* Navy seeks to help create competitive biofuels industry
* Lawmakers balk at $26-a-gallon prices
* Analysts say biofuel effort may have merit
By David Alexander
WASHINGTON, July 2 (Reuters) – A U.S. Navy oiler slipped
away from a fuel depot on the Puget Sound in Washington state
one recent day, headed toward the central Pacific and into the
storm over the Pentagon’s controversial green fuels initiative.
In its tanks, the USNS Henry J. Kaiser carried nearly
900,000 gallons of biofuel blended with petroleum to power the
cruisers, destroyers and fighter jets of what the Navy has taken
to calling the “Great Green Fleet,” the first carrier strike
group to be powered largely by alternative fuels.
Conventionally powered ships and aircraft in the strike
group will burn the blend in an operational setting for the
first time this month during the 20-nation Rim of the Pacific
exercise, the largest annual international maritime warfare
maneuvers. The six-week exercise began on Friday.
The Pentagon hopes it can prove the Navy looks as impressive
burning fuel squeezed from seeds, algae and chicken fat as it
does using petroleum.
But the demonstration, years in the making, may be a Pyrrhic
victory.
Some Republican lawmakers have seized on the fuel’s
$26-a-gallon price, compared to $3.60 for conventional fuel.
They paint the program as a waste of precious funds at a time
when the U.S. government’s budget remains severely strained, the
Pentagon is facing cuts and energy companies are finding big
quantities of oil and gas in the United States.
Navy Secretary Ray Mabus, the program’s biggest public
booster, calls it vital for the military’s energy security.
But to President Barack Obama’s critics, it is an
opportunity to accuse the U.S. leader of pushing green energy
policies even if they don’t make economic sense. The bankruptcy
of government-funded solar panel maker Solyndra last year was a
previous example of that, they say.
The U.S. Defense, Energy and Agriculture departments are
jointly sponsoring a half-a-billion-dollar initiative to foster
a competitive biofuels industry. Mabus and his counterparts at
the departments of Energy and Agriculture are due to announce
new investments in biofuels industry on Monday.
Senator John McCain, the top Republican on the Senate Armed
Services Committee, expressed outrage over the costs of the fuel
at a hearing earlier this year.
“I don’t believe it’s the job of the Navy to be involved in
building … new technologies,” he said. “I don’t believe we can
afford it.”
FIELD OF DREAMS?
The biofuels effort is one of the most ambitious Pentagon
energy programs since then-Defense Secretary Donald Rumsfeld set
up a task force in 2006 to find ways to reduce the military’s
fossil fuels dependency, involving more than 300,000 barrels a
day.
“The reason we’re doing this is that we simply buy too many
fossil fuels from either actually or potentially volatile places
on earth,” Mabus told a conference on climate and security last
month.
He says the Pentagon can use its buying muscle – it is the
largest single consumer of petroleum in the world – to guarantee
the demand needed for biofuel businesses to produce at a scale
that will eventually drive down costs.
“We use 2 percent of all the fossil fuels that the United
States uses,” Mabus told the conference. “And one of the things
that this means is that we can bring the market. And to
paraphrase the old ‘Field of Dreams’ line, if the Navy comes,
they will build it.”
Mabus, a former Mississippi governor and ambassador to Saudi
Arabia, aims for biofuels to supply about half of the Navy’s
non-nuclear fuel needs by 2020, about 8 million barrels a year.
His main tool in pushing the effort is the Defense
Production Act, a measure passed in 1950 in the early stages of
the Korean War to help the president mobilize the civilian
economy for the war effort.
The act lets the Pentagon provide funding or loan guarantees
to ensure production of critical defense needs. Since the 1970s
it has been used to do things like bolster beryllium production
and develop a specialized integrated circuit.
AT WHAT COST?
But the initial small-batch cost of some biofuels has raised
eyebrows on Capitol Hill, even among lawmakers used to dealing
with billion-dollar defense cost overruns.
The Pentagon paid Solazyme Inc $8.5 million in 2009
for 20,055 gallons of biofuel based on algae oil, or $424 a
gallon.
Solazyme’s strategic advisers, according to its website,
include T.J. Glauthier, who served on Obama’s White House
Transition team and dealt with energy issues, but also former
CIA director R. James Woolsey, a conservative national security
official.
For the Great Green Fleet demonstration, the Pentagon paid
$12 million for 450,000 gallons of biofuel, nearly $27 a gallon.
