Navy to launch Great Green Fleet with 77 million gallon buy of cost-competitive, non-food advanced biofuels blends

January 7, 2016 |

BD TS 010816 Navy-smThey’re here. $2.05 per gallon, at-scale, domestically produced advanced renewable fuels — utilizing non-food feedstocks and based on next-generation technology.

The Navy’s 7-year quest to diversify its fuel supply without paying more or changing its fuel spec reaches a key milestone.

In Washington, The Department of the Navy has obtained 77.66 million gallons of cost-competitive, drop-in biofuels blends in support of the launch of the Great Green Fleet, which will officially debut January 20th in San Diego at a launch ceremony that will attract US Secretary of the Navy Ray Mabus and US Secretary of Agriculture Tom Vilsack.

The fuel provided meets the F-76 marine diesel specification — somewhat different and more complex than conventional diesel because of the at-sea requirement for fuels with a higher flash point. The price for the fuel to the DLA is $2.05 per gallon.

So, yes, renewable fuel fans, the Navy will be running on the fuel that Islamic State can’t make or seize. It’s cost-competitive, drop-in, non-food, next-gen, advanced renewable fuel. And this buy is from AltAir.

The fleet

The fuel will be used by at least one Carrier Strike Group, according to the Digesterati. We’ll know more about specific ships that may be carrying fuels at the time of the launch ceremony.

Overall, the 2016 Great Green Fleet initiative will be a year-long event in 2016, and will highlight the deployment of ships with 3 or more energy conservation measures or alternative energy for propulsion, and deploying aircraft with 2 or more energy conservation measures or alternative energy propulsion. It ushers in a “New Normal” for the US Navy.

If you guessed Carrier Strike Group One or Nine, supporting the carriers Carl Vinson and George Washington,and destroyer squadrons 1 or 9, respectively — on the basis that the formal launch is in San Diego and that’s where those strike groups are based, well that’s a very good rationale.

Ultimately, Carrier Strike Group 3 and 11 would also be expected to pick up fuels from this fueling region, covering the Eastern Pacific, US West Coast and Hawaii.

The buy

The 77 million gallon initial contract for the Navy’s Rocky Mountain buy, is being provided by AltAir and contains a 10% renewable diesel blend, made using the Honeywell Renewable Jet process from domestic US feedstocks. Based on a 10 percent blend, the neat biofuels portion is 7.76 million gallons, which represents one of the largest-ever single-buyer purchase of cost-competitive, advanced biofuels.

It represents a remarkable milestone not for the Navy in its quest to diversify its fuel supply for energy security purposes, while maintaining a tight lid on costs and not compromising on fuel performance by focusing its suppliers on meeting the established F-76 military fuel specification.

The Navy concluded in 2009 that expanding military energy sources improves the reliability of its overall fuel supply, adds resilience against supply disruptions, and gives the military more fuel options to maintain its readiness and defend the national security interests of the United States. Following that determination, the Navy embarked on a lengthy set of aircraft and ship certifications, including an extended demonstration of advanced fuel blends at the 2012 RIMPAC exercises.

The news also marks a remarkable milestone for the renewable fuel industry, which is now producing cost-competitive, at-scale, domestically-produced, non-food, advanced biofuels.

Wherever you sail, there it is

It’s the Rocky Mountain/West Coast buy, so it will supply all the Navy’s US West Coast operations, as well as operations out of Pearl Harbor, including the 2016 RIMPAC exercises out of Pearl Harbor, which will involve the fleets of more than 30 nations.

This particular phase of deployment of advanced renewable fuels stems from the 2015/16 Rocky Mountain/ West Coast advanced biofuels solicitation posted on the FedBizOpps website, last April. This solicitation was for fuel deliveries from 1 October 2015 to 30 September 2016.

Ultimately, all four of the Navy’s regional fuel regions (Eastern Pacific, Inland/East Coast, Middle East/EU and Rocky Mountain/West Coast/Offshore) will be making advanced renewable fuels part of the “business as usual” of the Defense Logistics Agency’s purchasing. Expect that to start happening, well, now.

But the story will begin to transition offshore for the Navy, which refuels at friendly ports around the world.

