Navy buys biofuel for $16 a gallon

Really hot gas.

This is going to help the Defense Department weather looming budget cuts, for sure.  Teaming up with the Department of Agriculture (which has a cheery Rotary Club ring to it), the Navy has purchased 450,000 gallons of biofuel for about $16 a gallon, or about 4 times the price of its standard marine fuel, JP-5, which has been going for under $4 a gallon.

You won’t be surprised to learn that a member of Obama’s presidential transition team, T. J. Glauthier, is a “strategic advisor” at Solazyme, the California company that is selling a portion of the biofuel to the Navy.  Glauthier worked – shock, shock – on the energy-sector portion of the 2009 stimulus bill.

The Navy sale isn’t Solazyme’s first trip to the public trough, of course.  The company got a $21.8 million grant from the 2009 stimulus package.

Solazyme’s partner in the biofuel sale is Dynamic Fuels, a Louisiana company owned jointly by Tyson Foods and Tulsa-based Syntroleum.  Tyson and Syntroleum are distinguished by having profitable lines of business that do not rely on government grants to unprofitable “green” projects.  This does not make their biofuel product price-competitive with fossil fuels, however.  (They were induced to develop biofuel manufacturing processes by a combination of subsidies and tax breaks.)

The Dynamic Fuels plant was opened for business in Geismar, LA in 2010, becoming by far the largest biofuels plant in North America – and reportedly, in combination with a plant in Finland, a producer of 94% of the world’s biofuels.  This is great boosterism stuff, but the biofuels produced by Dynamic Fuels are still considerably more expensive than the fossil-fuel alternative.  Dynamic Fuels has begun supplying aviation biofuel to KLM, the Dutch flag carrier, but of course, the use of more-expensive biofuels by commercial carriers has to be subsidized by governments.

If governments stopped subsidizing biofuels, their artificial “profitability” would disappear overnight.  Price-wise, they can’t compete with fossil fuels.  The day may come when they can, but subsidizing them while they don’t is not a method with any record of success for encouraging price efficiency.  What it does instead is create languishing public dependencies and tremendous opportunities for cronyism, as demonstrated in the Solyndra scandal.

As the Institute for Energy Research article (top link) indicates, the US has enormous reserves of both conventional and unconventional oil and natural gas resources.  Opening them up for exploitation would, among other things, ensure that the US armed forces could buy cheaper fuel – cheaper than today’s prices – produced in the USA.  At a time when federal debt is spiraling and the Defense Department is facing budget cuts that are guaranteed to gut the fighting forces and render them ineffective, it seems to border on insane to eschew a ready, significantly cheaper alternative and require the armed services to quadruple what they pay for fuel as a proof of concept – apparently with the idea that the forces should buy more of the 4-times-as-expensive fuel.  This is, after all, our national security we’re talking about.

J.E. Dyer’s articles have appeared at Hot Air’s Green Room, Commentary’s “contentions,Patheos, and The Weekly Standard online.

43 thoughts on “Navy buys biofuel for $16 a gallon”

  1. If I understand correctly, the common argument for these types of subsidies is as follows:
    – first, we need to end our reliance on fossil fuels. (This is just taken as a given and one of those “everyone knows” things – or because oil is “bad”)
    – so, if we subsidize alternative energy and make it price competitive with fossil fuels for awhile, then increased production of the alternative energy will drive innovation that will, in turn, make the alternative energy cheaper and even more competitive.
    – then we’ll be off to the races burning our “good” energy instead of “bad” energy and we can end subsidies.

    I see a couple of problems with this. Innovation is really driven by profitability. Companies refine techniques and find cheaper methods of production in order to make themselves more profitable and gain market share. And it’s that company’s money they are working with.

    If some public agency is giving your company money to be profitable, why bother to innovate? Why not just spend the extra profit on fancy boardrooms, etc., like Solindra. It’s the public’s money after all, not yours.

    Then also, each of these alternative energy schemes has serious drawbacks, other than profitability – storage, transmission, etc.. Their proponents are merely hoping that profit will drive solutions to those problems, but that’s all just dreaming. Few real examples of this happening occur, if any have at all.

    Nope, if it’s the public’s money it’s everybody’s money, and if it’s everybody’s money it’s nobody’s. It’s free!

  2. It’s hard to believe how easily smart people and cynical news organizations like Fox News get snookered. All the headlines talk about the Navy spending $15 or $16 for biofuel, which would be outrageous enough. But in reality the Navy is spending something $26 per gallon for biofuel and then blending it one to one with JP-5 to achieve a $15 blend, which is presumably twice as outrageous.

