[NEWS] Can U.S. Military Afford to Run on Biofuels?
– by Rich Smith, May 15, 2016, Motley Fool
Can a blue-water navy run on energy from green algae?
The Great Green Fleet
Five years ago, the U.S. Navy set out to find out, spending $12 million to purchase 450,000 gallons of biofuel from Tyson Foods (NYSE:TSN) and TerraVia (NASDAQ:TVIA), and attempting to use it to power an aircraft carrier strike group during squadron exercises near Hawaii.
Dubbed the “Great Green Fleet,” the experiment was a success — no engines clogged and no ships broke down — but even so, at roughly $26 a gallon, the biofuel cost nearly eight times what standard F-76 naval diesel fuel cost at the time. And that raised an important question: Can the U.S. military afford to “save the planet” while paying such high prices?
Luckily, it may not have to.
The Great Green Fleet, part deux
A couple of months back, the Navy began a larger test of its Great Green Fleet concept, dispatching the aircraft carrier USS John C. Stennis, along with the cruiser Mobile Bay, the destroyers Chung-Hoon, Stockdale, and William P. Lawrence, and the fast combat support ship Rainier, to the other side of the world — burning biofuels all the way. (The escorts, that is. Stennis herself is nuclear-powered.)
This latest version of the Great Green Fleet is burning a 90-10 mix of F-76 and biofuel — specifically, beef tallow. Source-wise, the Navy has also switched its supplier from Tyson and TerraVia to privately held AltAir Fuels. And here’s the most important difference: The price of this latest concoction of “dirty” and “clean” energy is a whole lot cheaper than what was experimented with in Hawaii five years ago.
Biofuel reaches price parity
Here’s how the math works: In 2011, the Navy spent $26 for a gallon of algae-based biofuel and $4 for a gallon of F-76, and mixed the two to make two gallons of 50-50 blend averaging $15 per gallon. That was nearly four times the cost of using oil alone — but according to Deputy Assistant Secretary of the Navy Tom Hicks, it was half what the Navy spent on a 2009 biofuels trial.
The beef tallow being used today, however, costs just $2.05 per gallon, making it cheaper than the $2.76 per gallon that the Defense Logistics Agency pays for F-76. A 90-10 diesel-tallow blend, therefore, should cost approximately $2.69 per gallon, saving the Navy $0.07 on every gallon of fuel it burns.
Yes, you read that right. Five years after naval use of biofuels became a thing, it’s already reached price parity with oil.
Biofuel: A money-saver?
Now here’s why that’s important: Saving $0.07 a gallon on fuel in a small naval squadron over the course of a few months is a good start. But the U.S. Navy as a whole goes through about 1.3 billion gallons of fuel annually. Were the same fuel used by the Great Green Fleet used across the whole fleet, the savings would add up to $91 million annually.
And that’s not all. Eventually, the Navy wants to get about half of its energy from renewable resources such as biofuel, solar power, and nuclear energy. (Today it gets about 17% from these sources combined, with biofuel’s contribution still negligible.) As demand for biofuel ramps up, though, Secretary of the Navy Ray Mabus says that economies of scale will permit biofuel prices to fall even further.
Consider, too, the volatility of the oil market, where prices have ranged from as low as $31 to as high as $122 a barrel over the past five years. Yes, oil — and F-76 naval fuel — is historically cheap today, with oil costing just $45 a barrel. But it could just as easily cost three times as much a few years from now.
Come the day F-76 is selling for $6 a gallon, $2 biofuel is going to look like an even better bargain.