Navy biofuels programs sail on amid sinking oil prices

Source: Ariel Wittenberg, E&E reporter • Posted: Monday, April 6, 2015

Deputy Assistant Secretary of the Navy for Energy Joseph Bryan said the service is “driving towards the goal” of deriving half the service’s energy from alternative sources by 2020.While the Navy is not yet using biofuels for operations, it has taken critical steps toward doing so and aims to deploy its Great Green Fleet, run only on biofuels, nuclear power and energy efficiency measures, in 2016.

For that to be achieved, biofuels must first become cost-competitive on the wholesale market. The Pentagon’s Defense Logistics Agency (DLA) purchases all of the department’s fuel wholesale and then resells the fuel to the various services at a special set rate.

In an uncommon but not unprecedented move this February, the DLA reset its standard oil prices in the middle of the fiscal year, charging services $136.92 per barrel, down from the original $155.40 a barrel price.

That could seem like bad news for the Navy’s biofuels program, but in July, the DLA issued its first fuel solicitation that allowed biofuels to bid on government contracts. While no biofuels won out in that round, DLA is allowing them to compete in future solicitations.

Despite the lackluster results, Bryan classified the solicitations a “huge success story,” marking the Navy’s move away from purchasing small amounts of alternative fuels at above-market prices for research and certification purposes toward buying large amounts of fuels for use in actual operations.

“Just giving [biofuels] the ability to compete, that’s the first step toward actually competing,” he said. “If you can’t get your foot in the door, then it makes it even more difficult for your industry to grow and find markets.”

The results of that solicitation will be critical for determining the exact fuels used by the carrier strike group, with its three warships and 71 aircraft that make up the Green Fleet, when it deploys in 2016.

The Green Fleet proved its defense chops in 2012 when it participated in the Pacific Rim naval exercise, representing the United States in the world’s largest international maritime exercise, which occurs every two years.

“That basically proved the concept,” Bryan said. “We were able to better understand that the fuel worked fine on our platforms, and it helped advance us to the point where we are now, which is that you proved you can do it technically and otherwise, and so now it’s time to say, ‘OK, you’re qualified now to participate in the bulk fuel solicitation.'”

To deploy the Green Fleet only on biofuels is no simple task. The 450,000 gallons used in the 2012 demonstration represent about one hour’s work for a reasonably sized biofuel refinery, Bryan said. By contrast, the Navy is hoping DLA’s latest solicitation will secure 37 million gallons of neat alternative fuel.

Bryan did not say what price the Navy expects to pay for biofuels as a result of that solicitation, saying he would have to see the results first. But Assistant Secretary of the Navy for Energy, Installations and Environment Dennis McGinn told the Senate Armed Services Subcommittee on Readiness and Management Support last month that alternative fuels have become much more competitive since the Green Fleet demonstration three years ago.

He said that strong interest from military and civilian aviation has driven biofuel prices from the $12-per-gallon range in 2012 to the $3.40-per-gallon range today.

The Navy’s Defense Production Act biofuels program, which seeks to spur commercial production of alternative fuels, has also made strides recently.

Last summer, the Navy, in cooperation with the departments of Energy and Agriculture, awarded three companies $70 each to help build biofuel refineries in Nevada, Louisiana and Washington state.

Though the Navy cannot buy biofuels from the refineries unless their products are cost-competitive with traditional fuels, the companies that received the awards are required to cumulatively produce at least 100 million gallons annually of drop-in fuels that could be used by the Navy’s warships and fighter jets.

Jeff Manternach of Red Rock LLC, which received an award to produce biofuels from sawdust, said he expects his plant to be online by the end of 2016.

That start date means his company is insulated from current oil prices, and Manternach said he is confident his product will be cost-competitive with fossil fuels.

Though he would not give an estimate for how much his biofuel would cost, he said that producing a barrel of biofuel from woody biomass uses one-third of the energy that it would take to produce a barrel of crude oil.

“Sure, we’d rather see higher oil prices, but we can compete just fine with crude at $50 per barrel,” he said. “We expect to sell our product at market prices.”

Tom Swanson who works for the Pew Project on National Security, Energy and Climate, said that investing in biofuels now, when the price of oil is low, could actually be an advantage to the Navy.

“You wouldn’t want to wait for a period when oil prices spike to do your research and development,” he said. “You want to invest in these programs now so that the alternative fuels are available when you need them and when you are dealing with the oil fluctuations that we all know will come.”

The Navy’s interest in biofuels extends beyond a desire to be environmentally conscious and free from the volatile price swings of the oil market. It’s about giving commanders the increased endurance and longevity in the field that can only come from having options, Bryan said.

“We will take all of those fringe benefits where we can, but our focus is on energy as it impacts combat capability,” he said.

Relying solely on oil and fossil fuels could put the Navy in a risky situation if a ship is depending on fuel from a refinery that suddenly goes out of commission, either due to technical difficulties or because it is taken over by the enemy, Bryan said.

“The alternative fuels program is there to increase operational flexibility and to provide commanders and the Navy with options, and options we didn’t have before we started these programs,” he said.