One of the goals of the Navy in its biofuels program is “not to have to sail to the Middle East every time we re-fuel,” as one Navy source put it. “But sailing to Kansas doesn’t work, either.” Ultimately, the Navy’s goal is to stimulate the production of domestically sourced, cost-competitive renewable fuels around the world to support Naval operations with diversified supplies. Right now, the Navy has embarked on extensive co-operation with the Australian and Italian navies to assist as they also introduce advanced renewable fuels into their supply mix.

10-50 percent blends

The biofuels sought by the Navy can be blended in a range of 10 to 50 percent with conventional petroleum products and must meet all military fuel specification properties which make handling requirements and performance indiscernible to the end-user. In this case, the winning bid featured 10 percent blends.

Cost-competitive only, please

DLA will purchase the biofuel blends only if they are cost competitive with their conventionally derived counterparts. However, to assist with the development of a US-based supply chain, $27.2 million in US Department of Agriculture (USDA) Commodity Credit Corporation (CCC) funds are available to defray any additional costs that may exist for fuels derived from domestic feedstocks on a USDA-approved list.

The Navy’s Director for Operational Energy, Chris Tindal, told the Digest last year: “CCC funds will be available to defray additional costs of producing biofuel and biofuel blends and are being provided as a biofuel production incentive under the CCC program to support agricultural products. To be eligible for CCC funding, the fuel must contain 10% to 50% biofuel as permitted by the JP-5 and F-76 specifications and be produced using domestic feedstocks approved by the USDA for CCC eligibility.”

The Digest understands that 15 cents per gallon has been provided by USDA under this fuel development program to defray the additional costs of using a domestic feedstocks. Produced in California, the fuel also qualifies under the Low Carbon Fuel Standard qualifies for the newly renewed blender’s tax credit for renewable diesel and biodiesel approved by Congress last month.

Those carbon policy supports make a big difference. For example, AltAIr did not bid on the East Coast/Gulf/Inland Navy contract last year — knowing that the Rocky Mountain/West Coast contract was more advantaged for them, as those fuels would qualify under the Low Carbon Fuel Standards if sold into the California market.

But, there’s another advantage that goes beyond policy supports. This process makes a very high quality renewable diesel that meets the more stringent California fuel standards. So, it commands a higher price in California.

“On the jet side, we’re more agnostic about where it goes, at this time,” Sherbacow told The Digest.

And one more thing. This is drop-in fuel. Which means it can go into pipelines, and into existing racks, all the old infrastructure developed for the old fossil diesel market, and can be sold into all the outlets that pump diesel fuel. One of the reasons you might see a spike in renewable diesel production without seeing a spike in distribution by the likes of Propel Fuels or Pearson. “Right now, theere’s more demand than there is product, so we don’t see a need for the help in distributing the fuel. Biodiesel guys need that more, because they have special distribution challenges and needs.”

The background on USDA support

How can new fuels can be cost-competitive from outset for the Navy, via USDA support?

For example, a company with a production capacity to make 7.7 million gallons of biofuels, at a $0.50 premium over the cost of conventional fuels, could construct a bid for up to 77 million gallons of a 10-percent biofuels blend at a nickel premium to conventional fuels. If this is a winning bid based on the competitive solicitation by DLA Energy, USDA funds would be available to “buy down” the $3.8 million differential, based on using domestically sourced feedstocks, for the first three years of the Navy’s program.

What can we say about the feedstock? It’s all residues — primarily, inedible or waste fats, oils and greases.

The big pain and risk factor

There’s a practical problem in selling 10-50 percent fuel blends to anyone, even the Navy, though not the Navy’s problem. How do you get the fossil blendstock? Right now, don’t count on existing petroleum-based companies to be out there sourcing in-spec renewable fuels to make Navy bids, for the time present. Right now, they see it is cutting into their volumes, plus they’d have all the trouble of picking and negotiating for the right partner.

