US Navy buys up synthetic biology biofuels

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Join the Navy and Free the World: A special report on military
biofuels

http://biofuelsdigest.com/bdigest/2010/09/15/join-the-navy-and-free-the-world-a-special-report-on-military-biofuels/

In California, Solazyme tells the Digest that it has signed a new
deal with the US Navy and Honeywell's UOP to deliver 150,000 gallons
of algal-based biofuel for HRF-76 Renewable Naval Distillate fuel,
the primary shipboard fuel used by the Navy.

The news follows an initial contract for 20,000 gallons of HRF-76,
signed in 2009, for which Solazyme has now completed delivery. The
company also signed a contract in 2009, and completed delivery
earlier this summer, for 1500 gallons of algal-based renewable
aviation fuel to the Navy for testing and certification purposes.

Honeywell's UOP was the refining partner in all cases, using their
UOP/Eni Ecofining process technology to hydrotreat the renewable
algal oil produced by Solazyme.

Reaction from Solazyme

"We are excited by the new DoD contract which calls for much larger
volumes of HRF-76 Renewable Naval Distillate fuel, and view its
signing on the heels of our successful delivery as strong validation
of Solazyme's technology and of our prospects to provide meaningful
quantities of low carbon fuels for our national defense," said
Solazyme's CEO Jonathan Wolfson. "Working with the Navy, DLA Energy
and the DoD to collectively lead the drive for advanced low carbon
fuels is an honor."

Demand from the US Navy and DOD-wide

The Navy's long term strategy is to supply 50% of its energy from
renewables by 2020.

How much is that? Well, statistics on energy consumption from the
Department Energy Supply Center (DESC) generally are DoD-wide, but
for fiscal 2009, DESC purchased 5.42 billion gallons of fuel, of
which 80 percent represented jet fuel and most of the remainder
represented diesel fuels. At this time, military biofuels are
generally approved for 50 percent blends in aviation, which thereby
creates a potential demand of around 3.2 billion gallons for US
military biofuels in the near term.

The Drop-in fuel imperative

Although worldwide ethanol and biodiesel capacity far outstrips
these volumes, the military is requiring drop-in renewable fuels –
having no appetite on the large scale for any risks or
implementation issues associated with the use of first-generation
ethanol or biodiesel – in the case of ethanol, the blend wall; in
the case of biodiesel, gelling issues and performance under aviation
conditions. Some quibble about these concerns, but "the customer is
always right".

The delivery time scales

The Navy wants to fuel a Green Strike Force by 2012 with renewable
fuels, and we don't yet have precise figures for that demand, but
think in the tens of millions of gallons per year rather than the
hundreds of millions. A non-nuclear aircraft carrier like the USS
Independence uses 150,000 gallons of fuel per day at top speed, and
generally consumes 100,000 gallons per day in standard sea
operations. Double that for the fuel to supply the jet aircraft on
board, if there are continuing operations, as would be expected in a
Strike Force.

The scale of military demand

Here's a good factoid: the two-week airlift of supplies assembled
for Operation Desert Shield in 1990-91, exceeded the entire 1945
Berlin Airlift in terms of tonnage.

But military fuel is a special category – by weight, it represents
two-thirds of all military shipments.

Why? B-52s use 3,600 gallons per hour. The F-15 fighters, with their
afterburners on, consume 14,400 gallons per hour, and 1500 gallons
per hour at peak thrust.

It's more than just the engines and the aircraft. The Navy uses
liquid fuels to generate all its power, and purify all its water.

Who's in the race?

Companies capable of supplying US military fuels by 2015

Among US-based companies, here's the list of candidates, from the
Advanced Biofuels Tracking Database. Some produce drop-in fuels
directly, some renewable diesel, while Solazyme produce renewable
oils which are upgraded to military fuels by UOP.

AltAIr (100 Mgy), Amyris (US is lab only), ClearFuels (16 Mgy),
Dynamic Fuels (75 Mgy) , Joule Unlimited (no announced targets
beyond demonstration phase at this time), LS9 (10 Mgy), PetroAlgae
(US is expected to be demonstration farms at this stage), Rentech
(259 Mgy), Sapphire Energy (1 Mgy), Solazyme (100 Mgy), Virent (no
production beyond demonstration levels announced at this time).

Their collective projected US-based production in 2014: 561 million
gallons per year. By 2012, this drops back to 301 million gallons.
Suggesting that the US military can be expected to account for a
large percentage, but far from all, US-based advanced biofuels
consumption by 2012, but could well be expected to consume a very
high percentage through 2020 unless commercial scale-up is dramatic.

What can the military do to assure itself of supply?

Absent congressional authority to issue its own loan guarantees, the
US military is going to have to stimulate the private sector in
project finance to get beyond its concerns about risk. The renewable
energy companies must be expected to hedge out or otherwise minimize
through contracting their feedstock price volatility risk. Leaving
two areas of risk: performance of the technology, and the downstream
fuel off-take risk.

The military can eliminate the fuel off-take risk with a fuel supply
contract with the producer that lasts for the life of the project
loan. That leaves the technology risk. Absent a loan guarantee, the
best means is for the US military to provide the financing for the
first plant – that is to say, the non-equity component, or around
60-80 percent of the project cost.

Doing so via a reverse auction – that is, lowest bidder wins the
contract and the financing – could cost the US government in the
range of $120-$500 million depending on the project cost, for a 40
million gallon plant that could presumably cover the needs of a
Green Strike Force.

Add 20-30 percent if the DoD chooses to go the route of financing
and contracting with two projects, to test out competing
technologies and hedge the technology risk.

Where's the money?

For sure, go right where everyone else is going – strip the dollars
out of the DOE's loan guarantee fund, which has been robbed for $3.5
billion over the past two years. The DOE is unlikely to use the
money anyway for biofuels as the current Section 1703 and 1705
programs are written. By moving it to DoD, you get some mileage from
the project, and the resulting shares in the project's value can be
resold at a later time to repay the government for its investment,
presumably with a tidy profit.

The last word

From Solazyme CEO Jonathan Wolfson: "Reducing dependence on foreign
oil is a national security imperative, and Solazyme's technology
focuses on producing an abundant, domestic and renewable source for
oil and fuels."

Some additional links

The Defense Logistics Agency DESC Fact Book for 2009 – stats on fuel
usage

Send the Marines - 17 steps the US military is taking to advance,
use and advocate for biofuels
Jim Thomas
ETC Group (Montreal)
jim@etcgroup.org
+1 514 2739994





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Rachel Smolker
Biofuelwatch/Energy Justice Network
rsmolker@riseup.net
802.482.2848 (o)
802.735 7794 (m)
skype: Rachel Smolker

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