FedEx, Southwest Airlines combine to buy entire jet fuel output of Red Rock biorefinery, through 2024

July 21, 2015 |

FedEx_logoFedEx joins Southwest Airlines to buy out Red Rock’s entire 8-year jet fuel inventory — key milestone for project construction.

In Colorado, Red Rock Biofuels will produce approximately three million gallons of low-carbon, renewable jet fuel per year from 2017 through 2024 for FedEx Express, a subsidiary of FedEx Corp, in an agreement announced by the companies today.

FedEx joins Southwest Airlines in purchasing Red Rock’s total available volume of jet fuel from its first commercial plant, which is scheduled to break ground this fall in Lakeview, Ore. and will convert approximately 140,000 dry tons of woody biomass into 15 million gallons per year of renewable jet, diesel and naphtha fuels.

SouthwestAirlinesThe plant is expected to produce 40% jet fuel, 40% diesel, and 20% naphtha, or 6 million gallons, 6 million and 3 million respectively.

The Southwest Airlines offtake agreement was signed last September. More on that here.

More background on the technology

Red Rock Biofuels: The Digest’s 5-Minute Guide

Red Rock Biofuels: The Digest’s 8-Slide Guide

Red Rock’s first refinery is funded in part by a $70 million Title III DPA grant from the U.S. Departments of Agriculture, Energy and Navy, and the plant is expected to produce diesel to meet military market needs. In addition to reducing lifecycle carbon emissions, Red Rock’s production process will also reduce the risk of devastating forest fires in the western United States by decreasing the amount of waste woody biomass in surrounding forests.

“We’ll probably deliver down into the Bay Area,” Red Rock CEO Terry Kulesa told The Digest. “Ultimately, both Southwest and FedEx require a 50/50 blend of renewable jet fuel and fossil, so we’ll blend it at a convenient terminal and then deliver to them.”

The deal background

Why 8 years? “We needed eight years,” Kulesa added, “because that’s the way the debt works for us.

Historically, airlines have been hugely reluctant to sign long-term fuel purchase agreements. What happened in this case?

“At one point someone remarked to us, on the volume of this fuel deal, that “we spill more than that per year”. For them, it’s a rounding error in terms of the exposure they get on fuel prices by signing for eight years with us, but it gets your toe in the water and later you can make decisions on how much you want to do this.”

“We’ve been working on this for almost 3 years. The partners are, essentially, splitting the jet fuel production between them. In FedEx’s case they asked or the EU carbon credits from us, and my first reaction was “what EU carbon credits?” They’re thinking long-term and about the possibility of carbon regulation of aviation in the EU, and they knew that they couldn’t just flip a switch and “go low-carbon” if the fuels were suddenly required.

“With Southwest, it was more about price volatility. They are not flying internationally much at this time, but they have been getting whip-sawed by fuel price volatility — and they looked at this as a way of locking in some fuel at a fixed price.”

Future projects

“We are already working on plants #2 and #3. In some ways, no one cares about a company with one project only, they want to see a platform of projects if they are going to work with you on offtake, or debt. We know we can get the offtakes — obviously, FedEx and Southwest are interested in more. Right now we are focused on closing on this plant and getting it running.”

Status of the Red Rock’s Oregon first commercial project

“We have the site locked and the air permit, Kulesa said. “We expect to have all the construction contracts wrapped up in a few weeks. The ground breaking is officially this fall, but what really happens is that, as soon as everything is closed on the debt side, we can order the equipment and that’s what takes the most lead time, The site prep work is not very significant and doesn’t take long, nor does final assembly of the components on site.



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