So, that leaves it up to the renewables producer. In this case, AltAir. Which means you have to purchase the fuel to blend it — think “working capital” and “blending capacity” and “what is they won;t sell to us?” or “what if there are only 1 or 2 guys who make the petroleum-based fuel?” When you are talking about 70 million gallons of petroleum-based diesel, these are big considerations and barriers for small companies. It could be a factor going forward in supplying the fuels. AltAir’s found a great partner, but don’t think it’s a no-brainer.

Two specs today, more to come

At the present time, the two approved fuels pathways are made using the Fischer-Tropsch process and the FT and HEFA (Hydro-processed esters and fatty acids). Additional specs such as alcohol-to-jet are in the certification process and could be available within the next two years for military fuel buys.

As the US Energy Information Administration notes:

HEFA fuels are hydrocarbons rather than alcohols or esters. Hydrocarbons from nonpetroleum sources are known as drop-in fuels because they are nearly identical to comparable petroleum-based fuels. During the refining process, the oxygen present in the alcohols and esters is removed, leaving only hydrocarbons. HEFA fuels are the most common drop-in biofuels; they can be used in diesel engines without the need for blending with petroleum diesel fuel. Currently, HEFA fuels are approved by ASTM International for use in jet engines at up to a 50% blend rate with petroleum jet fuel.

The most common HEFA biofuel production to date has been a diesel replacement fuel alternately marketed as hydrotreated vegetable oil (HVO) abroad, or as renewable diesel in the United States. HEFA fuels are produced by reacting vegetable oil or animal fat with hydrogen in the presence of a catalyst. The equipment and process are very similar to the hydrotreaters used to reduce diesel sulfur levels in petroleum refineries. There are currently 10 plants worldwide that produce renewable diesel, one of which is ENI’s former petroleum refinery in Venice, Italy. Total is planning to convert its La Mede, France, refinery to HVO production, and four additional renewable diesel projects are being developed by other producers. Finnish Neste is the world’s largest producer of renewable diesel. Other major producers are Italy’s ENI, U.S.-based Diamond Green Diesel, and Swedish refiner Preem.

Beyond diesel, another outlet for HEFA fuels using similar technology is biojet fuel, which can currently be blended with petroleum jet fuel in proportions up to 50%. As with any alternative jet fuel, HEFA biojet has to meet stringent specifications that ensure it will perform under a wide range of conditions. One potential consumer for this fuel is the U.S. Department of Defense, which intends to use biojet in its JP-8 jet fuel. JP-8 is a versatile fuel used in military vehicles, stationary diesel engines, and jet aircraft. This use of a common fuel simplifies logistics. There is also civilian interest in nonpetroleum jet fuel. Alaska Airlines, KLM, and United Airlines have demonstrated the use of HEFA biojet fuel on commercial flights since 2011.

Backgrounder on AltAir

For those less familiar with the story, AltAir has taken over the old Paramount (California) refinery and converted it to the production of renewable fuels. As of now, the capacity of the plant is 40 million gallons per year. AltAir is producing right now in support of the Navy contract, and will deliver by the end of next week, according to CEO Bryan Sherbacow.

Last June, we reported that AltAir Fuels would be ready to begin regularly scheduled deliveries of sustainable renewable jet fuel to United Airlines LAX operations shortly. More on AltAir’s jet fuel plans in an upcoming issue of The Digest.

AltAir’s Paramount refinery converts sustainable feedstocks, like non-edible natural oils and agricultural wastes, into low-carbon, renewable jet fuel. This fuel is price-competitive with traditional, petroleum-based jet fuel, but achieves a 50 percent reduction in carbon dioxide emissions on a life cycle basis when compared to traditional jet fuel. United will purchase up to 15 million gallons of sustainable aviation biofuel from AltAir over a three-year period, with the option to purchase more.

In support of its plans to scale-up to commercial production of fuels, AltAir picked up a $5 million grant from the California Energy Commission in 2014, one of 11 biomethane and biofuels projects to receive support.

In 2013, the two companies announced the 15 million gallon deal, saying that they expected to be operating flights in 2014. At the time, AltAir Fuels said that it planned to retrofit the idled portions of its Paramount petroleum refinery to produce renewable jet fuel and other products from non-edible oils and agricultural waste. The refiner will be the first in the U.S. able to produce diesel and drop-in replacements for petroleum-based jet fuels.

