Five Things on Friday Morning

Where is the one-stop shop for all things tactical in the United States Navy? That's a good question being asked at CIMSEC today. Really interesting post, but as I am not in the Navy, what I really enjoyed was reading several of the links.

I've been waiting to read David Axe's article discussing the CNAS paper by Captain Hendrix. David always takes a unique perspective on things, and that's one of the things I appreciate most about his writing. In his article he's offering up three big flattop alternatives: America class smaller carriers, MLP commercial style carriers, and a radical shift towards underwater long range strike. It did get me thinking about something, if the Navy took long range precision strike out of naval aviation, what kind of platform would you build to field naval aviation at sea that focuses on fleet support? This is a fictional "what if" not a "what I would do" question.

Ray Mabus is a complicated guy, and even after 4 years I can't decide if I like him or not. He is stubborn as hell though, and I admit I do admire that about him. I keep hearing that Ray Mabus was repeatedly told that if he backed away from biofuels, he was going to be offered more opportunities in the Obama administration. From what I hear, he basically told the President "thanks, but no thanks" and has stuck to his belief that alternative energy really is an important issue and something the Navy needs to continue working on as a function of long term reserve planning. Today it is somewhat hard to believe the investment is worth it, but in 20 years we may all look back through the sands of history and describe him as the guy in the room who was legitimately thinking ahead. Either way, the Senate is allowing the Navy’s ‘green fleet’ to sail on. While this topic gets a lot of attention, even his Republican opponents know that the amount of money involved in the more riskier investments really isn't enough to get too worked up over. True, money is tight, but there is some evidence indicating that some of his alternative energy investments in things like solar and advanced batteries does become, at worst, cost neutral over time.

Freedom is having problems. The ship has already lost a Fincantieri Isotta-Fraschini ship service diesel generators (SSDG), and a seventeen degree roll (which really isn't a big roll in my opinion) to port knocked out power the other day. According to Aviation Week the ship has now lost power three times since departing Pearl Harbor. I am standing by what I have always said, the Navy will not build more than 12 of each of either ship without significant design changes.

Today is Bob Work's last day as Under Secretary.

Strategic Trend of Note

Fracking FAQ: The science and technology behind the natural gas boom.

This is a very interesting article worth reading in full. This part in particular should give us something to think about.

New technologies to access hard-to-reach fuels mean that, in 2012, the United States experienced its largest rise in annual oil output since the middle of the 19th century, according to data from the US Energy Information Administration (EIA) released in December. Shale gas is a fossil fuel trapped inside formations of shale rock. Some of these formations also contain oil.

The expected 760,000 barrel-per-day increase in US crude oil production in 2012 is the largest rise in annual output since the beginning of US commercial oil extraction in 1859, an EIA official said in a statement.

"This is a once in a lifetime thing we are experiencing now," Paul Faeth, a senior fellow with the CNA research organisation, told Al Jazeera. "The chemical industry is moving back to the US [because of cheap gas] and demand will increase because of low prices."

The gas boom has led to about $90bn in new investments in related US industries over the past two years, including steel manufacturing, petrochemicals production and fertiliser fabrication, according to Dow Chemical's calculations.

Since 2005, more than $125bn has been spent on shale extraction, including drilling and purchasing land, by the 50 largest US oil and gas companies, according to a study by Ernst and Young.

High prices over the past decade, the flow of petroleum from east to west, and the gush of money the other way has allowed Russia to re-assert its international clout and Gulf states to build up massive sovereign wealth funds. The shale boom has the potential to derail those trends.

In 2011, members of the Organization of Petroleum Exporting countries (OPEC) earned $1,026bn in net oil export revenue, a 33 percent increase over 2010, the US Energy Information Administration reported in May. If the price of oil drops because of new supplies, or if natural gas starts to eat into demand for traditional crude, oil-rich nations could potentially find themselves significantly less well-off.

"There will be significant impacts for security and global politics," Faeth said of the shale boom.

The time frame is what makes this interesting.

Thanks largely to fracking, the US is set to overtake Saudi Arabia and Russia to become the world's biggest oil producer by 2017, according to a November report from the International Energy Agency (IEA).

There are a lot of unknowns with fracking, and there is quite a bit of risk in the technology. I also do not want to minimize nor trivialize the impacts of fracking on the environment either, specifically the relative unknowns as it relates to water supply. Still, if you were the guy suggesting the US could potentially be energy independent of Middle East oil by 2017, you were likely the guy in the room everyone else thought was crazy in 2007. This is a reminder why a decade can be a very long term when discussing major economic and geopolitical shifts.

I think potential energy independence from Middle East exports by 2017 is a pretty big deal, indeed I believe such an achievement would force a significant reevaluation of current strategic posture, particularly in regards to the Middle East. I highly recommend folks read the entire article, particularly down further in the article where a discussion of how this might impact global oil prices and what exports of natural gas from super-tankers originating from the US that can carry LNG might mean.

Here Comes the Great Green Fleet

With the Great Green Fleet putting to sea for the upcoming RIMPAC 2012 exercise, and more specifically now that the USNS Henry J. Kaiser (T AO 187) has 900,000 of super expensive biofuel in her tanks ready to supply the Great Green Fleet - the public discussion (which is another way of saying the political food fight) over the Navy's green energy investment is breaking out across major media outlets.

The Pentagon paid Solazyme Inc $8.5 million in 2009 for 20,055 gallons of biofuel based on algae oil, or $424 a gallon.

Solazyme's strategic advisers, according to its website, include T.J. Glauthier, who served on Obama's White House Transition team and dealt with energy issues, but also former CIA director R. James Woolsey, a conservative national security official.

For the Great Green Fleet demonstration, the Pentagon paid $12 million for 450,000 gallons of biofuel, nearly $27 a gallon. There were eight bidders for that contract, it said.

Republican lawmakers are pushing measures that would bar the Navy from spending funds on alternative fuels that are not priced competitively with petroleum and are accusing Mabus of failing to provide Congress with a full analysis of the cost and time it would take to create.

"They couldn't answer some of the very fundamental questions that you would want on that issue," said Randy Forbes, a Republican on the House Armed Services Committee who says studies show that biofuels would always be more expensive than petroleum.

Mabus rejects the criticism, saying that as production rises, costs will come down. He notes that prices have fallen dramatically over the past few years, even with the Navy buying only small test batches of alternative fuels.

"Of course it costs more," he told the climate conference. "It's a new technology. If we didn't pay a little bit more for new technologies, we'd still be using typewriters instead of computers. ... And the Navy would never have bought a nuclear submarine, which still costs four to five times more than a conventional submarine."

Personally, I like seeing the Secretary of the Navy out fighting for the Navy in major media outlets, I'm just not sure this Secretary of the Navy has always picked the right fights. The real problem here is that the mainstream media is going to go very soft if not outright praise Ray Mabus regarding his green effort, and the biofuels industry is so cash starved right now they will be very slow to criticize as well.

I believe praise of the Great Green Fleet is warranted, but all criticism of Ray Mabus is also well earned. There is no future with Solazyme for the US Navy, because the only thing Solazyme can do is provide biofuel at a high cost for testing purposes, and I am not sure the company will ever be able to do more than that. Their process for making biofuel is that they basically cook sugar in a big vat - in other words they are simply a giant test tube company for biofuel. How does a company that makes their biofuel in a giant laboratory ever keep costs down? These are questions that nobody ever asked Ray Mabus as he embarked on his biofuel crusade pouring millions of dollars into the big vats at Solazyme. Why is that problematic? Because the actual Navy investment in biofuel makers who actually grow biofuels is very small relative to the huge contracts the Navy has issued to Solazyme, and that unbalanced investment really does nearly nothing for the advancement of the biofuels industry.

Ultimately the story of the Great Green Fleet will be one of such limited value the story likely won't be told beyond Ray Mabus being in office, and if it is told it certainly won't be a best seller and will likely be part of a joke. Ray Mabus will have proven that the United States Navy can use biofuel instead of traditional fossil fuels, but because of how he did his investment the Navy will ultimately have contributed very little to the Green Energy movement in America other than giving it limited visibility, and usually that visibility came in the context of framing green energy as so expensive it looked like nothing more than enormous taxpayer waste. It is legitimately difficult to describe what the Navy has done with biofuels as progress because the scale to date has been so small, but relative to what the rest of government has done - the Navy is a big player in overall alternative energy, and should be proud of that.

