The U.S. Navy and Biofuels – Part II

The following is a continuation of an interview between Robert Rapier and Thomas Hicks, Deputy Assistant Secretary to the Navy (Energy). The original article may be found at http://theenergycollective.com/robertrapier/46234/us-navy-and-biofuels-part-ii.

In Part I of my recent interview with Tom Hicks, Deputy Assistant Secretary to the Navy (Energy), we covered the nature of what the Navy is trying to achieve (and why) with respect to incorporating renewable energy into their operations. Part II begins with a discussion of why coal-to-liquids (CTL) is presently off-limits, and why GTL may be as well. Incidentally, I mention Shell’s Bintulu GTL facility in Malaysia below. I have just spent my entire morning inside their facility, and will have a report up on that visit next week.

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RR: When I look around the world at synthetic fuel facilities, the only ones that are proven to be able to run at tens of thousands of barrels per day are the coal-to-liquids (CTL) or gas-to-liquids (GTL) plants. South Africa is running CTL at that scale; Sasol’s Secunda facility produces 160,000 bbl/day. GTL may get there; I think Shell’s Bintulu facility is at 15,000 barrels per day and their Pearl GTL project in Qatar is planned for 140,000 bbl/day. So we know that those can operate a large scale, but they are obviously not ‘green.’ So what’s your view on those? Are you open to working with CTL?

TH: Without addressing that specifically, let me give you something that is a federal requirement. As we look to replace petroleum; fossil fuels, from our usage, I think it’s within EISA 2007 (Energy Independence and Security Act) is a provision called Section 526. What it says in general is that any petroleum fuel that we replace with an alternative fuel, must have equal to or lower overall greenhouse gas emissions. Generally speaking, CTL falls on the wrong side of that. There are some notions that CTL combined with carbon capture and sequestration (CCS) – that may have some promise. But we haven’t built any CCS sites in this country, so at this point it is probably more theoretical until those get built. That’s a guidepost for us; we have to comply with it. We can’t arbitrarily decide what’s green and what’s not. So meeting Section 526 is on the forefront of our minds. And just to be clear, it is DLA Energy that is required to meet it; it is their burden to bear.

SA: That would seem to conflict a bit with a statement (see here) I read the other day from the Chief of Naval Operations, who said “It’s more than simply how green we can be seen; it really is an operational issue for us…. The Green Hornet and the path to a green fleet are not public relation gimmicks.” So I am just wondering, why is it the Navy’s responsibility in reducing their dependence on petroleum – which is obviously an operational issue; a strategic issue; why do they at the same time have to ensure that they are becoming green? I am all for it, but I just wonder if they have something like CTL that can reduce our dependence on foreign oil – why wouldn’t they be able to go for that?

TH: It’s not a choice. This is a federal requirement that we have that we meet Section 526. And CTL as they are currently being delivered; my understanding is that they don’t fall on the right side of the line in terms of being equal to or less in terms of their overall greenhouse gas emissions. That’s it primarily, but there are also issues of wanting to be good environmental stewards and have or created unintended consequences by solving one problem and creating another.

SA: So basically you are saying that it is an outside requirement, where the Navy’s main focus is to reduce their petroleum usage, but obviously they are bound by federal law requirements that may prohibit them from reducing it in certain cases where it won’t be seen as becoming greener, as is the case with CTL.

TH: The objective in this, we don’t want to replace a fossil fuel with another fuel that has worse environmental attributes. Okay? Period. Fortunately, that’s what Section 526 tells us, but it’s what we believe as well; it’s the right thing to do. That’s not a direct comment on CTL, we are hearing of applications where CTL with other technologies can get across that threshold, and thus they would be viable considerations for DLA to purchase.

RR: In my position as CTO, I hear pitches from people every week. Some are credible, some are half-baked, and some violate the laws of physics. So I spend a lot of time on due diligence. I would imagine that you get many more; people must be knocking on your door all the time. How do you filter out the credible from the non-credible? I think Solazyme had an interesting story; they said they were able to deliver a barrel of fuel for you to test. Is that the metric; tell people to go produce some fuel and then you will talk to them?

TH: Well, I think that one worked in that case. For me, there is a range of things. We do get a fair amount. Fortunately, we have the federal procurement process that talks about how we go about doing these types of engagements. So we can’t get too far along. But in terms of just evaluating them, if it’s an area I am not quite sure of, I will send it over to our Office of Naval Research (ONR) and have them take a look at it. They may have already looked at it in the past, they may be working on it with another company, or it may be something they have looked at and said “it’s just not going to work for the Navy.” I usually rely on the ONR quite a bit, especially on some of the newer technologies that aren’t common in the public domain.

