Biofuels are included in latest U.S. Navy fuel procurement

By U.S. Energy Information Administration | July 28, 2014

Recently the U.S. Department of Defense released its annual procurement for bulk fuels to be delivered to its facilities in the eastern and inland United States and Gulf Coast. For the first time, this procurement requests military-specification diesel fuel and jet fuel that are blended with biofuels. The biofuels components, however, are optional and will only be accepted if certain cost and performance requirements are met. A similar procurement for the Rocky Mountain and West Coast regions is expected to be released later this year.

The U.S. Navy's interest in biofuels is part of its goal to generate 50 percent of its energy from alternative sources by 2020: nuclear energy, electricity from renewable sources, and biofuels. The Navy currently sources about 17 percent of its energy supplies from renewable and nuclear sources of electricity. No biofuels are currently included in that percentage.

The Navy's interest in biofuels is limited to those fuels that can be used as direct replacements for petroleum-based gasoline and distillate fuels, also known as drop-in biofuels. These fuels require no modification or operational changes to distribution infrastructure, aircraft, or ships. Although biodiesel blends readily with diesel fuel or jet fuel, and is compatible with most diesel engines, it is not a drop-in fuel. Certain properties limit biodiesel blends from being used in some applications: potential fuel system clogging and poor performance at low temperatures prevent its use in jet fuel for civilian or military use, and water separation problems prevent its use as a marine diesel fuel. Drop-in biofuels are available today on a limited commercial basis, and operable U.S. production capacity is about 210 million gallons per year.

Drop-in biofuels tend to be more expensive than petroleum fuels. The 2014 National Defense Authorization Act prohibits DoD from paying prices for alternative fuels that are higher than it would pay for traditional fuels. To address these economic issues, the Navy and the U.S. Department of Agriculture (USDA) announced the Farm-to-Fleet program in December 2013. The program intends to increase the production of drop-in biofuels in the short term to allow producers to improve yields and lower feedstock costs through experience, and to achieve economic competitiveness by 2020.

Firms wishing to offer drop-in biofuels under the current solicitation can apply to the USDA Commodity Credit Corporation for grants to offset the cost of feedstocks used to produce the biofuels. Some drop-in biofuels may also qualify for renewable identification numbers (RINs), which can be used to comply with the renewable fuels standard (RFS) or sold to other parties. The RFS has encouraged the production and import of drop-in diesel that can meet DoD's requirements. It remains to be seen whether the combination of the USDA grants and RIN value is enough to bring drop-in jet fuel to market at a price comparable to traditional jet fuel.

For this year's fuel procurements, there are two acceptable sources of drop-in biofuels: hydroprocessed esters and fatty acids (HEFA), and Fischer-Tropsch (FT) liquids. HEFA biofuels are produced through the reaction of vegetable oil or animal fat with hydrogen to yield hydrocarbons that are nearly identical to those found in petroleum-based diesel fuel or jet fuel. FT liquids are hydrocarbons produced from coal-, natural gas-, or biomass-based synthesis gas and are suitable for blending into diesel fuel and jet fuel.

In the near term, EIA projects that HEFA fuels likely will be used in much greater quantities than FT liquids. Unlike with HEFA, the United States has no commercial-scale production of FT fuels. Other nations produce FT liquids, but their production is more often based on coal and natural gas, not biomass. The U.S. therefore does not import large volumes of FT liquids, because coal- and natural-gas based fuels do not qualify for credit under the RFS or the California Low Carbon Fuels Standard.