    From your first link – “The Navy pays $26 a gallon for the biofuel and after combining it with the oil product in a 50/50 blend obtains a fuel that costs $15 per gallon. That is almost 4 times the cost of JP-5 jet fuel, which runs $3.97 per gallon.”

  3. It won’t surprise me if next year the Navy mixes the $26 biofuel in a one to three blend with JP-5 and snares headlines about cutting the cost of their biofuel by 33%. Perhaps that article will even have a graph showing how quickly the cost of biofuel will reach parity with conventional fuel due to the fast reduction in cost.

    1. All good points, Sully. Whatever is done, if it involves continuing to purchase wildly expensive biofuels, it will be attended by deceptive hype and self-congratulation.

  4. And this is all made possible by executive order under the President’s scheme for bypassing Congress. It’s called the “We can’t wait [to flush more taxpayer money down Al Gore’s green toilets]” campaign.

      1. I was thinking that even for SoCal, that’s an immense amount of lipo-business he was doing.

        LIPO= Lard In, Petroleum Out.

  5. And how much did each of those cheneyburgers Haliburton sold to the military cost the US taxpayer?

      1. Granted. But if we are suddenly to become so prissy about military waste (and sub-contractor corruption) I wouldn’t be starting with the few bucks spent on a project to assess the viability of alternative fuel sources (Which is, I presume, the motivation behind this project)

  6. We do need to be well into a transition to a practical, cost-effective alternative fuel source sometime in the next 100 years. Besides oils’ increasing cost, which sometime in the next 50 years will rise exponentially,
    ending our reliance upon oil is a national security priority and would do more to reduce Islamic aggression than any other material factor. Without funding, Islamic terrorism is effectively quarantined.

    Unfortunately, many Repubs (and virtually all Republican candidates) seem to be as blind to this as Liberals are to our current need for a robust domestic oil sector economy.

    No current alternative energy source can provide the needed capacity, energy density or potential scalable growth for a growing economy. Solar, the most viable candidate, faces severe technological obstacles on multiple fronts, with progress incremental at best.

    A paradigm changing alternative is needed and paradigm changing inventions are discovered by individuals, not committees, so a government run, Manhattan-style project is not the answer. Government does well building/promoting needed infrastructure, once the breakthrough is achieved then government incentives for industry and investors are appropriate.

    What government can do is create an incentive for inventors. A substantial monetary prize with legal protections against industry suppression, for any breakthrough considered significant by the scientific community would ‘fuel’ interest and accelerate the discovery of the paradigm changing alternative energy source needed.

  7. Okay regarding the HALF TRUTH article. First, the partnership was formed before Obama was elected. Second, groundbreaking was in October 2008. Third, the fuel is animal fat based, including PIG FAT. Fourth, the military uses this for JETS. Fifth, it is only on river barge load, and small amount.

    Sixth, imagine what happens when Mecca gets a flyover with atomized particles of pig fat falling on the pilgrims.

    Seventh, with a couple of former Reagan Aides, I have watched this plant develop only a 30 minute (or less) drive from my house.

    1. You obviously don’t know the rules of this website. JED picks out the bits of any story that suits her ideology and ignores the bits that don’t. I may add that to my knowledge she hadn’t, before she jumped into this particular topic, exhibited much interest or concern about waste, graft, and corruption, by the military and its sweetheart contractors.

    2. I read J.E,’s article again. She stated the Navy purchased 450,00 gallons of bio fuel for $16 a gallon. Fossil fuel of the same type is $4 a gallon.
      Defense cuts are coming.
      The stupidity of the Federal Govt. transcends parties and ideology.
      Tyson is shrewd to find a way to make money on animal waste they produce. The Feds are idiots to pay them for the said waste.
      When the program started, how the fuel is delivered, and where your house is does’t mean a thing.
      I would propose a dead pig attached to every missile and bomb used in the middle east.

  8. Welcome, citizenkla. With respect, any implications you read into the post could be easily eliminated by simply taking the post at face value. For example, I tied Solazyme to cronyism, based on publicly available information which you can check for yourself, but did not tie Dyamic Fuels to cronyism, for the precise reason that the former has crony ties with the Obama administration and there is no evidence the latter does.

    Literally everything you have addressed is a strawman of your own making. I invite other readers to review the information provided by citizenkla and decide for yourselves if it “refutes” anything in my post.

    This is an excellent example of tossing out a boatload of red herrings, none of which address either the point of the article — which is that for political reasons, the Navy has bought some fuel it paid way too much for — or anything else implied or stated in the article.

    1. Stop digging yourself into an even bigger hole. In fact, it is you who raised what now transpires to have been the straw man. You got your facts wrong and you attempted to portray this programme as something it wasn’t.
      You have been demolished by the facts.

      Yet again.