More Tea Leaves

The Navy is moving a substantial amount of equipment to the Persian Gulf that if used, would be done specific in combat against the capabilities fielded by Iran. I am simply highlighting that fact about the MIW shift to the Gulf or other recent military orders reported in media this week; not trying to start a conspiracy theory.

So maybe this other relevant activity is just a coincidence, but even as a coincidence it is very interesting. Lets start with China.

The government on Tuesday raised retail prices for gasoline and diesel fuel for the second time in less than six weeks in an attempt to keep pace with soaring crude oil prices.

Chinese motorists are now paying $4.43 a gallon for 90-octane fuel — nearly equal to the $4.45-a-gallon average for mid-grade fuel in California, according to AAA.

The reason provided is found later in the article.

The increase should ease pressure on China's two main refiners, the state-owned China Petroleum & Chemical Corp. and PetroChina Co., which are not allowed to pass costs on to consumers. The two have reported losing billions of dollars already because of soaring crude prices.

In other words, China is not having a supply or a demand problem right now, what they are having is a 'losing money' problem because of the current high costs - and because China price fixes their fuel, they must price fix it relative to the global market.

Long term I think everyone recognizes that China's demand is going to go up, but right now supply and demand isn't the issue - there are no supply problems with China even with Iranian sanctions. Raising the cost of gas and diesel will insure that supply will go up because by any measurement - this is a fairly significant cost increase for fuel for the average Chinese citizen. Also worth noting, China has not cut back any orders for fuel from any of their import sources, so despite less demand in the near term China will be stockpiling rather than reducing supply.

So if China is reducing demand, why is Saudi Arabia ramping up supply?

Saudi Arabia’s state shipping company, Vela, is set to send 11 supertankers, totalling up 22 million barrels of crude oil, to the U.S. this month and next, an abnormally high number, shipbrokers and analysts said Friday.

“This is the first time in several years for Vela to hit the market with such volume-and in such a short timeframe,” Omar Nokta, managing director at Dahlman Rose & Co., told Dow Jones Newswires. “In 2011, Vela fixed 1 VLCC to the U.S. every other month.”

Vela wasn’t immediately available to comment.

According to the International Energy Agency, Saudi Arabia’s oil production rose to 10 million barrels a day in February, its highest in 30 years. The Kingdom is expected to continue to increase output in the coming months, the IEA said in its monthly oil market report published Wednesday.

I know what you are thinking... this is an effort to bring fuel prices down and pick up the slack for Iranian oil cut off by sanctions and problems in South Sudan, but that simply isn't true. OPEC data shows that those problems were previously absorbed with other measures and they consistently claim the price for crude is artificially high. A lot of analysts continue to say that as well, and Bryan Walsh mentioned that specific point in his TIME column the other day.

Right now much of the recent price spike is due to tensions with Iran, a major oil producer. War with Iran is a real possibility, albeit an uncertain one, and if the missiles were to fly, we could easily see a price spike of $50 a barrel or more. So traders and major oil consumers are stockpiling crude now as a hedge against that very situation, which in turn drives the price up now by artificially inflating demand.

Emphasis mine. There is no supply problem. Because while margins are legitimately tight (they always are these days), it has been noted in several places including the Financial Times that there is a lot of hoarding of crude right now taking place globally, in particular Europe. Now we are seeing a "wall of ships" heading for the United States. It is being said that this is part of an Obama administration plan to bring the price of oil down, but that is hard to believe, because the Obama administration knows that isn't going to work. Shipping in more crude to the US isn't for the purpose of increasing supply on the market - rather increasing the supply in reserve.

Why does the Obama know that won't work? Because for the last few weeks politicians have had more than a few open discussions with experts on the topic and it has been specifically asked whether more crude in the US would reduce prices - and every expert has agreed it would not. The problem in the US isn't the supply of crude, it is the capacity of refineries.

With the East Coast poised to lose 50 percent of its oil refining capacity, three members of Congress on Monday worried that while the country is producing more of its own crude oil, it might grow more dependent on other countries for gasoline and diesel fuel.

Pennsylvania Congressman Pat Meehan hosted a panel of energy experts for a field meeting in Aston, Pennsylvania, of the Committee on Homeland Security.

Meehan and two other legislators, Congressmen John Carney from neighboring Delaware and Mike Fitzpatrick from Bucks County, Pennsylvania, peppered the experts with questions about fuel prices and logistics as well as national security.

Two refineries in the Philadelphia area have closed in recent years, and a third is scheduled to close this summer.

A massive delivery of crude from Saudi Arabia to the US - which is about to happen - is not going to impact fuel prices at all. All it does is add increased supply as a reserve, because refinery capacity is full and cannot actually use all this extra crude coming to the US. Said another way, we are hoarding supply, not for use to bring prices down (which is impossible without more refineries), rather to have in case of delivery disruption.

Then you have the rumors that the Obama administration is going to release from the Strategic Petroleum Reserve to help address fuel prices. I don't believe it, rather I think the idea is being floated to calm investors. Every time they are asked, the International Energy Agency (IEA) says there is not need to release stockpiles because there is no supply crunch.

So why are the big energy importers in Asia, Europe, and the US hoarding crude supply? Why is the US suddenly shifting naval resources to the Persian Gulf specific to capabilities of Iran? Isn't a massive delivery of Saudi Arabian supertankers to the US at a time we lack the refinery capacity to actually use all that crude quickly exactly what stockpiling for war looks like?

I think it is a frightening thought what is going on, only because of what I believe these events are telling me as an observer. The sanctions on Iranian oil are in place. It will take a bit of time, likely 3-6 months, to get a feel whether they are working or not. During that 3-6 months period, it is extremely unlikely anything is going to happen, except that production is going to get very high and everyone is going to stockpile around the world.

So tell me this. What is the intelligence assessment of major oil importers telling those nations political leaders in the US, China, and Europe about what Israel is likely to do if it becomes clear the oil sanctions against Iran - said to be the most potent type of sanctions - aren't working?

I don't care what the folks in Tehran are saying publicly, there is no way they are oblivious to what the tea leaves are suggesting is going on. The Obama administrations diplomatic moves have begun ahead of negotiations with Iran, because the precautionary actions the US would need to take ahead of war with Iran are being taken and written daily in plain sight of major newspapers for all of us to see.

The media can claim this is the Obama administrations grand plan to bring down gas prices, but since the Obama folks know they can't actually saturate the market due to lack of refinery capacity - I reject the popular media rhetoric that this is just Obama administration politics. At no point in the last 3+ years has the Obama administration demonstrated their plans are stupid and are designed knowing that failure is the result. If the Obama administration is involved in hoarding supply on supertankers from Saudi Arabia, it is being done so they are damn sure they have that stockpile when they need it.

Keep in mind, the only legitimate reasons the US would need that extra supply is if the economy suddenly shoots off like a rocket over the next 6 months (very unlikely) thus demand increases significantly, or if the supply chain is disrupted. Which do you think is more likely?

If I'm off base here, I'm very happy to be wrong. Hard to ignore what's happening though.

Navy Green Energy Moves One Step Forward

The nation appears to finally be thinking seriously about energy. As blog readers know, I thought the biggest mistake of the Obama administration early on was the focus on health care instead of focusing on renewable energy resources. Most folks disagreed with my opinion, which is fine, but I still believe energy is a strategic issue that government must be focused on, and I do not believe the same is true of health care. The BP spill and the final HCR bill that is more focused on health insurance than health care are two of many factors that have not helped the energy sector move forward in the United States. Refinery issues, nuclear concerns, and the environmental emphasis over drilling are among several other issues. I admit up front I have close ties to the green energy sector that heavily influence my opinions, and my opinions may not be congruent with others or some specific expert that is highly respected. Honestly, the biofuel industry doesn't have legitimate experts yet, just very intelligent theorists and observers, because if it had legitimate experts those folks would be putting Exxon Mobile out of business already.

