines over 5 years. Last year, BP AE bought two US wind-development companies: Greenlight Energy Inc. and Orion Energy LLC.

Construction is under way on the 300-Mw Cedar Creek project in Weld County, Colo. Developers BP and Babcock & Brown Operating Partners LP expect the 274-turbine Cedar Creek wind farm to become operational in the second half of 2007.

Also this year, BP AE plans construction on the 20-Mw Yaponcha project involving an existing wind farm in California’s San Gorgonio Pass, a 65-Mw project in North Dakota, a 60-Mw joint project with Clipper in central Texas, and a 10-Mw project in West Texas.

Solar investments

Major oil companies have invested widely in solar energy. Shell and BP affiliates manufacture solar cells. And Chevron Energy Solutions Co. (CES) has installed Solarmine, a 500-kw solar photovoltaic installation, at an oil field near Bakersfield, Calif. (see story, this page).

CES also has installed photovoltaic arrays at service stations in Guatemala City, London, and Rio de Janeiro.

BP Solar plans a $70 million expansion of its photovoltaic-cell manufacturing operation in Frederick, Md., with construction scheduled for 2007. Outside the US, BP Solar has manufacturing facilities in Spain, India, and Australia.

Shell Erneuerbare Energien GMBH formed a joint venture, Avancis KG, with Saint-Gobain Glass Deutschland GMBH to develop nonsilicon solar-panel manufacturing based on copper indium diselenide technology. The European Commission last year approved Avancis, scheduled to start manufacturing in 2008.

In the US, research financed by the US Department of Energy achieved record solar efficiency levels last year. Boeing Co. subsidiary’s Spectrolab Inc. converted 40.7% of the sun’s energy into electricity. Spectrolab produced a multijunction solar cell that gathered more energy from sunlight than can a single solar cell. Multijunction cells promise to cut solar power costs.

In Australia, GCEP researchers at Stanford University are collaborating and financing solar cell design and fabrication research at the University of New South Wales, said ExxonMobil Australia Chairman Mark Nolan.

Hydrogen infrastructure

Oil companies, accustomed to using hydrogen in refining, say an industrial hydrogen infrastructure exists. Hydrogen currently is derived from natural gas via steam reforming. Research continues into separating hydrogen from water, which is more expensive.

Shell Hydrogen BV’s research primarily involves how to use hydrogen as a retail fuel, said Duncan Macleod, vice-president of Shell Hydrogen.

Shell Hydrogen provides a hydrogen-fuel dispenser to refuel fuel-cell buses at a station in Reykjavik, Iceland. Photo from Shell Hydrogen.
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“Shell already has a hydrogen platform of production nodes all over the world. Over 50 million tonnes are produced and consumed every year,” Macleod said. “Through existing and planned demonstration projects, Shell Hydrogen is currently building up our experience in connecting these production nodes with our retail infrastructure.”

Shell Hydrogen, based in The Hague, participates in retail stations in Amsterdam, Luxembourg, Reykjavik, Toyko, and Washington. The company works with partners to make hydrogen an efficient, everyday fuel.

“My vision is that in 10 or 15 years our children will be driving these vehicles,” Macleod said. “When you put all of this together, you are talking about a substantial new energy business.”

Shell Hydrogen and Total SA are working jointly with several vehicle manufacturers to advance fuel-cell vehicles and a refueling infrastructure. The group targets commercialization of hydrogen vehicles in Europe, potentially starting around 2015. Separately, Shell Hydrogen and Shell (China) Ltd. signed an agreement with Tongji University to build Shanghai’s first hydrogen filling station for fuel-cell vehicles. The station is part of a national program to develop electric vehicles in China.

To help US commercialization of hydrogen, Shell awarded $100 million last year to Ohio State University to study membrane-separation technology in efforts to reduce the cost of producing hydrogen from fossil fuels.

ExxonMobil has research partnerships with Toyota and Caterpillar Inc. to develop improved internal combustion engines and fuel systems. A partnership with DaimlerChrysler Corp. is working to develop lubricants to improve fuel economy, extend oil-change intervals, and lower emissions.

In fuel-cell transportation efforts, ExxonMobil Research & Engineering Co. awarded $2.2 million in contracts to QuestAir Technologies Inc. of British Columbia to develop a hydrogen generator for installation on vehicles.