      1. Paul, would you pay $16 a gallon for gas for your car to feel good about green energy in the far future?
        Would you pay 4 times the retail price for all food you bought because it is a green experiment?
        Would you pay 4 times the price for electricity so the green thing would look cool?
        Paul would you pay 4 times your federal taxes because of the green thing?
        Would you wait for the market to assimilate new technology, wait for reliablity and lower prices?
        What would you do Paul?

        1. I would do with fuel exactly what I do with everything else I buy – I would go for the best value.

          However, in this instance the Navy is not buying fuel for routine use. If it were I ‘m sure it would be buying regular fuel at regular prices. But the object of this exercise is strategic – researching alternative fuels with a view to future fuel security in an increasingly volitile energy world. These fuels will be bespoke mixtures. Issues like temprature ranges will be issues for a Navy which operates from the Poles to the Equator.

    2. For those who actually understand manufacturing and the nameplate capacity of the plant, this is a 2 day run. This really is a small amount of fuel less than a river barge load.

      Before claiming cronyism, one should find out a few things about the commodity being purchased. Does a catalyst change have to be effected for just a two day run, will this result in a plant wide outage for several days to do?

      There may and there may not be cronyism going on, but based on a few facts, does not make is so, ESPECIALLY if there were letters of intent from the military from PRE-OCTOBER 2008.

      You must remember the “expensive toilet seat fiasco” by the Air Force which installed new technology carbon fiber, at the time, toilet seats to reduce weight and reduce fuel consumption and payed for the extra expense in fuel savings.

      Strawman by seeking to investigate all angles? I don’t think so.

      You “pundits” were found out during the BP Macondo fiasco. Lord knows how many “facts” I found on places like HotGas and the “Big” sites which were shot through with misinformation.

      1. Please get a grip, citizenkla. You know perfectly well I said nothing about cronyism in relation to Dynamic Fuels — or at least if you don’t, you have reading comprehension issues. Which may be the problem anyway. The cronyism at Solazyme, by contrast, is there in black and white.

        The Navy is paying $16 a gallon for this batch of 450,000 gallons of a biofuel-conventional fuel mix. (It’s $26 a gallon for the biofuel component by itself, as Sully pointed out.) It doesn’t matter how many days it takes to produce the fuel, or how close you live to the Dynamic Fuels plant. The price as sold is the issue

        Nothing about this fuel justifies paying so much for it when there is a ready, tested, cheaper alternative. The fact that it’s a proof of concept — which, again, is in the original article — is exactly the point. Nothing justifies a proof of concept for running the fleet on ridiculously uncompetitive alternative fuels.

        GB — I appreciate your argument, although I ultimately disagree with the assumption that it is overridingly important to use less fossil fuel. That is something reasonable people can disagree on, and I appreciate that your points are intelligently made.

        I do think the natural course of market incentives would always drive fuel-dependent machines and processes to be as efficient as possible, and that’s a dynamic I admire. I’m all for energy efficiency as driven by people’s desire to get the most for their money.

        But government intervention to try to manipulate the price of fuel indirectly, through various policy measures, is overwhelmingly tempting to everyone on the spectrum of politics, and that manipulation can creative artificial incentives and disincentives for consumers and producers.

        We suffer today from an overestimation of the scope of our knowledge, I think. The idea of “peak oil” has been urged by pessimists for more than 50 years, and was one of the drivers behind the formation of OPEC in 1961. Mankind has been operating on a series of certainties about how little oil and gas is left to recover for the last 100 years — and yet in each decade, we discover there is vastly more than we thought. In 1970, experts were predicting we would run out of all the oil and gas by 2000. In 1980, they said we’d run out by 2010. But here we are in 2011, and there is considerably more oil and gas to be recovered than we thought there was as recently as 2000.

        There have been expert predictions that man will run out of all kinds of resources over the last 250 years. We got a little knowledge, and we started assuming we knew everything there was to know, and that whatever we could see on the horizon at the moment was the End of History, in one way or another. We’ve been wrong every time — just as modern collectivists are wrong about the idea that we can have a virtuous society by imposing collectivist rules on people as if we’re bits of data to be herded around and manipulated. That notion is a chimera, if a recurring one. Societies have virtue, in terms of people treating each other right and being good stewards of their resources, when the people themselves, each and every one as an individual, behave virtuously. Virtue ONLY comes from the individual. It cannot be organized at the societal level — and that includes being saving, efficient, forward-thinking, etc about the use of energy.

