U.S. Air Force tests biofuel at $59 per gallon

WASHINGTON Sun Jul 15, 2012 9:53am EDT

An A-10C Thunderbolt II flies over Florida's Gulf Coast on June 29, 2012, marking the second flight of an aircraft powered solely by an alcohol-derived jet fuel blend. Gevo Inc. recently sold the U.S. Air Force 11,000 gallons of fuel at $59 per gallon to complete certification testing to ensure it can be used in military jets. The company says it believes it can be cost-competitive with conventional fuel once it moves ahead with plans to build a commercial-scale production facility. REUTERS/Joely Santiago/U.S. Air Force/Handout

An A-10C Thunderbolt II flies over Florida's Gulf Coast on June 29, 2012, marking the second flight of an aircraft powered solely by an alcohol-derived jet fuel blend. Gevo Inc. recently sold the U.S. Air Force 11,000 gallons of fuel at $59 per gallon to complete certification testing to ensure it can be used in military jets. The company says it believes it can be cost-competitive with conventional fuel once it moves ahead with plans to build a commercial-scale production facility.

Credit: Reuters/Joely Santiago/U.S. Air Force/Handout

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WASHINGTON (Reuters) - The U.S. Navy angered Republicans by spending $26 a gallon for biofuels for this week's Great Green Fleet demonstration, but the Air Force received little attention when it paid twice as much per gallon to test synthetic jet fuel last month.

The Air Force bought 11,000 gallons of alcohol-to-jet fuel from Gevo Inc, a Colorado biofuels company, at $59 a gallon in a program aimed at proving that new alternative fuels can be used reliably in military aircraft - once, that is, their pricing is competitive with petroleum, which now costs $3.60 a gallon.

The cost of the Air Force demonstration - $639,000 - was far less eye-catching than the $12 million the Navy spent for biofuels to power a carrier strike group on alternative energy for a day.

But it was part of the same Pentagon push, which has escalated under the administration of President Barack Obama, to adopt green solutions to rising fuel costs.

Some Republican lawmakers have criticized the high price-per-gallon paid by the Navy as wasteful Pentagon spending at a time of significant budget cuts and a shrinking fleet.

They have also blasted Obama for making green energy a cornerstone of his agenda, with federal funds flowing to alternative energy companies that may not make economic sense, as in the case of bankrupt solar-panel maker Solyndra.

Jeff Scheib, Gevo vice president for fuels, said the alcohol-to-jet fuel made for the Air Force was expensive as it came from a small demonstration plant in Silsbee, Texas, which makes only 7,500 to 8,000 gallons of biofuel a month.

Once the company builds a commercial-scale refinery, expected around 2015, "we believe we can be cost competitive on an all-in basis with petroleum jet fuel over the life of a contract," Scheib said.

Pentagon officials say alternative fuel development is strategically important because the United States relies too heavily on fossil fuels from foreign sources, leaving it vulnerable to price shocks and disruptions.

HUGE ANNUAL FUEL BILLS

The Air Force spends about $10 billion a year on energy, with nearly $9 billion of that being for jet fuel, Kevin Geiss, Air Force deputy assistant secretary for energy, said recently.

Planning is done two years in advance, so officials in 2009 were expecting jet fuel to cost about $2.37 a gallon in 2011. Instead, prices rose as high as $3.96 a gallon.

"What that results in, for this year, was about a billion dollar shortfall from what we had budgeted for in fuel," Geiss said.

Geiss said Air Force work on biofuels was focused on ensuring that products likely to achieve commercial-scale production are formulated correctly for use in aircraft engines. The Navy's mission is much broader, he said.

The Obama administration directed the Navy last year to work with the Agriculture and Energy departments to invest up to $510 million to help private industry partners develop a viable alternative energy market capable of producing cost-competitive marine and jet fuels.

Some companies involved in the push to build a biofuels industry have connections to prominent Democratic backers, further raising Republican skepticism of the effort.

Vinod Khosla, whose venture capital firm says it played a central role in funding and developing Gevo's business strategy, has given campaign contributions of $474,534 since 1996, 86 percent of which has gone to Democrats, according to data compiled by opensecrets.org. Khosla's firm owned a 27 percent stake in Gevo as of the company's March federal filing with the Securities and Exchange Commission.

Khosla also has close ties to another venture capital firm whose team includes Al Gore, the former vice president and Democratic presidential candidate in 2000.

Gevo did not immediately respond to queries about what role, if any, Khosla played in helping the firm secure government grants or contracts.

Republicans upset over Navy spending on biofuels are backing legislation that could bar the Pentagon from contracting for fuels that are more expensive than traditional petroleum, something that worries military officials.

The officials agree that purchases for operational quantities of fuel should be at competitive prices, but they warn that legislative language could restrict them and ultimately make it difficult for them to economize.

"Congress has been very vocal in not wanting us to pay a huge premium to use alternative fuels. I get that," Geiss said.

"Our goal is that it's got to be cost-competitive. But cost- competitive doesn't mean that you've got a bright line that you can't even .... (exceed by) a penny. I think in trying to define these lines, they may be presenting some challenges for us," he said.

Supporters of the alternative fuel industry argue that green energy spending will eventually help cushion price volatility. They have begun to push back against Republican criticism.

A coalition of groups, including the powerful American Farm Bureau Federation, bought full-page ads in a Capitol Hill publication this week with glossy photos of biofuels success stories.

Those featured Gevo's Luverne, Minnesota, plant for producing isobutanol, an alcohol that can be added to gasoline like ethanol or processed into other chemicals.

Admiral Jonathan Greenert, chief of naval operations, and a group of retired senior officers briefed about 100 Senate staffers on Thursday about the Navy's use of alternative fuels.

Dan Nolan, a retired Army colonel, said biofuels were currently too expensive to purchase in operational quantities but it made sense to begin testing because "strategically if we can start moving toward that … it's going to be worth every penny we invest in it now."

Despite Republican criticism over biofuel spending, the military is proceeding with its programs. Geiss said the Air Force expected to finish certification soon of the alternative fuels that appear to have the best chance of reaching commercial production in the coming years.

The Navy's Green Fleet demonstration takes place on Wednesday, and the service is moving ahead with plans to help fund biofuel refineries.

"At the end of the day," said Geiss, "if their program is successful, all of the services would benefit."

(Additional reporting by Roberta Rampton and Marcus Stern; Editing by Marilyn W. Thompson and David Brunnstrom)

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Comments (34)
anonomouser wrote:
It seems like a lot, but 11,000 gallons is only enough jet fuel to fill up your F-18 about 5 times. It’s spit in the ocean, so to speak.

Jul 15, 2012 2:22am EDT  --  Report as abuse
The fact is, this is a wise TEST. Remember in WW2 when the Japanese took the rubber of SE Asia, DuPont came up with artificial rubber for our tires. Same with fuel. When the Russian took the oil fields of Rumania, the Nazis created artificial fuels. When the nazis ran out of meat, they cteated ‘Erzatz’ meat from beans. We used SPAM tyo feed our troops as there was not enough bef to go around. Were the Mid-East oil nations to fall, we could not ramp up oil production fast enough to fight a sustained 3 front war. We will ned all the Jatopra and Corn fuel additives that we can create.

Jul 15, 2012 2:34am EDT  --  Report as abuse
SteveMD2 wrote:
These are all demonstration projects. the big deal is if they can scale up the production and cut the cost.

Its likely no one knows at this time.

it will take years even if a path is found to cut the cost as a paperwork design project

Jul 15, 2012 2:46am EDT  --  Report as abuse
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