Affordable Naval Biofuel: First Comes the Feedstock

19 january 2013

Pain at the pump. $5 gasoline in California. $8 gasoline in the EU. We hear about it all the time. But in biofuels, the pain comes long before the pump. It arrives with the plant.

Pain? Try chatting with biofuels producers about the joys of $8 corn, $0.48 per pound soybean oil, $0.35 per pound waste greases and $0.20 per pound sugar prices.

Frankly, were we to have prices at half these levels, as were common, say, five years ago, there would be a lot more biofuels and a lot more excitement in financial circles about investing in biofuels.

One of the problems of biofuels – and even advanced biofuels – is that they tend to liberate the hidden value in feedstocks. For example – in the old days, biodiesel emerged in the US in many ways based on the low price for soybean oil some ten years ago.

A little bit of biodiesel production coincided in a whole lot of pick-up in soybean prices. So, attention shifted to waste greases and fryer oils. Back then, you could get paid to pick up waste grease from restaurants. So, technologies emerged to make biofuels from fryer oils – and , voila, now you pay an almost unaffordable price for waste grease — and there are even organized criminal gangs that steal it.

The feedstock problem

More recently a whole new class of aviation biofuels – the HEFA fuels, made from oilseeds — went through a round of certification and a whole lot of excitement. Now, it is very darn hard to find anyone interested in financing a commercial-scale plant to make the fuels. Why? Once again, unaffordable feedstock.

Here in Digestville we are not trained economists, but we are trained observers — and our observation is that the well-intentioned people aiming to invoke the Defense Production Act to commercialize aviation biofuels for military purposes, may have the wrong end of the stick in terms of their proposal to finance production capacity.

Our concern? Finance a wave of production capacity and there is still the problem of feedstock.

Our suggestion: it would be better to finance a wave of affordable feedstock capacity. If you build that, we have little doubt that based on the downstream demand in aviation, and the history of financing in biofuels that the production capacity would be built.

Back in the 1910s, the Navy and US government recognized this. Teapot Dome Oil Field, in Natrona County, Wyoming, the Elk Hills and Buena Vista Oil Fields in Kern County, California were designated as Naval Oil Reserves by President Taft.

What was notable is that the Navy didn’t focus on financing or developing fuel refining infrastructure – they focused on a reserve of feedstock. The US Strategic Petroleum Reserve is not the US Strategic Jet Fuel Reserve, either.

Feedstock first: It was a wise move then and would be a wise move now.

Feedstock first

To advance aviation biofuels – both for military energy security purposes, and to give US airlines access to affordable, low-carbon fuels – why not designate a Naval Agricultural Reserve? As with the original programs in Wyoming and California – production of feedstock from this resource would be reserved for military and aviation use.

Doesn’t have to be owned by the Navy, grown by the Navy, or managed by the Navy. Why not let the private sector do that? It just has to be available for the Navy at a price the Navy can afford.

BCAP with a twist

The DPA office in the Defense Department might even chip in with a novel financing program for would-be feedstock developers – something similar to the Biomass Crop Assistance Program, but with a twist.

Here’s the twist: government money comes with the caveat that the resulting feedstock must be sold at a contracted price to the military or aviation biofuels industry – a price that is affordable in terms of then refining that feedstock into aviation biofuels.

A friend wrote the Digest last week, in the wake of the article we published last Friday, “The Solyndra Effect.”

He asked: Would love to know what you think can be done in the next eight years; you see all the projections people make, what do you think will be the winning technology strategy for commercially viable (price and scale) renewable jet fuel by 2020?

Well, that’s what we think will be the winner – a path to affordable feedstock that makes so many technologies into winners, and sets off a competition to turn affordable feedstock into affordable aviation biofuels. A competition we think that many companies will excel at.