There is no investment for biofuels in quantities necessary to move the sector forward in any serious way. There is plenty of interest and money, but everyone willing to spend wants to take the technology out of the United States. Startups across California are being offered hundreds of millions of dollars - to leave California and the United States and set up shop elsewhere, including China. It is going to take big regulation changes and incentives just to restore more interest in private sector investment in biofuel technologies in the US, and because green energy is polarized politically, that may not happen. The promise that green energy can grow the US economy in the future is slowly becoming less likely to ever happen. Part of green energy is manufacturing, like solar panels, and those jobs are already following the trend of all manufacturing in the United States and being shipped overseas.

The Obama administration is going to give energy policy a shot. With all due respect to Dr. Steven Chu, many leaders in the green energy industry think you are terrible and so do I, and to his credit the real leader on green energy issues in the United States under the Obama administration has been Secretary of the Navy Ray Mabus.

This is the generic news statement by Reuters of the President's new $510 million plan if you want the summary. Below are some of my thoughts.

The President’s plan is looking to build four biorefineries as a first step. What I appreciate about the plan is that not only does it focus on the energy side of biofuels, but it also involves the USDA on the output side of livestock feed. For algae fuels there are two main products produced from the algae, biofuel mass and livestock feed. Because the price of livestock feed has shot through the roof with the higher cost of corn over the last decade, it has ultimately led to higher costs of just about everything in the food sector. If livestock feed byproduct of biofuel generation can be produced at scale and sold USDA approved for safety, it could legitimate impact market feedstock price and have broad impacts across the food sector. This is particularly appealing not just in the US, where we have a lot of growers, but also in third world nations where high demand for reliable feed exists, but less quality feed is often used because of high costs of quality feed.

The key questions heading forward is whether biofuel companies can, in any way, attract investment money to the US startups that have struggled under the current economy, and if/when the money does come - will the technology (particularly that of the algae growers) scale and work as advertised. There are several algae companies that have working products, but cost and scale are still largely unknowns. The Navy currently buys biofuel from a company called Solazyme, which produces biomass by cooking it. While these are R&D contracts and consist of more than just the fuel, the Navy is still probably paying somewhere between $50 - $150 a gallon for biofuel with these early contracts. For me, I still don't see how a company that has such high costs to cook biomass in a lab is ever going to be competitive on the market, but right now Solazyme is one of the few companies that can produce relatively large quantities of biofuels reliably, so they are getting all the early testing and R&D contracts. Good for them.

I still believe the pond algae companies will be the green energy companies that have the biggest impact to biofuel in the next decade, even though pond algae companies are also the companies US investors are most skeptical of. As I see it, there are a handful of private companies with legitimate human talent and small working ponds currently producing small quantities can demonstrate affordable biomass and feed, and while they are working with limited capital, some of these companies do seem to be on the right track. The clue they probably have a good product? Those pond algae companies with mature strain development processes and established collection technologies are the ones being offered the most money from overseas investors to take their technology out of the US. I have been told more than once from folks at the Department of Energy that there is legitimate concern that the most successful biofuel (specifically algae) technologies that can produce at scale will ultimately be US technologies with ponds developed and established in other countries.

Jim Lane at Biofuels Digest has one of the best detailed looks and analysis of how the President's new plan impacts the Navy.

Finally, there’s the financial program itself, which will provide a strong equity infusion - something on the order, minimally, of $127 million per biorefinery (if in fact four are built, as per the President’s plan). With industry providing a minimum of $127 million per project from their side via the 1:1 match - about the proceeds from one of the several IPOs that have been brought forward (and about what Total, for example, invested in Amyris), that’s between $4 and $6 per gallon of capacity for the equity side of the capital requirements for constructing the plants (based on a 40-60 million gallon capacity).

If the average first commercial advanced biofuels plants cost $8 per gallon of capacity, as the USDA has forecasted, that could mean that either there will be a low debt requirement (reducing the fuel cost, perhaps dramatically), or a desire by the USDA to commission more than four plants

This initiative should produce somewhere between half and two-thirds of the Navy’s 336 million gallon needs, and given program start (after the RFP process) in 2013, look for capacity to become available by 2015 or 2016 - that’s well in time for the Navy’s Green Strike Fleet, and leaves plenty of time for the construction of additional plants to meet future capacity needs.

Jim goes on to advise that the administration should not try to go bigger or faster than 4 biorefinery's, that the nation needs to see that biofuels are legitimate, viable, and can work in the market.

Total annual investment in biofuel industry this year only just recently totaled $10 billion, and that was a global total. In the scheme of our nations energy use, the nation needs to hit 10x that number by ourselves in a single year before we start seeing any impact to the market, and even then investment in all this new technology doesn't guarantee the prices will be better than traditional carbon based fuels. There is certainly the potential, but potential has yet to be proven reality. This plan, even with only $510 million, may in fact be a very smart approach to developing momentum towards biofuels grown in the US. Time will tell, but with the Pentagon now locked into paying $165 per barrel in fuel according to recent Congressional testimony in the House, it is easy to see why just getting a $5 a gallon price in the short term would be a legitimate cost saver to the DoD both now and into the future as quantity would presumably drive costs down further.

If green energy is something you are interested in but don't really know a lot about, I encourage you to subscribe to Jim Lane's daily email newsletter. I've been following it for years, and FYI of the dozen or so biofuel companies I have interviewed and interacted with from an investor perspective, the management of every single one of those companies follows Jim Lane too (it's one of the questions I ask, and I always get a yes).

River Wars

We take them for granted, but rivers are the primary lifeblood of many developing countries; they provide life-sustaining water, irrigation for agriculture, energy, and ready-made highways for transporting people and goods through otherwise hostile arid deserts and dense jungles. The 21st Century's first water war may occur some time in the near future in East Africa as various countries jostle to exert competing claims and exploit the Nile River. Friction over the Nile's waters isn't new by any means, but the confluence of several factors has the potential to bring it rapidly to the forefront.

Developing economies and increasing populations have raised the demand for energy, food, and water from the Nile. A number of nations with precarious stability -- primarily Egypt, Southern Sudan, and Ethiopia -- rely on the Nile’s water. From FUUO (which by the way, is an excellent blog written by a Navy FAO focused on African affairs), Ethiopia is building a series of new hydroelectric dams to satisfy the country’s increasing demand for electricity. This project will almost certainly create issues down the river, even though Ethiopia intends it to benefit the entire region. Additionally, very-soon-to-be independent South Sudan's Blue Nile region is one of the areas of contention with their northern neighbors.

For additional reading, Churchill’s The River War is a classic work on the strategic importance of the Nile. For the ADHD crowd (myself included), al Jazeera has a very interesting video here on the history of these disputes. Our riverine forces should work at developing relationships with the countries involved and familiarizing themselves with this riparian environment, because it is likely to become a future flashpoint.

The opinions and views expressed in this post are those of the author alone and are presented in his personal capacity. They do not necessarily represent the views of U.S. Department of Defense, the US Navy, or any other agency.

US Navy Tows the Nation Towards Alternative Energy

If anybody doubts the potential of these fuels, consider Brazil. As I said, I was just there last week. Half of Brazil’s vehicles can run on biofuels -- half of their fleet of automobiles can run on biofuels instead of petroleum. Just last week, our Air Force -- our own Air Force -- used an advanced biofuel blend to fly a Raptor 22 -- an F-22 Raptor faster than the speed of sound. Think about that. I mean, if an F-22 Raptor can fly at the speed of -- faster than the speed of sound on biomass, then I know the old beater that you’ve got, that you’re driving around in -- (laughter) -- can probably do so, too. There’s no reason why we can’t have our cars do the same.

In fact, the Air Force is aiming to get half of its domestic jet fuel from alternative sources by 2016. And I’m directing the Navy and the Department of Energy and Agriculture to work with the private sector to create advanced biofuels that can power not just fighter jets, but also trucks and commercial airliners.

President Barack Obama, Remarks by the President on America's Energy Security, March 31, 2024

I thought it was interesting that during the Presidents big energy speech a few weeks ago, the President discussed energy security and alternative energy development in the context of USDA, Department of Energy, oh and the US Navy. It strikes me that Ray Mabus, who early on was pushing (or dragging depending upon how you look at it) the Navy to get serious about alternative fuels has been quite successful in that effort. Background on the broader issue of alternative energy in the DoD can be found within this RAND report, which I think is very useful for framing the issue and challenges.