        At any rate, if there were a need to encourage the development of the “next source of energy,” I think you’re quite right: government’s proper role would be to reward the inventor. The much-excoriated US patent system has not been a bad method of reward in that regard. Perhaps there could be other prizes offered; a finite reward is at least not an accounting nightmare or a bleeding wound for the public purse. A patent holder who could literally earn billions from developing a truly efficient, cheap alternative energy source — one that people would flock to as they did to the light bulb and the automobile, because it offered tangible, immediate benefits — would have a far greater reward from that than from a government prize, however.

        1. You really shouldn’t be accusing others of having “reading comprehension issues”. You will recall (unless you also have short memory issues) your very recent inability to correctly read something I wrote.

          “Nothing about this fuel justifies paying so much………”
          Why so? You haven’t a clue whether or not the price is justified. You’ve already amply demonstrated that you hadn’t even the most basic information on what is involved in the production of this fuel, or what performance criteria are being evaluated by the Navy.

          Now, let’s talk about those Cheneyburgers……….

        2. Forgive my lack of clarity J.E., over the next 50 years I expect the world to use more oil not less, as economic growth requires it.

          I do agree as to the scare tactics used in the predictions that we shall sooner or later start to run out of oil. Nevertheless, demand will eventually (no one knows when) outstrip capacity in any economy dependent upon oil for energy. Millions of years for nature to create, mere centuries for mankind to deplete.

          Simple prudence demands that we not wait until the last minute, (and by the time we’re certain that reserves are running out, it will be too late to avoid severe economic contraction) before developing an alternative to oil for electrical generation and transportation. France points the way toward safe, efficient nuclear power which can address the electrical generation aspect.

          It’s also important to recognise the natural reluctance of
          entrenched industry to abandon the status quo, thus my suggestion that legislation is needed to prevent industry suppression of paradigm changing inventions. Business will, if given the opportunity, circumvent capitalism’s natural mechanisms in order to avoid their product or services obsolescence.

          This I believe is not a matter of right or left but simple common sense and objective evaluation.

  9. Well, there you are. No big scandal after all. No conspiracy by the evil Moslem usurper Obama forcing the Navy to buy millions of dollars of politically correct fuel at outrageous prices to feather the nests of his shady liberal associates. Just a small ongoing pilot programme that commenced under his predecessor whereby the navy is prugdently assessing the viability of alternative fuels for reasons of future fuel security.

    Now, lets get back to those Cheneyburgers………………………………………….

  10. This remains an excellent example of illogical use of emotion and strawmen, especially from Paulite. No fact in my article is in conflict with anything said by citizenkla. Nor does the fact that the Navy is pursuing a longstanding program make it somehow untrue that the Navy purchased $16-a-gallon fuel, when the going rate for conventional fuel is $3.97 a gallon.

    Paulite has only proven that he doesn’t think $16 a gallon is too much to pay for fuel under a pilot program. He is welcome to that opinion, but I do think it’s too much to pay.

    Moreover, the crony connection between Solazyme and the Obama administration is very typical of wildly overpriced transactions of this kind, and it represents a misuse of the people’s money and our charter to the government.

    Paulite disagrees with that, but it is childish in the extreme for him to proclaim that his disagreement constitutes a refutation of “facts.”

    1. Now knowing the exact economics of producing small batches of an experimental fuel (Probably several different bespoke formulations produced for this pilot project) I cannot comment upon the value the military got for its money under this programme. But then again, you don’t either. Yet you rushed to judgment – and tried to paint a certain picture grounded on nothing but innuendo. This is a bit strange for someone who was so exacting in her evidentary standards for the accumulating allegations against the late GoP presidential candidate Mr. (Various things I don’t believe) Herman the Vermin.

      Now, I do know something about the cost of burgers, and I presume you do too. Using the same standards, lets discuss a pure con-job that cost our government far far more than this prudent fuel-security project. And let’s discuss the link between the GWB administration and Haliburton.

      Gone completely off that nice burger, have we?

      Oh JED, you are such a gift……..

      1. Who said this was experimental fuel? It works. We know it works. It’s just damn expensive. If the military budget gets cut, this is the stuff that needs to be axed.

        If it was truly experimental, we have another issue: Why is the Navy risking extremely expensive materiel and the priceless lives of sailors on something we don’t know if we can rely on?

    2. the military has paid vast amounts of government money to aid in the development of technological advances for more than a century and without prejudice to the question of whether this particular purchase is a good or bad one,,,,,, I do recall some old sailor lauding our efforts, quite unsuccessful as far, to develop a reliable anti-missile shield.

      seems to me, we tote up the multi-billions spent on that program, someone advocating that we actually install the semi-useless thing in Eastern Europe at a cost of a few more billion dollars, might sound a bit silly carping over $7 or $8 million for fuel.

          1. My mum who knows a thing or two had a saying “Fools rush in where angels fear to tread”.

            JED would do well to take this saying on board.

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