RR: Is your budget that is devoted to biofuel development public information? Is that something you can share?

TH: It is, it is in the president’s budget, PB11, but honestly I couldn’t tell you what that number is off the top of my head. We have some people who could. Obviously the FY12 budget is before Congress and is pre-decisional at this point, so there is no point in commenting on that. I can say this; what’s in FY11 budget, and what’s proposed for FY12 and beyond supports the testing and certification program and will support the sailing of the Great Green Fleet and local ops in 2012 and the deployment in 2016. So that’s all programmed in. Again, that’s all pre-decisional and hasn’t been approved, but as planned those things are covered.

RR: If you look at the prices that have been paid, clearly much higher than fossil prices. Solazyme’s CEO clarified that some of that was for R&D. I don’t know about the camelina deal; it looked to be $67.50 a gallon there. Maybe that’s because nobody is really producing camelina; I don’t know. But what is your long-term view on biofuel prices? Do you expect them to become competitive with current oil prices (presently $80/bbl)?

TH: Well, I think they have to get competitive with oil prices. I would choose not to use the word current, because today we are looking at $2.85 a gallon, and what did we pay three years ago? It’s very cyclical; it changes frequently, but I think long-term it has to be competitive with fuel prices. The quantities we are buying today, there’s R&D that goes into that, there’s a lot of testing and certification that we are buying, and these are very small batches. We purchase as the Navy roughly 32 million barrels of fuel per year, so that’s 1.2 or 1.3 billion gallons of fuel, and the quantities you are talking about here are pretty small; 20,000, 50,000, 100,000 gallons, which is pretty small relative to that. And to an extent, you pay for that lack of economy of scale at this point. But again, it’s working toward a testing and certification program, we’re not purchasing those fuels for operational use. I think that’s a really important thing to consider.

RR: So those products they are delivering, those are finished products? For instance, they are doing the hydrocracking and refining to turn them into JP-5, for instance?

TH: I believe that what we get is the mix; the 50:50 blend; 50% algae-based or camelina-based plus JP-5 or F-76 as the case may be.

RR: Besides algae and camelina, which have been pretty public, are there other oil-based crops that you are looking at that people have been able to supply for testing?

TH: I will probably have to defer to someone down at our testing facility to tell you which ones they are looking at. But I know from a feedstock point of view – and I don’t know if these discussions have resulted in us testing the fuel – but there are discussions around jatropha, around bagasse, maybe some sugarcane and some others that seem to have the right environmental attributes. And again, going to the Section 526 compliance piece would be a big part of that.

RR: When you mention bagasse, I presume you are talking about producing ethanol? I guess you could go gasification and produce Fischer-Tropsch liquids. But are you also looking at gasoline replacements, or are you strictly looking for diesel and jet replacements?

TH: Are you talking specifically for our commercial vehicle fleet?

RR: Yes.

TH: So there we have about 50,000 vehicles in our fleet and we have a churn rate of about 10,000 vehicles per year; we buy and lease all of our vehicles through GSA (General Services Administration) and we return about 10,000 per year back to them. As of today, 35% of the fleet is alternative fuel-capable; so they can take B20, E85; it varies obviously by vehicle type. We have CNG, we have a number of all-electric vehicles that we are pilot-testing; even some hydrogen ones as well. And certainly we have flex-fuel and hybrid electrics, and so we have a wide range of different ones. Our goals there are to reduce our petroleum usage by 50% by 2015. From 2003 to 2009 we reduced it by over 30%, and so we are going to go another 50% beyond that. And we are going to do it by purchasing and leasing alternative fuel vehicles through GSA.

RR: So those vehicles you mentioned, do CNG and hydrogen meet Section 526? I think CNG would have a lower greenhouse gas footprint, but I am not sure hydrogen would in its current configuration where it is produced mostly from natural gas.

TH: In a pilot effort, it is more about testing the capabilities of it. Longer term, we still have to go through the compliance path to make sure the overall environmental attributes of that fuel is better tha the fuel it is replacing. With hydrogen, it depends on how you make it. That can obviously play into that.

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Part III, the concluding installment, will pick up by discussing the advantages of using fuel produced near the point of use. One statistic that was provided was that for every 24 fuel convoys that we bring into the theater, there is one casualty.