At Sea Air Space this week there was an interesting panel that discussed alternative energy. It was a lot better than I expected, but it was the answer by Thomas Hicks to one of the questions late in the session that got my attention.

An article at the National Defense blog somewhat captures the gist of the conversation, but what Mr. Hicks said during Q&A was that the government intended to help create the alternative fuels market to move it "near competitive" with existing fuel source options. I watched the session live and have not seen the videos from Sea Air Space posted publicly online, so I can't do the exact quote, but it was a remarkable statement.

Because in the context of everything the DoD has done with alternative fuels, one could say the policy objective driving the US Navy's alternative energy strategy is to build a new viable economic market for alternative fuels in the United States based on Mr. Hicks comment. I find that remarkable, and would love to see a RAND study on the viability of the government building any brand new alternative economic market competitive with an existing market in the United States. This is different than other examples of government market influence like Health Care and Retirement (Social Security) as the approach the government is taking with energy is to attempt to invest enough in the private sector to mature relatively new technologies.

It might actually work, because the more competitive the technology is in the market, the more private investment the technologies will attract. The snag in "Green Energy" over the last few years has been the weak economy, which had led to lower energy prices, which then led to a real slow down in investment money. With energy prices rising again and the economy in rebound, with the technology still moving forward thanks in some part due to continual DoD investments... you never know.

Hopefully the Navy League will get videos of their Sea Air Space speeches and panel sessions online soon, because there is a lot to discuss from the conference but without the videos, it will be impossible for me to get the quotes right. As one who watched as much as I could from the online live feed, I have to say Sea Air Space was an enormous success - and I participated from my seat in New York.

The Cost Value of Tomahawk Cruise Missiles

From Sandra Erwin at the National Defense Magazine Blog.

In the Libya operation to enforce a no-fly zone, the Navy so far has launched 161 Tomahawk cruise missiles that, according to a senior U.S. Navy official, cost between $1.4 million and $1.5 million apiece. The Navy is so well stocked that it can fire up to 255 of these weapons a year without making a significant dent in its budget, or its capabilities to replenish supplies, said the official, who was speaking off-the-record at a private meeting. The Navy purchases 196 Tomahawks each year. In economic terms, the official said, the missiles are “sunk costs” that already have been incurred and could not be recovered.

From a military tactical standpoint, the Tomahawk is the perfect weapon to use in the initial stage of a conflict such as this one, says Eric Wertheim, military analyst and author of "Combat Fleets of the World."

“That’s where the risk is the highest” and the military wants to avoid putting airplanes in harm’s way, he says.

When million-dollar weapons were used in the past, complaints about their price tag didn’t make headlines the way they are now. That may be one reason why the Pentagon did not deploy a Navy aircraft carrier off the coast of Libya, says Wertheim. “It sends a strong message that we are not going to be dominating for the duration of this campaign and we do not want to hold the lion’s share of the burden.”

According to the Navy.mil website, a Tomahawk missile has a Unit Cost of approximately $569,000 in FY99 dollars. They are indeed "sunk costs" because of the multi-year purchase nature of the contracts that keep stores current - contracts that I have been led to believe kept costs for Tomahawks down. There is a pretty wide difference between $569,000 in FY99 dollars and between $1.4 million and $1.5 million today, in fact in FY11 dollars the difference is somewhere around $600 million a unit if my green book math is right.

Two destroyers and three submarines have put 161 Tomahawks in Libya. I'd be curious if every other nation in the coalition combined has conducted 161 strike sorties in Libya to date, because I bet the answer is no. In that context, I'd like to highlight the value of Tomahawk missiles, rather than just focus on the cost.

In my opinion, all of these discussions on Tomahawk missile costs are missing the mark if the subject is operational costs for Libya. Just wait until Congress gets the gas bill for all the tanker sorties. I'll wager any fool who wants to bet that energy costs will be a major budget discussion in defense sooner rather than later, because the gas bill for the DoD in 2011 is going to be enormous.

The Navy's Fuzzy Green Math

Last week a bunch of "green" news surfaced all over the internet regarding a major contract with the Navy that Solazyme was about to announce regarding Algae-fuel - and given I am interested in both the Navy and algae fuel, I've been watching the DoD contract listings. But alas - nothing.

And yet CNET is saying this happened?

Algae biofuel producer Solazyme announced Wednesday it's delivered 20,000 gallons of algae-based shipboard fuel to the U.S. Navy.

Solazyme's Soladiesel Renewable Naval Distillate fuel will go toward the Navy's ambitious goal of getting 50 percent of its energy from renewable resources by 2020.

But algae fuel is not just useful for the Navy's ships.

This past summer Solazyme also delivered 1,500 gallons of algae-based jet fuel to the U.S. Navy for testing. If testing goes well, Solazyme's algae-based advance biofuel could be powering some of our nation's military aircraft.

That is the completion of an old contract, not an announcement for a new contract.

I don't know where the money is coming from, but somehow the Navy is reported to have paid $8.5 million for 20,000 gallons of algae produced marine fuel (of which they have now taken delivery), and then has this new contract for $10+ million more for "research and development of using biofuel feedstocks." That was after paying who knows how many million last year for 1,500 gallons of algae-based jet fuel last year, of which has also already been delivered so I've heard.

But something isn't right here, indeed something smells all wrong. Why are there no public contract announcements outlining exactly how much money the Navy is spending with Solazyme, and even more important - why is the Navy throwing money at this company in the first place?

Look, you don't have to convince me that algae-fuel will one day replace oil based fuels, I already believe that is true (and understand there is still a lot of skepticism). What you do have to convince me though is how in the world Solazyme is ever going to be anything other than a really neat technology that is also cost effective, because it is a really neat technology that has almost no chance of ever being cost effective. Algae-fuel companies are renowned for offering gross exaggerations with their estimations, and while Solazyme clearly has the technology to produce lots of algae-fuel - their cost models examined in the backdrop of their super electricity consuming laboratories don't even come close to passing the smell test.

It costs Solazyme more than a gallon of oil based fuel to create a gallon of biofuel, so why is the Navy investing so heavily in a company that is the antithesis of carbon neutral green energy? I think the technology Solazyme has is cool as hell - because cooking fuel just sounds cool as hell - but come on..., is 'neato' how we measure investments in government or does substance matter?

Do the math - the Navy is paying $425 per gallon for Marine biofuel from Solazyme, and the goal for Solazyme is to ramp up their production up to 1,000,000 million gallons a year. To put it in perspective, a single DDG-51 uses more than 1,000,000 gallons fuel when assigned on deployment to CTF-151 off the Horn of Africa (see USS James E Williams in FY09) - and that's the high end goes for Solazyme right now. This is the slowest possible road towards The Great Green Fleet Ray Mabus discussed.

I understand the idea that the US Navy would buy algae-fuel from Solazyme to test engines of various platforms for viability, but because I am not seeing contract money - I can only assume the money is actually part of a grant. With that said, if the United States is throwing grant money at an algae-fuel company that has no chance in hell of ever being commercially viable and competitive short of war with Iran, then our green energy priorities are really screwed up.

Solazyme either has someone in Congress in their back pocket, of the folks in the green energy section of the Navy need to explain themselves better because they are begging for criticism.

When it comes to algae-fuel, the US Navy should be looking at every single algae company doing work in ponds they can find - because if the US Navy doesn't understand why pond based algae fuel technologies will be part of the US Navy's greater disaster response package one day, then their vision of algae-based fuel technologies is remarkably limited. The US Navy green energy policies need to be about energy and food and water - and the "and food and water" part should be pretty damn important to the US Navy.

Either the Navy is not really spending the money on algae-fuel (in other words, some other government agency or budget is), or that spending is not being reported properly because there is no way someone can convince me the Navy is ordering more that 20,000 gallons from Solazyme without spending big millions. Solazyme has some of the most interesting green technology in the world, but until it takes less than 1 gallon of gasoline to produce 1 gallon of bio-gasoline I have serious questions regarding government investment - particularly the Navy who has so much more to gain from the technologies surrounding pond based algae.

