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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Investor Interest in U.S. Biofuel Production Set to Soar

On 16 August President Obama announced that the U.S. Departments of Agriculture, Energy and Navy will invest up to $510 million by 2014 in partnership with the private sector to produce advanced “drop-in” aviation and maritime biofuels for military and commercial use. This builds on a directive Obama issued five months ago as part of his “Blueprint for A Secure Energy Future,” his administration’s policy for reducing U.S. dependence on foreign oil imports, which now cost more than $300 billion.
 
The plan envisages the three federal departments to invest a total of up to $510 million, which will require substantial cost sharing from private industry, with projected matching funds of least one to one.
 
President Obama declared, “Biofuels are an important part of reducing America’s dependence on foreign oil and creating jobs here at home. But supporting biofuels cannot be the role of government alone. That’s why we’re partnering with the private sector to speed development of next-generation biofuels that will help us continue to take steps towards energy independence and strengthen communities across our country.”
 
Secretary of Agriculture Vilsack said, “Our goal is to create and stabilize an advanced biofuels industry. This is not a fly by night effort – it’s a commitment to a real energy future. The president has asked us to make the US more competitive, and to give us real diversification in our energy choices.” Secretary of the Navy Mabus added, “We simply buy too much fuel from out of the country. The supply shocks, the price shocks, it’s simply unacceptable to the military. For every dollar increase in the cost of a barrel of oil, it costs the Navy $30 million.”
 
The third federal department involved in the initiative, Secretary of Energy Steven Chu noted, “These pioneer plants will demonstrate advanced technologies to produce infrastructure-compatible, drop-in renewable fuels from America’s abundant biomass resources. It will support development of a new, rural-focused industry that will replace imported crude oil with secure, renewable fuels made here in the U.S.”
 
While it remains to be seen how the joint investments between the U.S. government and private sector will work in practice, the announcement nevertheless represents an unprecedented commitment by several federal departments to stimulate the production of renewable biofuel energy, which is a godsend for many start-up companies which have up to now found it difficult to locate capital to ramp up production.
 
There are many reasons why production of drop-in biofuels in the United States has been limited up to now. Two of the most significant roadblocks have been a dominant influence of the U.S. bioethanol industry and lobby, which until now has crowded out consideration of other options, as it currently has a hammerlock on issues of importance to farmers, including subsidies and federal crop insurance.
 
A second inhibiting factor is the sheer diversity of feedstocks, which range all the way from timber milling byproducts to algae. No single biofuel feedstock has as yet emerged as the clear initial winner, although it appears increasingly evident that camelina may soon come so.
 
And finally, last but certainly not least, the small amounts produced thus far of drop-in biofuels, the majority of which have gone to both civilian airlines and the Department of Defense for evaluation and testing have been labeled “designer” fuels, as their prices are multiples per gallon higher than traditional fossil fuel, which depending on the feedstock, have ranged between $65 and $100 per gallon. Supporters of biofuels argue that the high prices up to now are a factor of limited production rooms and that mass production will lower unit costs, but the fact of the matter remains that the high prices have been a significant impediment to developing full-scale commercial production of drop-in biofuels up to now.
 
The Department of Defense’s Defense Energy Support Center (DESC) is the sole purchaser of fuel for the U.S. military and federal law requires it to pay a fixed price for fuel. In its latest publication for FY 2011, the DESC pays $3.03-$3.46 per gallon of JP-8, the military equivalent of a Jet A-1, civil aviation fuel. That said, the need is there, as JP-8 is the most widely used fuel in the U.S. military, accounting for about 65 percent of. DoD’s fuel needs, which uses about 4.6 billion gallons (146 million barrels) of fuel each year and given the need to begin production of sufficient volumes of biofuel, it would seem that the DESC price limitations are unlikely to be ironclad.
 
Wall Street's big money boys, the Carlyle Group and Goldman Sachs, have already begun discreetly investing in biofuel production in the U.S., but given the size of the recent government's pronouncement, there is still plenty of largesse to go around. Smart investors will be watching developments closely.

By. John C.K. Daly of OilPrice.com




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  • Anonymous on August 25 2011 said:
    I think President Obama is right in approving this. We all know that oil fluctuates in price rapidly, so changing to biofuels will help buffer against the change. Biofuel also emit less particulate pollution than other fuels, especially diesel so it is more environmental friendly. I'm sure the economic sector will be paying close attention to this changes.
  • Anonymous on August 25 2011 said:
    As his first act in office, President Perry will kill this.
  • Anonymous on August 25 2011 said:
    Technically, I like the idea of biofuels. But with the government so heavily in debt as it is, I am disappointed that Obama decided to spend half a billion dollars on biofuel subsidies. This decision is an example of why Uncle Sam cannot curb deficit spending. Half a billion or a billion dollars here, another billion dollars or fraction thereof there ..... it all adds up!
  • Anonymous on August 25 2011 said:
    Algae is renewable, does not affect the food channel and consumes CO2. The US taxpayer has spent over $2.5 billion dollars over the last 50 years on algae research. To date, nothing has been commercialized by any algae researcher. The REAL question is: Does the DOE BIOMASS PROGRAM really want the US off of foreign oil or do they want to continue funding more grants for algae research to keep algae researchers employed at univesities for another 50 years? In business, you are not given 50 years to research anything. The problem is in the Congressional Mandate that says the DOE can only use taxpayer monies on algae research, NOT algae production in the US. So far, algae research has not got the US off of foreign oil for the last 50 years!
  • Anonymous on August 25 2011 said:
    Department of Energy has specific exclusion of 'algae' from the Billion Ton Update. Why???
  • Anonymous on August 26 2011 said:
    If the President wants to spend more on Algae Research, take it out the Cellulosic budget. We need advanced Ethanol now. Corn Ethanol only get 15% CO2 Reduction. Sugarcane gets 85%, Sweet Sorghum and Sugar Beets do almost as well. No Research Required. Algae offers the possibility of Clean up Coal and should be on the front burner after Sugarcane.
  • Anonymous on August 26 2011 said:
    I wanted to correct some outdated information from the article. The Defense Energy Support Center (DESC)was renamed Defense Logistics Agency Energy (DLA Energy) over a year ago.

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