U.S. Navy Pays Big Bucks for Biofuels

Navy Green Hornet F18
On Earth Day, the U.S. Navy conducted a supersonic flight test of the "Green Hornet," an F/A-18 Super Hornet strike fighter jet powered by a 50/50 biofuel blend. (U.S. Navy photo by Kelly Schindler)

The U.S. military is the single biggest consumer of fossil fuels in the world. Because of risks around price and supply security, they are particularly interested in alternatives. As crude oil prices soared in 2008, the Navy saw its annual fuel costs skyrocket to $5.1 billion that year, up from $1.2 billion the prior year.

Jet fuel and diesel can be made from many alternative sources, including algae, camelina, coal (CTL), natural gas (GTL), biomass (BTL), etc. But I always try to stress to people that these alternatives are not cheap. Despite the many predictions that specific companies are going to sell algal fuel for $2/gallon, the real litmus test is actual price paid for fuel. A story this past week provided a data point for jet fuel derived from camelina:

Navy: Alternative fuel needed for security

By 2020, the Navy aims to meet half of its energy needs for ships and planes with renewable energy sources, requiring some 8 million barrels of biofuel.

“That represents a pretty formidable market,” Rear Adm. Philip Hart Cullom, director of the Navy’s Energy and Environmental Readiness Division told the Algae Biomass Summit in Phoenix, The Arizona Republic newspaper reports.

Cullom acknowledged that he expects biofuels to remain costlier than traditional fossil fuels for some time.

Last September, the Defense Energy Support Center, which oversees procurement of biofuel for the Navy, paid $2.7 million for 40,000 gallons of camelina-based fuel. That came to about $67.50 per gallon, compared to the typical cost of about $2.94 per gallon for its standard fuel, JP-5.

$67.50 per gallon seems a bit pricey. But the navy paid a lot more than that for algal fuel:

Solazyme bags U.S. Navy contract for green jet fuel

(Reuters) – U.S. biofuel company Solazyme Inc said on Thursday it will be providing its algae-derived jet fuel to the U.S. Navy for testing and certification.

Privately held Solazyme will sell 1,500 gallons of the green fuel to the U.S. Navy, which is buying fuel from the San Francisco-based company for the second time.

Earlier this month, Solazyme was awarded a separate contract from the Navy to provide research, development and delivery of over 20,000 gallons of renewable algae-derived fuel for use in Navy ships.

The ship fuel contract is worth about $8.5 million while the jet fuel contract was worth about $200,000, said Jonathan Wolfson, the company’s chief executive and co-founder, in an interview.

$8.5 million for 20,000 gallons comes to exactly $425/gallon. $200,000 for 1500 gallons is $133/gallon. What does this mean? I believe that it means nobody else could deliver the quantity and quality of fuel the navy was looking for at a cheaper price. Oddly enough, Wolfson is also quoted in that article as saying they “are quite close” to their target of $60 to $80 per barrel. If that’s the case, why is the navy paying hundreds of dollars per gallon for the fuel?

On the other hand, I am certain that alternative fuel can be delivered to consumers at much lower prices than this. It just won’t be at prices they are accustomed to paying for fossil fuels.