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Fuel is still nearly five times as expensive as traditional fuel

For better or worse the U.S. military is trying to fight an "army of one" campaign to switch its massive fuel consumption base to domestic biofuels, safeguarding itself from foreign volatility.  And despite some small bills to the U.S. taxpayers the push appears to be working.

Biofuels work pretty much like any production industry -- you produce more, and price per unit drops.  Back in October 2010 the Navy purchased 20,055 gallons of algae biofuel at a whopping cost of $424/gallon.  At the time that was one of the biggest U.S. purchases of a (non-corn ethanol) biofuel to date.

Fast-forward a year and the Navy is back at it.  It's spent a reported $12M USD to get 450,000 gallons of biofuel.  The bad news?  The fuel cost works out to around $26.67 per gallon -- around 6 to 8 times as much as traditional gas.  The good news?  The cost per gallon has plunged by a jaw-dropping factor of 15.9.

Algae Biofuels
A peek at the algae biofuels production process. [Image Source: Solix Biofuels]

While the incredible cost reduction is unlikely to continue at its current pace, the purchase validates something some national security and environmental advocates have been emphasizing all along -- if you produce more, costs will drop.

The latest fuel purchase is a mixture of repurposed cooking oil ("yellow grease") from Tyson Foods, Inc. (TSN) and algae-based oils from Solazyme, Inc. (SZYM).  Tyson is current partnered with a refining company named Syntroleum Corp. (SYNM) in a joint venture called Dynamic Fuels.  The Navy's contract is with Dynamic Fuels, who has signed a subcontract with Solazyme to buy its algal oils for refining, to help fill the large order.

Navy Secretary Ray Mabus lauded the purchase as helping to grow the domestic biofuels market.  The fuel will be used to help power the Navy's "green" Carrier Strike Group during exercises in the Pacific Ocean next summer.

Carrier Strike Group
The U.S. Navy's "green" Carrier Strike Group [Image Source: USN]

The Navy, which uses 80,000 barrels of oil a day (3.36M gallons/day), has made the amibitious pledge of getting 50 percent if its fuel from fossil fuel alternatives by 2020.  At current demand levels, that would work out to around 613M gallons of biofuel a year.

It's not alone in that objective.  The U.S. Air Force now has 98 percent of its aircraft ready to run on a biofuel blend (though the allowed amount of biofuel in the blend is application-dependent).

The U.S. Armed Forces accounts for about 2 percent of total U.S. fuel consumption.  Of last year's approximately 4.62 billion gallon, $15B USD fuel budget, 75 percent was used in overseas operations, while 25 percent was utilized at home.

Source: Defense News

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The Corollary
By jeepga on 12/7/2011 11:51:10 AM , Rating: 2
So, the military is lowering the costs of biofuels by increasing output, so the corollary must stand that the cost of regular fuel that the rest of us need to use will go up in price.

RE: The Corollary
By lightfoot on 12/7/2011 11:59:09 AM , Rating: 2
Normally that would be true, due to economic forces. Rational people will use the resource that does the job for the lowest cost. Therefore people will begin widely using and making biofuels when they become a cost effective alternative to other fuels. Unfortunately a biofuel mandate is not rational.

With biofuels in excess of 5 times the price of fossil fuels, you could legitimately turn a profit by burning up to 5 gallons of fossil fuels to produce a single gallon of biofuel. The crazy part is that the GOVERNMENT will PAY you to do so.

RE: The Corollary
By FITCamaro on 12/7/2011 2:32:25 PM , Rating: 2
Basically some senator or group of senators has investments or family with investments in ethanol and other biofuels. Hence the mandates.

RE: The Corollary
By Ringold on 12/7/2011 3:27:46 PM , Rating: 2
Or they represent a ton of farmers, who have been living off government largesse since... well... ever.

RE: The Corollary
By FITCamaro on 12/8/2011 7:44:12 AM , Rating: 2
In our life time sure.

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