I am a huge believer in green technology for algae fuels, but I am not optimistic the US will be the world leader when this technology booms in 10 years. Our energy policies at the political level are fundamentally broken in this country (and the Navy investing millions in Solazyme is part of the problem). Ridiculous solutions like Cap & Trade is only one example of just how far our nations aim is off vs what the target should be.

Maritime Insurgents and Global Oil Disruption

While all eyes are focused on the oil pouring into the Gulf of Mexico, across the Atlantic, potentially more devastating spills threaten the Nigerian Delta. The MEND has resumed attacks on oil companies and is wreaking its own brand of ecological and economic warfare against the Nigerian government and the world's energy supplies. MEND's guerilla tactics against oil production include a combination of piracy and kidnapping on deepwater rigs, sabotage against coastal pipelines, and direct attacks on facilities. In 2009, 51 oil workers from Shell were kidnapped for ransom, an increase from 11 in 2008.

As can be expected in modern globalized insurgencies, additional groups with diverse motives and tactics have entered the fray against oil production in Nigeria. In the future one might expect the MEND to import additional tactics from other movements, including waterborne IEDs. And by the way, the US imports more oil from Nigeria than Saudi Arabia.

If tasked, would the US Navy be prepared to deal with this sort of problem? Are current force structure, training, and TTPs ready for a maritime-focused insurgency?

The opinions and views expressed in this post are those of the author alone and are presented in his personal capacity. They do not necessarily represent the views of U.S. Department of Defense or any of its agencies.

DOE to Study Expansion of Nuclear Infrastructure in the US

Building off the last story about COSCO, just in case you don't think this US administration is interested in using nuclear power as a carbon based alternative, I suggest you reconsider your theories. There is bipartisan support in the US for expanding the use of nuclear power, and the nuclear power energy business in the US. This is the latest such example, one that scales directly to the previous conversation. From the New York Times.

Poneman also said he is interested in the possibilities for development of smaller modular nuclear reactors, calling this a potentially important carbon policy option in the United States and abroad. "I certainly agree with the premise that small, modular reactors are a very interesting path to explore," Poneman said in an interview this week.

Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources Committee, is preparing legislation requiring DOE to develop and demonstrate two designs for small modular nuclear plants of less than 350 megawatts capacity, in partnership with private industry. Such smaller reactor models may be needed if costs of full-sized reactors continue to escalate, Bingaman said.

Poneman said the flexibility that smaller modular reactors offer could increase nuclear development opportunities in the United States. "And in the international arena, there are some countries that may not have a grid that would stably support a big, 1,000-megawatt plant, but they might be able to take a smaller, 350-megawatt plant," he said.

Remember, it is still the law in the United States that every new class of Navy warship must be designed with nuclear power. While the theme today is common hull, and there is an exemption clause built in to the law; the law cannot be ignored or dismissed.

Will COSCO Save the Planet - With Nuclear Merchant Ships?

Looking for something interesting to talk/think about on Christmas Eve? I look forward to reading what people have to say about this. Be very careful not to dismiss this without thoughtful consideration, because while there are several good reasons to dismiss, and while hard to believe, this could really happen.

The head of Chinese shipping giant Cosco has suggested that container ships should be powered by nuclear reactors in order to reduce greenhouse gas emissions from shipping, said to account for 4% of the global total. Shipping companies have gradually been introducing 'super slow steaming', a measure designed to cut fuel consumption and substantially reduce emissions by running engines at very low speed. However, Wei Jiafu, Cosco's president and CEO, speaking at the Senior Maritime Forum of the China International Maritime Exhibition (Marintec China) in Shanghai, said that introducing nuclear-powered ships could be an even cleaner solution. He said, "As they are already onboard submarines, why not cargo ships?" He said that Cosco is in talks with China's nuclear authority to develop nuclear powered freight vessels.

How many different angles pro and con can you come up with? Obviously, there are many.

Let’s begin by noting that a merchant vessel with nuclear power is likely going to be gigantic and will require a highly specialized crew. The costs of operating such a ship will be very high, but with its great size, potential speed, endurance, and cost tradeoffs there may in fact be a lucrative profit margin behind such a vessel. It is also important to note that the vast majority of trained nuclear propulsion experts today are American, so to expect American business interests to immediately dismiss this would be to misunderstand the size, scope, and depth of the discussion.

China has never built nuclear powered surface ships of any kind that I am aware of, and the US would immediately be ready to compete in this market if it emerged. Would COSCO buy the ships from a US shipyard? Would their competitors? That would create all kinds of interesting trade regulation dynamics when discussing foreign companies. More likely, COSCO would buy from China with the intent to build a nuclear powered shipbuilding industry in China.

What about accidents and piracy? The seas are not immune to Murphy's Law. What happens when a nuclear powered COSCO ship hits a bridge in San Francisco?

Consider that Russian nuclear powered Icebreakers have been around a long time, and massive nuclear powered ships with reinforced hulls designed for ice travel may be the most cost effective way to move large quantities through the Northwest Passage from Europe to Asia during all seasons. The Canadians are going to love that.

These reactors can be built to support replacement and life span, meaning one can calculate costs at construction with nuclear power. The Shipping Industry today cannot due to price uncertainty for energy.

The political ramifications will be enormous, from national security to environment; the range of policy issues will be quite large. Many countries do not allow nuclear powered ships in port, although with ships as large as the ones likely envisioned by COSCO, most countries who object may not have the facilities or the demand to support such large ships. For example, Canada may reject allowing such a ship into their country, but the US may allow nuclear merchant vessels into specific ports. It would be interesting if it ever became more efficient for China to ship into the US on large nuclear ships, then rail cargo into Canada instead of shipping directly to Canada. That is just an example, because I can envision a scenario where Mexico allows huge nuclear ships, and California, Washington, and Oregon did not.

Obviously this is a huge discussion and I am barely touching the possibilities for discussion. With that said, be careful not to dismiss the possibility that China would do this, particularly when one considers how many ports globally China, in particular COSCO, is heavily invested in globally.

The Great Green Fleet

I would have had difficult time keeping a straight face during this announcement, which would have got me thrown out of town had I attended the Naval Energy Forum. It is actually a very clever slogan and an idea well worth promoting and following through, but it does sound a bit corny the first time you say it out loud.

Navy Department leaders issued a set of ambitious new plans to boost the Navy and Marine Corps’ energy efficiency Wednesday, including the goal of fielding a completely sustainable carrier strike group dubbed “the Great Green Fleet.”

Navy Secretary Ray Mabus cited the example of President Theodore Roosevelt’s Great White Fleet, which announced the arrival of American sea power by circling the globe in 1907, and said a new focus on energy would augur just as big a turning point for the service.

Is there an Admiral bold enough to paint all the ships Green too, perhaps a camouflage kit similar to the General Dynamics LCS art? Maybe we can borrow the blue camouflage designs from the Chinese Type 022, but instead of white we use green? Could be fun in Photoshop anyway...

The basic idea is to use nuclear power and hybrid drives, like technologies previously discussed, for all the ships, aircraft, and submarines in the carrier strike group. I think it is a clever idea. According to the idea, the SECNAV wants the Navy to demonstrate that it can sail this green carrier strike group by 2012 and deploy it by 2016 as evidence the Navy can exert influence at sea without the need for foreign oil. Obviously this is all very possible.

The article by Phil Ewing lists other SECNAV energy plans for the Navy:

• Mandate that energy usage, efficiency, life-cycle costs and other such factors be part of the Navy’s decision when acquiring new equipment or systems, as well as vendors’ efficiency or energy policies.
• Cut petroleum use by half in the Navy’s fleet of commercial vehicles by 2015, by phasing in new hybrid trucks to replace older ones.
• Get half the power at Navy shore installations from alternative energy sources — including wind or solar — by 2020, and where possible, supply energy back to the grid, as the Navy does today at Naval Air Weapons Station China Lake, Calif. Marine Corps Commandant Gen. James Conway said Wednesday he wants Marine Corps bases in the U.S. to eventually buy no external power, and sell back excess power when possible.
• Reach the point that half the energy used throughout the Navy Department, including in ships, aircraft, vehicles and shore stations, comes from alternative fuel or alternative sources by 2020. Today that percentage is about 17 percent.