The opening of the AltAir refinery will create 150 jobs in Paramount, California. The biofuel will be mixed with traditional jet fuel at a 30/70 blend ratio. The AltAir Fuels refinery will produce 30 million gallons of advanced biofuels, including low-carbon renewable jet fuel and other renewable products.

United will begin using the AltAir sustainable aviation biofuel on select flights operating out of its Los Angeles hub. AltAir can produce enough sustainable bio-jet fuel to power the equivalent of 41,600 flights from Los Angeles to San Francisco over a three-year period. The AltAir biofuel is expected to provide more than a 50 percent reduction in greenhouse gas emissions on a life cycle basis when compared to traditional jet fuel.

To expand its fuel buying. last June United announced a $30 million direct investment in advanced biofuels developer Fulcrum BioEnergy, obtained an option to invest in five future commercial-scale aviation biofuels plants, and signed offtake agreements for up 90 million gallons of biofuels per year. The offtake contracts are worth an estimated $1.58 billion over the 10-year offtake span, based on the current jet fuel price of $1.76 per gallon, according to Digest calculations. The shift in United’s fuel purchasing represents 3% of its annual fuel consumption, reported by the airline at 3.2 billion gallons in 2013, and comes after Cathay Pacific invested in Fulcrum BioEnergy in 2014 and signed offtake agreements from the company’s first commercial facility, now under development near Reno, Nevada. The five new plants are expected to range in size between 30 and 60 million gallons.

The Digest’s 7-link Backstory

2015: Rocky Mountain/West Coast/Offshore fuel buy opens for bids.

2014: Procurement begins: USDA, US Navy unveil Farm to Fleet program: Navy “open for business” as shift to biofuels blends begins

2013: Phase 1 grants towards building capacity: DoD awards $16M towards parity-cost, drop-in, non-food biofuels

2012: The Demonstration that the fuels work: The Navy’s Green Strike Group sails on biofuels blend

2012: Outlining the strategy: The Obama plan for cost-competitive, military biofuels

2010: First big steps towards use at scale:  17 Steps the US military is taking to advance, use, and advocate for biofuels

More Backstory on partners, awards, certification, and buying programs

The Bottom Line

The journey to renewable fuels is far from complete, but this is a major milestone, and absolutely represents affirmation for those who had the vision.

Given that these are cost-competitive, milspec-certified, at-scale, non-food renewable fuels, the Nattering Nabobs of Negtavism are running out of things to throw at this transition to advanced fuels. Someone will probably do a whole bunch of math on various carbon credits and conclude that these are not “cost-competitive fuels” in a world that doesn’t care about carbon. Point is, as the Paris Climate Agreement made obvious, the world does care about carbon. Even if certain industries or sectors don’t.

But one assumes they will point to the small volumes and make the usual negative remarks. What’s 77 million gallons, they’ll say, in a world energy supply of 90 million barrels per day?

Let me offer two anecdotes, from the days of the transition from sail and coal, to oil.

Back in 1890, Congress was getting nervous enough about the Standard Oil Trust and its growing monopoly on US oil production that it passed the Sherman Antitrust Act, still on the books today as the signature piece of antimonopoly legislation. In 1894, the Standard refined all of 760 million gallons, you can look it up pardner, right here. Which is to say, from tiny acorns, mighty oaks grow.

Back in 1906, one of the largest marine customers on the US West Coast (at the time, not the Navy) refused to buy petroleum-based fuels because he believed them to be unsafe, based on a scare-campaign waged by the incumbents. The salesman in question ultimately took the customer down to the Seattle docks, drew him up to a petroleum-based ship, and tossed a match into the boiler. When they didn’t both blow up, he got the order. Which is to say, naysayers used to preach against all the failings of petroleum as an advanced fuel. They sure preached against the safety of nuclear submarines. Just as some preached against the safety of steamships and steam turbine technology when they first threatened sail. Likely, back in prehistoric times some manufacturer of dugout canoes preached against the failings of sail technology.

But here we are, on the threshold of a new era that just put 77 million gallons on the board.

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