Military Biofuel Costs Slashed Thanks to Massive Navy Purchase
December 7, 2011 10:32 AM
comment(s) - last by
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
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
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.
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. (
) and algae-based oils from Solazyme, Inc. (
). Tyson is current partnered with a refining company named Syntroleum Corp. (
) 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.
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.
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simple math people
12/7/2011 9:33:02 PM
Of course volume production and purchasing is going to drop the price substantially. Every industry works this way, this isn't at all related to biofuel. Lets say intel builds a new chip fab at a cost of $5 Billion dollars. And in the first day, they manage to make just 5 processors. Those 5 processors cost $1 Billion each!
See where I'm going with this? The costs to develop the product and to build the manufacturing facility are fairly static, whether you're producing a quantity of 5, or a quantity of 5 million. Individual item cost of number of items divided by total production cost. So quite obviously, the more you produce, the lower the per-unit cost becomes. This isn't news.
RE: simple math people
12/7/2011 11:26:02 PM
The difference that you seem to be missing is that Intel would
dream of trying to sell five processors for a billion dollars a piece. In fact they wouldn't even build the new chip fab if they didn't have a business model in place that would allow them to build a quality product at a reasonable price.
Only an eco-nazi would
think that $25 (much less $400) was a reasonable price to pay for a single gallon of fuel. If volume is required to get the biofuel manufacturing plant to the point at which they can operate at a profit then they should run the manufacturing plant at that volume and charge a fair market price for their product. Over time they would recoup their capital investment.
The problem is that this biofuel plant
There is no volume sufficient to get the cost of manufacturing the fuel down to a competitive level, and federal tax dollars should not be paying for a
process that simply is not ready for prime time. This money should be focused on
to improve the process. Not paying exorbidant sums to buy a product that can not currently be produced efficiently.
Biofuels at these prices simply serve no purpose and should not be mass produced. Get the price down, and THEN mass produce it, not the other way 'round.
If there simply wasn't any other alternative then you might have a point, the problem is that we have
alternatives that are
cheaper and readily available
"We are going to continue to work with them to make sure they understand the reality of the Internet. A lot of these people don't have Ph.Ds, and they don't have a degree in computer science." -- RIM co-CEO Michael Lazaridis
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