Here is a fact about Navy history that uniformed folks rarely mention when honoring their uniformed brothers throughout US Navy history. For every A. T. Mahan, there was a Theodore Roosevelt on the civilian side. Even Stephen Decatur had his Benjamin Stoddert and Paul Hamilton. It hasn't been since John Lehman that the Navy had a Secretary of the Navy who came out and gave a bold, forward looking vision that was relevant to the geopolitics of ones era. If Secretary Mabus truly makes bold initiatives in energy during this era, he will be remembered, because I think we are about to enter the decade of energy.

Look, a few things between just you and me. My spies tell me RAND is soon to release a report on Alternative Energy that is going to flat out say Algae energy is "impossible" and is going to recommend the federal government quits "wasting" its money on the technology. I read RAND reports and enjoy many of them for their analytical processes and development theories, but as a dumbass Arkansas redneck known to make a reckless rant or two, I really can't wait to see this report. Here is the dirty little secret... if that RAND report isn't released very, very soon, it will be obsolete and may never actually see the light of day, and it will save RAND from looking supremely foolish and out of touch. The analogy that will be used should this report see the light is that this report is like holding a hearing in Congress in late November 1903 saying that human controlled flight by man is impossible.

I recently solicited emails to every algae energy expert I could find mentioned in a LA Times, NY Times, and Wall Street Journal articles on algae energy asking what it will look like for a major oil replacement energy source technology to "break out" into the mainstream information space. I sent eight emails and had five responses, and all five of them asked the same thing: "Who are you working for?"

That is an interesting sign that tells how the politics of Green Energy are dominating, and the money of this sector is competitive. Seeing that I couldn't find one expert to go on the record for my little corner of the internet, I consulted my international businessmen friends instead, and asked what we are looking for. The answers are my top five tips for watching Green Tech break out, and I expect it to happen very soon.

1. Don't watch the oil companies, watch the transportation companies. If an airline, transportation company, or shipping company signs a deal with a green energy company, the green technology is probably viable and preparing for commercial production. Everyone wants to be the next Southwest Airlines locking in cheap fuel for the next several decades like they did with oil long ago.
   
2. The first big green energy contract will likely be an American company setting up shop overseas. All this talk of "Green Jobs" in the US is the stuff of politicians and academics; real investors will take advantage of cheap land and cheap labor. It will not be good politics when a US "Green Energy" company builds a billion dollar facility in the 3rd world, but it will be good business.
3. The companies that break out with the first few huge commercial contracts will get raked over the coals by "experts" and "consultants" in the green energy field, including in mainstream media and with Washington elite, casting skepticism on both the contract and the technology. For many experts and consultants, their opinions are only worth anything as long as Green Energy remains a field of theory instead of practice.
4. The DoE, indeed the entire federal government including the DoD, will likely be the very last to learn which company makes the big breakthrough in Green Energy technology that can take over for oil. The governments funding model is configured for people with concepts, not products. The Navy's contract with Solazyme is a perfect example how government is completely caught up looking at pretty trees instead of the forest when it comes to green technology. Solazyme has very cool technology for making SVO, but it can't scale because they literally cook sugar to create SVO. Show me what the kitchen looks like that Solazyme uses to cook enough SVO to replace gasoline used in cars. Hmm...
   
5. The future oil replacement is Algae, not ethanol, and the algae technology that breaks out into commercial contracts will not be reliant on traditional methods of photosynthesis and therefore will not conform to the conventional wisdom of "expert" analysis. The major technology breakthrough will be when a company can find the right combination of an open pond capable photobioreactor for use on synergistic colonies of algae (several Algae companies already have algae strains to meet this requirement) and has perfected an extraction technology that scales to commercial levels. Everything else has been invented.

The SECNAV is being very smart with his recommendations and for pushing a vision of energy, in fact I would call the timing fantastic. Attend any energy forum or read any "expert" paper and they tell you we are still very far away from algae energy. We really aren't as far away as is suggested in the press, it is a lot closer than people think and on scales people are not prepared to believe. We will see 200,000+ bpd SVO facilities by 2015 that are capable of producing biodiesel at prices about equal to $30-$40 a barrel of crude. That is only 5 years from now.

You see, the conversation over Green Technology is soon no longer going to be about "what if," the questions will become "what now." After all, it will be American companies setting up these algae energy facilities in foreign countries, shifting the global energy center of gravity away from the Middle East and into places of cheap labor like South America, Africa, and southeast Asia.

With the ability to build mature 200,000+ bpd SVO facilities in 3-4 years, the transformation is going to happen a lot quicker than people think. I'm not even going to bother making the bonus points on how this positively influences food and water resources, which will make the algae technologies even more desirable to investors, including governments having problems with inland fishery problems.

The real conversation is whether you have even considered how this is going to change your near-term wargame? You better give it more than a thought or two, the decade of energy change will be 2010-2019. Want to hold me to a prediction? Hold me to this one... we will see the first billion+ dollar Algae Energy contracts to produce large quantities of SVO by 2Q 2010, if not sooner.

Navy Energy Security

I really enjoyed the Rhumb Lines from yesterday, good enough to quote in my opinion.

The Naval Energy Program is focused on enhancing operational capability. Energy security means having an adequate, reliable and sustainable energy supply - sufficient to meet the demands of the mission. Energy conservation and efficiency enhance our combat capability to fly and sail farther, and longer. Investing in alternative sources and protecting our supply provide resilience against a fragile grid ashore, insulates from volatile energy prices, and ensures we can accomplish our mission at sea.

Energy Security

• Energy security is focused on transforming vulnerabilities associated with energy supply and demand into a strategic and operational advantage. Energy security involves tactical and shore missions that have different energy challenges and opportunities, and therefore require unique solutions.
• By implementing energy efficiency measures and considering energy when making decisions, from the individual to program-level, the Department of the Navy is reducing energy consumption and serving as a global role model for environmental stewardship.

Tactical Energy Security

• Tactical energy security addresses risks to the warfighter. These include significant costs associated with volatile petroleum prices, unstable petroleum suppliers and extensive supply lines on land and at sea. Lengthy supply lines are vulnerable to attacks that can result in loss of life and mission.
• The Navy increases tactical energy security by improving overall fuel conservation efforts, enhancing energy efficiency of tactical platforms and increasing use and availability of non-petroleum fuels.

Shore Installation Energy Security

• Increasing shore energy security provides protection from vulnerabilities related to the commercial electrical grid, which is susceptible to natural disaster, physical or cyber attack and malfunction.
• The Department of the Navy increases shore energy security by lessening our shore energy consumption through sustainable building design and renovation. We will further strengthen our energy security by enhancing protection of critical infrastructure and increased use of renewable alternatives.

This part is very good.

• The Department of the Navy’s emerging energy strategy is centered on energy security, energy efficiency and environmental stewardship while remaining the pre-eminent maritime power.
• Energy security is critical to mission success. Energy security safeguards our energy infrastructure and shields the Navy and Marine Corps from a volatile energy supply.
• Energy efficiency increases mission effectiveness. Efficiency improvements minimize operational risks, saving time, money and lives.
• Environmental stewardship protects mission capabilities. Investment in environmentally responsible technologies afloat and ashore reduces green house gas emissions and lessens dependence on fossil fuels.

The key point:

• DoD is the largest government and individual petroleum user in the U.S., consuming about 330,000 barrels per day. The Department of the Navy is the 2nd largest fuel user in the DoD, consuming about 100,000 barrels per day. The Air Force uses about 200,000, and the Army uses about 30,000.

The Naval Energy Forum kicks off today outside Washington DC today. I had intended to go, but it didn't work out. You can check it live video stream here, and I think they will have archive video up later as well.

I will have a lot more on this subject, probably next week.

The Navy Will Go Green

When the price of crude oil goes up $10, it costs the DoD about $1.3 billion dollars. That is roughly equal to the procurement budget of the Marine Corps. Energy is big business in the Department of the Navy. Securing alternative energy sources is a good thing for any military, but the financial reason to have access to inexpensive energy makes energy investment important for the DoD in peacetime. The DoD uses 1% of all energy consumed in the US. That is more energy than several countries.