There were eight bidders for that contract, it said.
Republican lawmakers are pushing measures that would bar the
Navy from spending funds on alternative fuels that are not
priced competitively with petroleum and are accusing Mabus of
failing to provide Congress with a full analysis of the cost and
time it would take to create.
“They couldn’t answer some of the very fundamental questions
that you would want on that issue,” said Randy Forbes, a
Republican on the House Armed Services Committee who says
studies show that biofuels would always be more expensive than
petroleum.
Mabus rejects the criticism, saying that as production
rises, costs will come down. He notes that prices have fallen
dramatically over the past few years, even with the Navy buying
only small test batches of alternative fuels.
“Of course it costs more,” he told the climate conference.
“It’s a new technology. If we didn’t pay a little bit more for
new technologies, we’d still be using typewriters instead of
computers. … And the Navy would never have bought a nuclear
submarine, which still costs four to five times more than a
conventional submarine.”
CHICKEN FAT
Alternative fuel manufacturers see two promising avenues for
creating so-called “drop-in” fuels that can be used in petroleum
engines without any changes to the system. For now, they both
have drawbacks.
One, called the Fischer-Tropsch process, is used to convert
coal, natural gas or biomass into fuels. But the side effect is
high levels of greenhouse gas emissions, said James Bartis, an
energy researcher at the RAND Corporation think tank who has
analyzed the Pentagon’s alternative fuel effort.
Alternatively, lipids and fatty acids produced by animals
and plants can be treated with hydrogen in a refinery process
similar to that used for oil to produce fuel, Bartis said.
Camelina seeds, rendered chicken fat and algae oils are some
substances currently being used in this process, and
they produce a very clean-burning fuel, Bartis said.
The problem, he said, is that most of the seed- and
animal-based oils cannot be produced at the scales the Pentagon
needs.
The United States consumes about 19 million barrels of oil
per day, with the Pentagon using about 321,000 barrels per day
in 2011. Bartis estimated maximum fuel production using chicken
fat would be about 30,000 barrels per day, while camelina seed
might eventually produce 40,000 to 50,000 barrels daily.
“That’s a drop in the bucket,” he said. “It’s a dead end.
You can’t make much.”
He said algae appeared to offer the best potential for
large-scale production, but current efforts were aimed at
genetically modifying algae to be more efficient.
“It’s not a tomorrow problem,” he said. “It’s a decade
away.”
ALL OF THE ABOVE
The Navy disagrees. Instead of focusing on one feedstock, it
is pursuing an all-of-the-above approach, open to using any
biofuel that meets its specifications, regardless of whether it
is produced with seed oil, animal fat or woody biomass.
“We need to pursue all the ones that seem to have promise to
be able to deliver for us,” said Tom Hicks, deputy assistant
secretary of the Navy for energy. “What we’re trying to say is
if it can meet the criteria that we have … then we’re an
interested buyer. And so that leaves open a whole range of
opportunities.”
So far the Navy has used fuels based on algae, camelina,
agricultural waste oils and food waste oils, Hicks said in an
interview. Municipal solid waste could be an option at some
point, as could woody biomass, he said.
He said researchers estimate that some biofuels could be
cost-competitive before the end of the decade once they move to
large-scale production.
A Defense Department study conducted with LMI consulting
last year noted the Pentagon could take steps, like long-term
contracting, that would speed up creation of a competitive
biofuels market by providing certainty to growers and helping
manufacturers gain access to capital to build refineries.
“Although DoD has requested 20-year contracting authority,
similar commercial industry efforts have suggested that even 10
years would represent the tipping point for more mature
renewable fuel producers to obtain financing to build the
necessary infrastructure and plants,” the report said.
Some industry participants believe Mabus is correct in
asserting that the Navy’s purchasing clout and other powers can
be used to create a breakthrough in the biofuels industry that
will eventually lead to competitive pricing.
“We’ve actually looked at that precise question and we
believe they can in fact create that market,” said Dr. Ray
Johnson, a senior vice president at Lockheed Martin, which is
looking at investing in the Navy’s proposals.
Mabus remains undeterred in his pursuit of alternative fuel.
The Navy has been at the forefront of energy innovation for
over a hundred years, Mabus says, transitioning from sail, to
coal, to oil and then to nuclear from the 1850s to the 1950s.
“Every single time there were naysayers,” he said recently.
“And every single time, every single time, those naysayers have
been wrong, and they’re going to be wrong again this time.”
