Tuesday, August 16, 2011

Beating Swords into Plowshares….For Fuel: 60 Year Old Defense Production Act Back in Vogue

Interesting reporting in Greenwire by Annie Snider (worth the few pennies a day to subscribe). The level of discussion of biofuel is moving beyond the concern for the price of corn; the Federal government is recognizing our dependence on a commodity we do not control. The President is considering invoking the provisions of the Defense Production Act.

The Act, passed in 1950, gives the President the authority to order business to sign contracts or fulfill orders determined to be necessary to national defense. It also allows the President to issue orders allocating materials, services and facilities to promote national defense. Finally, it allows the President to requisition property, force industry to expand production and the supply of basic resources, impose wage and price controls, settle labor disputes, control consumer and real estate credit, establish contractual priorities, and allocate raw materials to aid the national defense. The President will have to declare the technology to produce biofuels (which one(s)??) as critical to the national defense. If you are a fan of small government, you will love this! Sounds a little scary; but, then the days around the Korean War were a scary time.

According to the Department of Agriculture press release, the Navy and the DOE and will design a program to provide in the neighborhood of $500M to the biofuels industry to try to bring production facilities up to commercial scale. The provisions of the Act are administered by the Department of Commerce. The intent of the Act is to provide the military the critical material necessary for the national defense.

Normally, I am a fan of market forces and sink or swim in the economic area. Biofuels are a special case. If unusual efforts are not undertaken, biofuels will never get to a commercially competitive range. In case you have not heard, the top five companies for 2011 in America according to Fortune Magazine are:

  1. Wal-Mart Stores
  2. Exxon Mobil
  3. Chevron
  4. ConocoPhillips
  5. Fannie Mae

You may note that 2, 3, and 4 happen to be oil companies. I would surmise that they probably have the cash reserves to beat biofuels on price for a very long time.

The other argument you often hear against this is that the government shouldn’t pick winners. If you think that is the case, go talk to a contracting officer. The government picks winners all the time! Usually, in free and open competition. Presumably this program will select among the various contenders for performance (JP8 identical), sustainability (not food!), price, etc.

The bottomline is that we and our trading partners are vulnerable to oil depletion or denial. Biofuels are a step on the path to the final revolution in transportation…..flying cars! Or electric. Or whatever sustainable energy source can provide us the mobility we require without the vulnerability. Dan Nolan


Brian Smith said...

If they really want affordable, locally produced fuel fast, it appears they need to focus on Coal-Biomass to Liquids or Natural Gas-Biomass to Liquids.

That's at least if you believe the National Energy Technology Laboratory's analysis on Coal and Biomass to Liquids: http://www.netl.doe.gov/energy-analyses/refshelf/PubDetails.aspx?Action=View&PubId=122 One takeaway from this analysis is that biomass is EXPENSIVE.

Take Camelina: even if the process to convert Camelina to Oil were FREE, you'd likely still have trouble competing based on camellia crop cost models that I've seen.

Perhaps Algae can be grown faster, but a agriculture firm growing algae could probably earn much larger profit margins with non-fuel products like cosmetics.

Anonymous said...

When I read your “Beating Swords into Plowshares” post I found the idea of resuscitating the Defense Production Act somewhat disconcerting and for the most part unnecessary.

Its premise is based on the theory that the only renewable resources which can easily be turned into biofuels are corn, wheat, and soybeans. An increase in the production of those commodities for that purpose would necessitate the expansion of farmland which would most likely lead to the elimination of wooded areas. It would lead to overuse of pesticides and fertilizers which pollute streams, rivers and watershed property thus leading to the obliteration of aquatic life. And it would, as recent history proves, drive up commodity prices thus creating a dearth of grain available to 3rd world nations and while also creating ridiculously inflated prices for bread and flour.

Instead, why doesn’t the the Navy and the DOE use some of the $500M mentioned to create a cost effective way of producing algal biofuels. Algal fuel can potentially produce more than 100 times more oil per acre than all oil producing crops; it can be cultivated in ponds or indoor facilities in any climate; the algae feeds on CO2 thus creating an opportunity to make use of a pollutant created by power plants; and the algae residue can be used to generate heat, and feed for livestock.

The one thing algar has in common with other bio fuels is the fact that it currently takes more energy to produce than its carbon footprint warrants.

I had read a while back that the National Renewable Energy Laboratory had been exploring ways to drive down the cost of algal production and was also investigating the use of Algal biofuels for programs within the Defense Advanced Research Projects Agency and the Air Force Office of Scientific Research. I don’t know what the outcome was but at least there had been an interest.

I look forward to reading more of your posts with the hope of being enlightened further.

Lenore R. Buonocore