From the Green Light blog.

The Department of Defense has ordered over 20,000 gallons of algae fuel from Solazyme to see if algae fuel can replace F-76 Naval Distillate, the primary shipboard fuel used by the Navy. The contract calls for Solazyme to deliver the fuel over the next year.

In the overall fuel market, 20,000 gallons in a drop in the bucket. The U.S. consumes 20 million barrels of oil a day, and a barrel contains 42 gallons. But 20,000 gallons in the algae world is like the Atlantic Ocean. Most companies have only produced token amounts of oil and even early leaders like Solazyme (which has actually produced quite a bit of oil) have not moved into commercial production yet.

I only know about two types of energy. Nuclear power and Algae energy. Yes, algae. It is a long story, but it comes down to thousands of hours wasted researching the various companies and the various methods. On my list, Solazyme ranks #2 in the market. The Green Light blog author goes on to make the point 20,000 gallons of algae fuel is a lot. It is for most algae companies, but not really for the top two.

Solazyme

From what I have seen, Solazyme's technology looks like it will work. The Solazyme process grows algae in the dark using sugar as a concentrated energy substitute for sunlight. Actually they cook it. This method costs more because they have higher infrastructure and material costs than some of the alternatives, but the process itself looks solid and they have produced a lot of oil proving the technology. The challenge for Solazyme will be bringing the cost down. The method used by Solazyme should allow them to get between 15,000 and 20,000 per acre foot, per year. Their cubic capacity gives them an advantage over most algae producers.

So you green folks are wondering who I think is #1? The answer is not obvious, and I encourage skeptical experts to make an appointment with these folks and go see what they are doing. For reasons I care not to share on the blog, I know a lot about this company, more than most green experts.

SunEco Energy of Imperial Valley, CA is the clear #1 in algae energy, and has the best shot of all green energy companies of being the first household name brand in green energy. I am not sure, but I think the reason they have not been bought out already is because their asking price is higher than anyone is willing to spend on green energy at this time. That would include the huge bucks folks like Exxon Mobile is spending, who already has investments over $600 million in algae energy this year alone.

SunEco Energy

Southwest airlines is respected throughout the transportation industry for their aggressive and proactive policy in keeping energy costs lower than everyone else. It is why they can offer deals to Vegas, for example, for less than everyone else and from anywhere in the country. Back in July, when J. B. Hunt announced they signed a partnership with SunEco Energy, it got my attention. J. B. Hunt is one of the biggest transportation companies in the country. They depend on diesel fuel. What do they know that no one else knows that would have them partner up with some small unknown algae energy company in California?

SunEco Energy is the only algae energy company that has cleared the big technical hurdles with algae energy. There are five stages in the algae production process; cultivation, harvesting, dewatering, separation, and processing; and SunEco Energy is the only algae company I am aware of that is ready to go commercial with their proprietary technology at each stage of production. Because their algae technology leverages a digestive method and a photo-reactor technology, they are able to cultivate algae by metrics of cubic feet per acre instead of just square ft per acre, which allows them to produce considerably more algae per acre than most pond growers.

SunEco Energy's facility out in Imperial Valley is surrounded by 1.5 million cattle. That matters, because SunEco Energy produces two products from an acre of algae: Straight Vegetable Oil (SVO, sometimes called bio-crude) and Livestock Feed Supplement (LFS).

You see, Algae energy companies like Solazyme are trying to produce bio-crude that can be processed into any number of fuels. The reason most algae experts don't really know much about SunEco Energy is because bio-crude isn't really their primary business model. The demand for Livestock Feed Supplement (LFS) in the Imperial Valley area by the farmers with 1.5 million cattle is so high that by the time SunEco Energy can meet that demand, they will be the largest producer of SVO in the United States... by enormous margins. Their business model isn't really structured around bio-diesel, its structured around the local Livestock Feed Supplement (LFS) demand.

SunEco Energy's pilot stage is 2 years old and ~20 cycles experienced, this gig is going commercial. SunEco Energy doesn't even bother bragging about their gallons of SVO/biocrude per acre foot, per year in public anymore, the internet green energy guy who knows everything doesn't believe them anyway; well except of course J. B. Hunt, one of the largest ground transportation companies in the world. Then again, none of the green community experts have tried to make an appointment and examined SunEco's activities themselves. By 2010, less than 4 months from now, I'll provide more details about SunEco Energy and add context why they are quietly already the world leader in green energy.

Congrats to Solazyme for getting the Navy contract. Very well deserved btw, I think your technology is solid but has a lot of hurdles to overcome to make your process work cost effectively. Whoever the Navy guy is who is pushing green energy, you rock, but you also need to get your butt out to Imperial Valley, CA before the end of the year and see what SunEco Energy is doing. It will be well worth your time.

Seawater to Jet Fuel

This is an interesting 'green' initiative funded by the Navy.

According to New Scientist, this process "uses a variant of a chemical reaction called the Fischer-Tropsch process, which is used commercially to produce a gasoline-like hydrocarbon fuel from syngas, a mixture of carbon monoxide and hydrogen often derived from coal."

Robert Dorner, a Naval Research Laboratory chemist in Washington DC, says that CO2 has been largely overlooked by people who regularly using this process as it is so stable. Its abundance in seawater makes it an "attractive" potential basis for creating fuels.

The team is now concentrating on how to produce hydrocarbons without also creating unwanted methane, which is a common product of the conventional Fischer-Tropsch process.

Changing the cobalt-based catalyst for the process to an iron catalyst reduced the methane produced to just 30 per cent of the final product. Heather Willauer, the chemist leading the project, says this efficiency needs to be further improved and that he is now considering other catalysts.

They face one further obstacle if this is to be a genuinely green process: finding a green source of electricity with which to power the electrolysis needed to produce hydrogen.

I would suggest aluminum, although maybe in the future nuclear powered logistics ships convert seawater to fuel for the rest of the fleet? Either way, another well spent dime on research by the Navy if you ask me. It will be interesting to see whether the new process is less expensive than the current method for producing jet fuel. Costs matter.

A Good Reason For Flight III Burkes

As discussed in two CRS reports (CRS Report RL33360 and CRS Report RS22595), one maker of electric-drive propulsion equipment has proposed increasing the planned scope of the Navy’s program for modernizing its DDG-51s to include adding some electric-drive propulsion equipment to the ships’ existing mechanical-drive propulsion plants. The option could also be applied to new-construction DDG-51s. The added equipment would more fully interconnect the mechanical-drive components on each ship, producing what the firm refers to as a hybrid propulsion plant. The firm estimates that the addition of this equipment would reduce DDG-51fuel use by about 16%. This option, the firm estimates, would have a non-recurring engineering cost of $17.1 million and a recurring cost (including both equipment cost and installation cost) of $8.8 million per ship.

Using the figures in the table from Admiral Roughead’s May 7 letter, reducing DDG-51 fuel use by 16% would reduce the ship’s annual operating (steaming) cost from the figure of $15.7 million shown in the table to about $13.2 million—a reduction of about $2.5 million. The Navy has informed CRS that the operating (steaming) cost figures in the May 7 letter are based on fuel costs as of February 2008 and reflect a fuel cost of $112.14 per barrel. If fuel in coming years costs more than $112.14 per barrel, the dollar savings associated with a 3.9% reduction in fuel use would be greater than $2.5 million per year. The obverse would be true if fuel in coming years costs less than $112.14 per barrel.

Navy DDG-1000 and DDG-51 Destroyer Programs: Background, Oversight Issues, and Options for Congress, Ronald O'Rourke, April 13, 2024

Ronald O'Rourke's report footnotes that the firm providing him with data is DRS Technologies. I think that is an important detail. Ever since the Navy truncated the DDG-1000 in favor of the DDG-51, I have been consistently critical of the move. In testimony the Navy has consistently claimed that Flight IIA versions of the Arleigh Burke class destroyer would be built beginning in FY2010 (this year). As much as I like the Burke, and I love the Burke, I don't feel very good about moving backward when it is unclear how to move the Burke forward.