The DOE organized a consortium, led by Chevron Technology Ventures LLC, to build up to six hydrogen stations by 2010. The goal is to determine which emerging technologies merit development.

Chevron Technology, Hyundai Kia Motors, and a unit of United Technologies Corp. opened the Hyundai-Kai American Technical Center in Chino, Calif., in February 2005. Five fuel-cell vehicles use that demonstration station, which is not open to the public.

Chino station, storing 100 kg of hydrogen at 5,000 psi, uses Chevron’s proprietary autothermal reforming technology to produce hydrogen from natural gas onsite, eliminating the need to transport it to the station.

Separately, Chevron provides hydrogen for a public transportation demonstration project with the Alameda-Contra Costa Transit District in Oakland, Calif. Three 40-ft buses and nine other vehicles use the station, which opened last year.

Chevron plans to spend $12 million over 5 years on Georgia Institute of Technology research to study sorbents that remove impurities from hydrogen and to develop cellulosic biofuels.

In partnership with University of California, Davis, research on biochemical and thermochemical conversion, Chevron agreed to spend up to $25 million to develop fuel from crops, forest, agricultural residue, and municipal solid waste.

Other energy sources

Major oil companies are involved in a wide range of research projects and pioneering investments covering other energy sources, including geothermal, batteries, and combined heat and power projects.

The DOE sponsored a recent study by the Massachusetts Institute of Technology of geothermal energy. An 18-member panel prepared a report, “The Future of Geothermal Energy,” that runs more than 400 pages.

It assesses the feasibility, potential environmental impact, and economic viability of using enhanced geothermal system technology to increase output from US geothermal resources. Existing geothermal plants are primarily in isolated western regions. MIT researchers considered the potential for much larger-scale deployment.

“We’ve determined that heat-mining can be economical in the short term, based on a global analysis of existing geothermal systems, an assessment of the total US resource, and continuing improvements in deep drilling and reservoir stimulation technology,” said panel head Jefferson W. Tester, H.P. Meissner professor of chemical engineering at MIT.

Geothermal resources are converted into useful energy outside the US. Chevron, for example, has geothermal operations in Indonesia and the Philippines. In separate battery research for hybrid electric vehicles, Cobasys LLC, a joint venture of Chevron Technology and Energy Conversion Devices Inc., produces advanced battery systems with higher power and longer life than conventional batteries.

A BP Solar employee assembles a silicon wafer. BP Solar plans to expand its manufacturing plant in Frederick, Md., this year. Photo from BP Solar.
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Cobasys, of Orion Township, Mich., developed metal hydride (NiMH) technology used in electric and hybrid vehicles and stationary power plants. In 2002, the company received a 2-year DOE contract for the FreedomCAR initiative.

In January 2007, General Motors awarded Cobasys a development contract to test lithium-ion battery models in GM plug-in hybrid vehicle prototypes. Cobasys is working with A123Systems, a Massachusetts technology group.

ExxonMobil, meanwhile, is investing in combined heat and power projects. CHP relies on natural gas and is twice as efficient as traditional means of heat and power generation.

The company’s CHP capacity increased by 800 Mw in 2004-05, representing a $1 billion investment. ExxonMobil has interests in 85 CHP facilities at 30 locations worldwide, representing capacity of about 3,700 Mw. These facilities have helped reduce CO2 emissions by 9 million tonnes/year.

Global discussion

Chevron’s O’Reilly calls the delivery of reliable, affordable energy “one of the biggest challenges we face as an industry and as a global community.”

He encourages producer-consumer conversation about future energy supply and demand. To this end, Chevron hosts a web site-willyoujoinus.com-inviting public comment on specific topics such as what fuels people desire, where their fuel comes from, and how much they are willing to pay for it.

“Corporations, governments, and every citizen of this planet must be part of the solution as surely as they are part of the problem,” Chevron said on the web site. “We call upon scientists and educators, politicians and policymakers, environmentalists, leaders of industry, and each one of you to be part of reshaping the next era of energy.”

BP’s Cox said she has confidence that oil companies can develop and implement new technologies to meet future demand, and she called upon industry to work with policymakers toward providing specific incentives and regulations.

“We need millions of people to understand the problem and demand change,” Cox said. “This is not an obscure policy issue. It’s about the future of the world.”