Thursday, December 16, 2010

Forget about "green" - its all about "energy security"


(note: the current mandate for biofuels in US is for 36 b G, This "demand" from military, is 336 b G additional!)

Military signals advanced biofuels demand: 336 million gallons by 2020

D-E-M-A-N-D spells demand as the Navy signals its need for advanced biofuels to the investment community

In the annals of advanced biofuels, much has been written of the US Department of Energy's role in fostering research, and the US Department of Agriculture's role in fostering commercialization. Less has been written about the US Department of Defense's role in buying, testing and using fuel. But of all the agencies of the US federal government, their role in stepping up as a buyer, and communicating buying signals to the makers of advanced biofuels and their financiers, has been the one of the biggest stories of 2010.

This week in Honolulu, Chris Tindal of the US Navy joined advanced biofuels CEOs Jason Pyle of Sapphire Energy and Jonathan Wolfson of Solazyme at BIO's Pacific Rim Summit, to discuss the scope and scale of the effort to provide the US Navy annually with 336 million gallons of drop-in advanced biofuels by 2020.

Chris Tindal, US Navy

"We are trying to be out in front. Why? We are worrying about getting oil to the front line. For example, the majority of convoys going to forward areas are bringing fuel and water. Fuel ops are very vulnerable to attack. At present, 75 percent of our energy is consumed by our tactical groups, and only 25 percent by our shore installations.

(note: Biofuels Digest has elsewhere estimated that as many as 10 percent of US military casualties occur in the delivery of fuel to forward areas).

"So, the Secretary of the Navy has ordered that we will demonstrate a green strike group in local operations by 2012, and deploy a Great Green Fleet by 2016. The destroyers, cruisers and air wing will be using biofuels, and will be accompanied by nuclear-powered carriers and submarines.

"By 2020, our target is fifty percent of energy from alternative sources, and we have a mandate to reduce petroleum use 50 percent by 2015.

"We need drop in replacements – we don't have the time to do engine reconfigurations, so we are working on a series of tests to ensure green strike group certification by 2012 and across our fleet. Which is why we conducted, this past Earth Day, a 1.2 Mach supersonic test of our F-18 Hornet, which we renamed the Green Hornet of course, using camelina-based jet fuel. The Green hornet tested through its full range of operations and throughout the test it didn't realize it had 50 percent biofuels in the tank. We also tested our Riverine patrol boats with algae based fuels.

"We are feedstock agnostic, and will comply with Section 526 of the EISA ACt with respect to meeting greenhouse gas emissions targets. Our need? Jp-5 jet fuel and F-76 military diesel. By 2020 we need 8 million barrels of biofuel (336 million gallons), 4 million of each of F76 and JP-5.

"We signed a strategic alliance between the DLA (Defense Logistics Agency) and the USDA in March 2010, with one of our goals being to create a demand signal for the biofuels industry, for venture capital, for all those people standing up a biofuel industry. USDA's Sarah Biddleman recently said that standing up an advanced biofuels industry was like standing up a pop up book, everything has to stand up at the same time. So Bill Hagy of USDA and I have worked hard in structuring a way forward in moving the MOU forward. The first region chosen was Hawaii. If we can stand it up here we can get it done elsewhere.

"In Hawaii, the Department of Defense requires 64 million gallons, there is 215 million gallons of advanced biofuels demand at Hawaii Electric (HECO), we need 4 million gallons for the DOD's own power generation, and the Air Transport Association reports a demand for 230 million gallons of advanced biofuels. That's over 500 million gallons in demand here in the islands."

Jason Pyle, Sapphire Energy

"Think about it, in 2007 no one was talking about drop in fuels, but we have woken up in the United States to the fact that we have 14 trillion dollars in liquid hydrocarbon infrastructure, and replacing that in a short period of time is a fantasy, and unnecessary, as we have all discovered. What we are asking for is to alter the energy mix, which has never been done without a national government's intervention. We have to be thinking about delivering hundreds of millions of gallons, how to achieve that scale.

"In the commercial demonstration that we are undertaking in New Mexico, we will be producing 1 million gallons of jet, 1 million gallons of diesel from algae, but at the end of the day there are lots of ways make a 1000 barrels per day. It is when we think about a million barrels per day, that's we have to think about the big resource problem. That's why we've identified a series of locations along the US SOutheast coast and in the Southwest where we see the combination of sunlight and brackish or saline water.

"In looking to agriculture to provide us the answers, we saw that there are 375 million acres of water based agriculture. 27 percent of worlds dietary energy comes from rice, and rice is the model system we aspire to. We believe that we can achieve, with our algae-based biofuels systems, at 5,000 gallons of drop-in biofuels per acre, $12,500 in revenues per acre – compared to around $940 per acre for tree farming activities and around $600 per acre for corn.

"We think it is not only the right way to produce fuels, but economically effective. It's worth noting that the most cost-effective energy product in the world is corn, at $9 per million BTUs. It's cheaper than oil.

Jonathan Wolfson, CEO, Solazyme

"Let's look at Hawaii. There are 123000 barrels per day coming into Hawaii from Asia and the Middle East. No one wants a repeat of things that happened in the past, but remember that here, Hawaii, is the front line, Pearl Harbor is the center of US defense against any threat that would ever come from the East.

"There has been real serious forward thinking at the Navy on this subject, which has led to some of the contracts that we have signed to date with the Navy. We signed a contract for 20000 gallons of HR76, which we have completed, and 1500 gallon contract for HRJ5 which we have completed, and we have a contract for 150,000 gallons of HR76 which we are now in the process of delivering.

"What is Solazyme? We are a renewable oil production company that can go into fuels or chemicals. We can tailor our delivery using a standard fermentation platform. What we have developed is the first substantial biomass sugars to oil platform – that's our core technology. Why? The planet grows carbohydrates better than natural oils. 87 percent of arable land today in farm production is producing carbohydrates, and only 13 percent is oil seeds. Plus, that's overstating the oil seeds because half of that is soy, grown for protein. So we take a standard fermenter and put algae in there, and grow them in the dark using a wide variety if cellulosic sugars – canes for fuels and chemicals, corn when using foods. Our microalgae produce oil and we harvest that oil."

Questions from the crowd

Wolfson was asked about subsidies for renewable fuels. When people say no subsidies they mean no parity. An 80 dollar barrel of petroleum is not an 80 dollar barrel of petroleum. The oil companies have had 100 years to bury subsidies everywhere. There's a shocking amount of support the current platform, and respected think tanks who lookm at the full cost of oil have concluded that the real cost is 7 to 12 dollars, not the fraction of that you are paying at the pump.

Tindal was asked about the amount the Navy was willing to pay for fuels. He said that "there's no magic dollar value, but we recognize that, for example, a concept car costs 2 million when you make one. Later on you'll get the cost down to $10,000 with scale, and with the engineering improvements that come along the way.

Asked what was the most important need in terms of delivering military fuel, Tindal was clear. "We want a 20 year contract for fuel delivery, so that these fuel developers can get project finance, and we need that in order to move forward. Otherwise it's going to take VC with really deep pockets, because we don't want to own and operate a biofuel company."

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Biofuels are a wide range of fuels which are in some way derived from biomass.

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