Bloomberg News

Pentagon, World's Biggest Fossil Fuel User, Shops for Biofuels

October 19, 2012

(Corrects company name in first paragraph.)

Gevo Inc. (GEVO:US), Syntroleum Corp. and Solazyme Inc. (SZYM:US) may be among a “small set” of biofuel producers vying for supply contracts from the U.S. Defense Department, the world’s largest consumer of fossil fuels, analysts said.

The agency is preparing to announce about five initial grants to companies making fuels from renewable materials to power jet fighters, battleships and other vehicles. The decision, which according to application documents is due “on or about” today, may come Oct. 22, Laura Ortiz, the program’s agreements negotiator, said in an Oct. 17 interview.

The military bought about 130 million barrels of jet fuel, diesel and other petroleum products in fiscal 2011, and is seeking to replace as much as half with renewable biofuels. Winning one of the small initial grants will land recipients on the short list for large, long-term fuel-supply contracts, according to Pavel Molchanov, an analyst with Raymond James & Associates Inc. in Houston.

“The addressable market for the Navy and Air Force each will be in the hundreds of millions of gallons,” Molchanov said in an interview.

Gevo, Syntroleum (SYNM:US) and Solazyme may be on the inside track because they’re already conducting research with the military or have delivered biofuels for testing, he said. Cobalt Technologies Inc. and Sustainable Oils Inc. also meet that criteria and there may be other potential recipients “that perhaps we’re not currently anticipating.”

First Grants

Recipients of the first grants under the Advanced Drop-In Biofuel Production Project will receive about $6 million in March. In the program’s second phase nine months later, as many as three companies will share as much as $180 million to help fund commercial production facilities.

The goal is to identify and support companies “capable of producing drop-in replacement biofuels,” which can be used without requiring changes to existing engines or infrastructure and are “suitable for military use,” according to the official request for proposals. The military plans to “establish one or more complete domestic value chains” to ensure a steady supply of fuel.

Gevo, which produces isobutanol from corn, won an 11,000- gallon (42,000-liter) Air Force supply contract last year and has submitted a proposal for the biofuel grant program, Lew Phelps, a spokesman for the Englewood, Colorado-based company, said in an e-mail.

The Navy used in a July demonstration 450,000 gallons of renewable jet and marine diesel fuel that Syntroleum produced from recycled cooking oil and algae oil made by Solazyme. Syntroleum Senior Vice President of Business Development Jeffrey Bigger wouldn’t say whether the Tulsa, Oklahoma-based company applied to the biofuel grant program

Supply Contracts

The company is already in commercial production and is more interested in a long-term military supply contract than in the smaller grants to build a plant, Bigger said. “The most important element to our business is contracts.”

Solazyme, based in South San Francisco, California, collaborated with Honeywell International Inc. (HON:US)’s UOP unit on two military contracts in 2010. A spokeswoman wouldn’t say whether it applied for the biofuel grant program.

The program requires applicants to demonstrate viable supply chains and scalable technologies. “It’s a relatively small set of folks who would meet those qualifications,” said James Rekoske, UOP’s vice president of renewable energy.

Sustainable Oils supplied about 500,000 gallons of its jet fuel to the military last year and Cobalt has a cooperative research and development agreement with the Navy. Sustainable Oils declined to comment and Andy Meyer, Cobalt’s senior vice president of business development, wouldn’t say whether his company applied to the grant program.

Best Partner

Other companies developing renewable jet fuel include ZeaChem Inc., Virent Energy Systems Inc. and Applied Research Associates Inc., which developed renewable jet fuel technology with a Chevron Corp. (CVX:US) venture and is licensing the process to Aemetis Inc. Cupertino, California-based Aemetis submitted an application for the grant program, Chief Executive Officer Eric McAfee said yesterday.

“The best offtake partner you could have is the U.S. military,” ZeaChem Chief Executive Officer Jim Imbler said by telephone. He wouldn’t say whether the Lakewood, Colorado-based company is participating in the biofuel grant program. ZeaChem and Gevo both received Department of Agriculture grants last year to develop processes for converting wood into jet fuel.

“The military has a pretty strong appetite,” he said. “It’s a potential partner that can take all the product you make.”

To contact the reporter on this story: Andrew Herndon in San Francisco at aherndon2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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Companies Mentioned

  • GEVO
    (Gevo Inc)
    • $0.32 USD
    • 0.02
    • 6.66%
  • SZYM
    (Solazyme Inc)
    • $6.71 USD
    • 0.30
    • 4.47%
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