Good morning Mr. Chairman and good morning to other members of this committee. Syntroleum appreciates the opportunity to speak to you today about transportation fuels of the future. My name is Jack Holmes, and I’m the president and CEO of Syntroleum, which is a company based in Tulsa, Oklahoma that is focused on developing ultra-clean fuels utilizing Fischer-Tropsch technology.

Syntroleum would like to touch on several areas this morning, which include:

· The supply and demand issues across the world.
· Our nation’s dependency on foreign energy.
· Benefits of Fischer-Tropsch fuels.
· And finally, coal-to-liquids opportunities in the United States.

Across the world, we continue to see energy demand increase at rates greater than the growth of their domestic supplies. This trend is especially true in the United States, China and India. Eight years ago, China was a crude oil exporter. According to the U.S. Department of Energy, China alone faces major oil shortages of 5.9 to 8.8 million barrels per day by 2015. This problem will not get better, it will only get worse.

Recently, we witnessed the immediate negative impacts of unexpected disruptions to our nation’s refineries and natural gas processing facilities in the Gulf of Mexico as the result of Hurricanes Katrina and Rita. It’s apparent that our nation needs additional energy resources, and we need to diversify our energy infrastructure away from the Gulf of Mexico.

Our nation is too dependent on foreign energy. The United States currently imports about 60 percent of its crude oil and refined product requirements. It doesn’t have to be this way.

Our future economic and energy security rests upon our ability to effectively utilize our domestic sources of fuels. The world supply and demand balance dictates that we use our clean coal technology for development of secure domestic motor fuel.

Syntroleum has spent 20 years advancing Fischer-Tropsch technology to produce ultra-clean transportation fuels.

Syntroleum often categorizes Fischer-Tropsch technology as going back to the future because it was developed in the 1920s in Germany. Back then, Germany was facing decreasing domestic energy supplies, so researchers developed Fischer-Tropsch technology to allow companies in Germany to convert coal into fuel.

Other companies in places such as South Africa have also utilized Fischer-Tropsch technology to develop fuels, where over 1.5 billion barrels of Fischer-Tropsch fuels have been produced from coal over the last 50 years. Our technology is real and now this country needs it.

With over 270 billion tons of proven reserves, the United States is the Saudi Arabia of coal. Much of this coal is located in remote areas of western and midwestern states. Our plan is to build at or near mine mouths to maximize transportation savings. If we convert just 5 percent of the estimated recoverable coal reserves in the United States, it would be equivalent to the existing 29 billion barrels of proven oil reserves in the United States. This data is significant for our country and can no longer be ignored. We could virtually double our motor fuel supply without drilling a single well. And, we wouldn’t need to build another refinery because our technology demonstrates that the ultra-clean middle distillate fuel can be developed on site, where the coal reserves are located. A growing coal-to-liquids industry would produce good, high-paying jobs for decades to come.

Because most of this coal is disbursed throughout the heartland of the United States, it removes concerns about hurricanes in the Gulf of Mexico and potential terrorist acts by sea.

Based on our 20 years and $200 million of Fischer-Tropsch research and development, Syntroleum is prepared to deploy its cobalt-based Fischer-Tropsch technology together with existing coal gasification technology for the production of ultra-clean transportation and home heating fuels. Our research has revealed significant findings about the products, including:

· Our fuels have virtually no aromatics, no sulfur and are non-toxic and biodegradable. You can actually drink this fuel.
· Our fuels can be used as a blending stock to meet environmental requirements and dramatically extend the volume impact.
· Our fuels are completely compatible with today’s infrastructure, meaning no hidden infrastructure cost.
· Our fuel will work in today’s diesel engines with no modifications.
· And, our fuel can be used by the military. In fact, we have done extensive research with the U.S. Department of Defense to test single battlefield fuels.

(See attachments for environmental properties of fuel)

The government does not need to fund this new industry. However, support from the United States government for the first coal-to-liquids plants will be critical. Syntroleum applauds this Congress for their actions this year in passing the Energy Policy Act of 2005. This bill was a step in the right direction in developing a long-term energy strategy by providing funding for research and development of clean-coal initiatives and loan guarantees associated with the construction of commercial scale coal-to-liquids plants. The recorded vote shows the bipartisan support for the need to research alternative forms of energy and the growing interest in clean coal and coal to liquids technologies.

Syntroleum urges the government to follow through with its commitment to dedicate money for loan guarantees and mandate long-term contracts to purchase Fischer-Tropsch fuels. We believe that the first coal-to-liquids plant will have a significant impact on the capital market to fund additional plant projects.

Recently, this Committee held hearings on the proposed Gas PRICE Act, S. 1772. As a revolutionary industry still in its infancy, coal-to-liquids technology can look forward to many advances in the years ahead. Improvements already under evaluation will continue to reduce capital and operating costs, increase plant energy and carbon efficiency, and permit continued scale-down of plant size. By introducing this bill, Sen. Inhofe recognizes the benefit this country would receive in bringing clean fuels to the market sooner rather than later.

We encourage government to accelerate the rule making to enable the energy bill to take effect and continue down the path of supporting innovators to meet today’s energy needs, which can be done by creating an environment of regulatory certainty and favorable market conditions for the development of alternative energy supplies. The downstream effect translates into more jobs in this country, not overseas, and heads us toward a future reduction in our dependence on foreign sources of supply.

Americans today are worried about the high cost of fuel, and rightfully so. The effects of Katrina alone are estimated at several billion in increased motor fuel cost. Whether it’s filling their automobile tanks or heating their homes, Americans are being hit in their pocketbooks because of our nation’s dependency on foreign oil and our limited refining capacity. But, we don’t have to continue down this path of energy instability. Ultra-clean, coal-based Fischer-Tropsch fuels can have a significant impact on the energy supply balance in the United States.

In closing, Syntroleum believes that consumers, regulators, policy makers, environmentalists and progressive energy companies can agree on one crucial point – responsible use of our resources and the protection of the environment is not the job of just one, but of everyone. Focusing on alternative energy – such as coal-to-liquids development – will not only enhance and diversify our energy supply and offer a cleaner product, but can provide thousands of jobs and boost our national security. There are significant opportunities to create new sources of energy right in front of us here at home. Now is the time to embrace these proven technological advancements and start securing our energy independence.

In summary, we depend on motor vehicles in this country. We need to depend less on foreign supply and create jobs utilizing our own technology and natural resources.

Mr. Chairman, members of the Committee, thank you for allowing me this time to speak about the transportation fuels for the future.