When Ronald O'Rourke presented his options for additional technologies possible for the Arleigh Burke class, options that remain in the report linked above, the Navy left no indication at all that they were even considering new technologies for the Burke. For me, that was a troubling sign. It is peacetime and we enjoy a lead in surface combatant superiority, now is the time to experiment with new technologies, not get complacent with what we have. From a historical view, I look at how the US Navy built the Pensacola class, followed by the Northampton class, then the Portland and Brooklyn classes, all of which built during restriction period governed by the Washington Treaty. These cruisers were in fact steady state evolutions towards what became the brilliant Baltimore class cruisers that served in the Pacific from 1943-1945.

When I look at the Burke, my primary concern is that by sticking with the Flight IIA, the Burke gives the impression there isn't much room left for growth. Until last week, there has been very little evidence the Navy has been looking into new technologies beyond the modernization to the Advanced Capability Build 12 baseline. Then we got this contract last Wednesday.

General Atomics, San Diego, Calif., is being awarded a $32,727,170 not to exceed, cost-plus-fixed-fee contract for development of a prototype hybrid electric drive (HED) system for a full-scale demonstration. HED is aimed at improving the operating efficiency of the engineering plant on DDG 51 Class Ships and is intended to demonstrate the capability for significant fuel savings by incorporating advanced electric machine technology. This supports the national defense imperative to reduce dependence on foreign non-renewable energy resources. Work will be performed in San Diego, Calif., (50 percent); Milwaukee, Wis., (24 percent), and Hudson, Mass., (26 percent), and is expected to be completed by June 2014. Contract funds will not expire at the end of the current fiscal year. This contract was competitively procured under a Broad Agency Announcement, with 23 offers received. The Naval Sea Systems Command, Washington Navy Yard, D.C., is the contracting activity (N00024-09-C-4222).

According to the press release on General Atomics website, partial funding comes from the American Recovery and Reinvestment Act of 2009, the gigantic economic stimulus package from January. The contract is for a proof-of-concept Hybrid Electric Drive (HED) system and includes installation on an existing DDG-51. According to the General Atomics website, "HED will improve the operating efficiency of the engineering plant on DDG 51 Class Ships and is intended to provide the capability for significant fuel savings, up to 12,000 barrels of fuel per year, per ship, by incorporating advanced electric machine technology." The press release goes on to list DRS Technologies as a partner for the contract, sort of making it sound like this is the information Ronald O'Rourke was discussing in his report.

Bruce V. Bigelow has a report on Xconomy that includes an interview with Carl Fisher, who heads business development at General Atomics’ Electromagnetic Systems Division.

The destroyers are powered by four General Electric gas turbines capable of powering the ship at speeds in excess of 30 knots (about 35 mph). GA’s concept would basically convert the Navy’s modern man of war into a hybrid-electric Prius of the seas.

“Obviously, there are differences,” Fisher says, “but the analogy is consistent.” According to the GA executive, the Navy contract calls for integrating a prototype electric motor with the warship’s reduction gears, enabling the destroyer to use its electric motor for low-speed operations below 10 or 12 knots (about 14 mph).

It is noteworthy this contract comes about a month after GE Marine won ONR's DDG 51 Fuel Efficient and Power Dense Demonstrator competition, described as follows by GE Marine's press statement on the contract.

"This project will develop and demonstrate the technology necessary to enable substantial annual fuel savings by cross-connecting the currently independent main propulsion system and the ship service electrical system, creating a hybrid mechanical “electric drive power plant," said GE Marine's General Manager, Brien Bolsinger, Evendale, Ohio. "The system modifications proposed by GE have the potential to increase ship service electric power capacity, improve power quality and add redundancy," Bolsinger added.

Currently the DDG 51 main propulsion and ship service configuration consists of four GE LM2500 aeroderivative gas turbines and three ship service turbine-generators, with four engines on line during the majority of underway operations. GE will demonstrate that the modified system will save fuel by meeting all the ship power requirements at low and moderate speeds with a reduced quantity of gas turbines operating. GE expects a better match between the power available and the load, allowing the gas turbines to operate more efficiently.

I am beginning to suspect that power optimization, more than any other specific capability, is the next major technology evolution for warships, and both of these contracts reflect a sea change in what will be possible out of ships in the future. This doesn't just go for existing DDG-51s or new DDG-1000s, but can be applied across the board to new warships both big and small. The long term consequence will hopefully lead to more fuel efficiency, thus endurance potential, for small ships as well.

It is fantastic to see this type of technology refit being applied to the DDG-51s, because while fuel savings are an obvious cost-saving benefit, the real capability increase here is the increase capability of the Burke to distribute more power to the ships combat systems. There are other advantages as well, because just having the option to turn off turbines when drifting with a tail allows for a ships Captain to reduce the ships noise output, for example. These little things can add up.

If these technologies work out, and there are good reasons to believe they will, the Burke can now support much better radar systems, new gun systems, and easily support the extra power requirements for emerging laser systems previously thought to be options only for the DDG-1000.

I may be mistaken, but I believe ONR's DDG 51 Fuel Efficient and Power Dense Demonstrator competition was specific to Flight IIA only, although I am not sure why it would not scale to previous variants of theDDG-51. With an understanding these technologies are for backfitting purposes, I don't see why they shouldn't be included in any new orders for Arleigh Burke destroyers.

In fact, if we are going to buy new DDG-51s, a good reason to build an Arleigh Burke destroyer that makes sense to me is if we are buying an evolved model (Flight III), with some specific enhancement with a vision looking forward. In my opinion, building new Burkes with the intention of upgrading power technologies is a business case much easier to sell to the American taxpaying public. After all, these type of technologies in energy efficiency do have trickle down effects, for example, the LM2500 gas turbine is part of GE's CF6 family of commercial airline turbine engines, the same CF6 family of turbines used on DC-10, MD-11, A300, 747 and 767 aircraft.

While it may sound strange today, it is entirely possible these investments by the Navy end up making commercial airline travel cheaper for the regular folks in 2020.

The Navy Car That Emits Only Water...

The Navy and Marines are advancing energy science for the rest of us. Interesting.

As the global automobile industry considers alternative energy sources to replace the traditional internal combustion engine, Jessie Pacheco, a mail clerk at Camp Pendleton, has been making his rounds to Marines in General Motors (GM) Chevrolet Equinox fuel cell vehicles (FCVs). The Office of Naval Research (ONR) has sponsored the GM FCVs at Camp Pendleton since 2006 with two more scheduled to arrive later this year.

“These vehicles are the future,” says Pacheco. “It’s great to see people drive by me, giving me the thumbs up, and asking ‘Where can I get one?’”

“Fuel cell vehicle research is clearly a case where the Navy and Marine Corps need are propelling advanced technology that also has potential benefit to the public,” says Rear Admiral Nevin Carr, Chief of Naval Research. Within the Navy-Marine Corps Team, ONR has been researching power and energy technology for decades. Often the improvements to power generation and fuel efficiency for ships, aircraft, vehicles and installations have direct civil application for public benefit.

“There is not a drop of oil in it,” explains Shad Balch, a GM representative at Camp Pendleton. “The electric motor provides maximum instant torque right from the get go.” The efficiency of a hydrogen-powered fuel cell may prove to be twice that of an internal combustion engine, if not greater, adds Balch.

From an operational perspective, the fuel cell vehicle is quiet yet powerful, emits only water vapor, uses fewer moving parts compared to a combustion engine, and offers an alternative to the logistics chain associated with current military vehicles.

Read the rest. Very interesting.

The Military Sealift Command Goes Green

The Military Sealift Command has chartered a ship that may have won the competitive bid primarily because its green technology reduces fuel costs. Very interesting. The MSC press release.

For the first time, the U.S. Navy's Military Sealift Command has chartered a kite-assisted, fuel-saving cargo ship to carry military equipment.

MV Beluga SkySails departed Newport, Wales, Oct. 5 after the first of three European port calls to load U.S. Army and U.S. Air Force cargo before the ship's month-long voyage to the United States.

The 400-foot Beluga SkySails is the world's first cargo ship to use a sky sail - a giant, computer-controlled kite that can rise 100 yards into the air and uses wind power to help propel the ship during long ocean transits. Though MSC frequently charters commercial ships to meet mission requirements, this is the first time the command has chartered such a ship.

More information regarding this technology can be found here. DID has more.