MODERATOR: Good morning, everyone, and thank you for joining us for today's media briefing. On the phone lines, we have Secretary of Agriculture Tom Vilsack and the Secretary of the Navy Ray Mabus. The two are going to be making an announcement of the single largest purchase of advanced drop-in biofuel in government history by the Defense Logistics Agency, also known as DLA. If you want to ask a question after our two panelists give their opening statements, please let us know by pressing Star/1 on your touch-tone pad.
And now I turn it over to Secretary Vilsack. Good morning.
SECRETARY VILSACK: Good morning, Susan. I think what I'll do is turn it immediately over to Secretary Mabus, and then I'll follow up after he is finished with his remarks, since it's his announcement.
SECRETARY MABUS: Thank you very much, Secretary Vilsack.
As was just noted, late last week, the Defense Logistics Agency announced the largest single purchase of biofuel in government history and we think the largest single purchase in U.S. history, 450,000 gallons of biofuel. It's going to be purchased from Dynamic Fuels, LLC. Dynamic Fuels is a 50-50 joint venture between Tyson Foods and Syntroleum Corporation, and the rest of it will be purchased form Solazyme. It met all our criteria that it be a drop-in biofuel, that it come from nonfood sources, and that it not increase the carbon footprint.
This fuel purchase furthers President Obama's goal to achieve more energy security by finding ways to lesson our dependence on foreign oil and fossil fuels. As part of this goal, in March of 2011, this year, the President directed the Department of Agriculture, the Department of Energy, and the Department of the Navy to come up with a domestic biofuels industry capable of producing drop-in biofuel substitutes in a geographically-dispersed national way and to be a competitive biofuel industry.
Now, at first glance, the Navy would seem to be sort of an interesting partner for something like this, but we are doing this for one simple reason: It makes us better war fighters. Our use of fossil fuels is a very real threat to our national security and to the U.S. Navy's ability to protect America and to project power overseas.
In history, Navy has always led in changing fuel types. We went from sail to coal in the 1850s. We went from coal to oil in the early part of the 20th century, and we pioneered nuclear in the 1950s. And we're going to lead once again by establishing a market, by helping establish a market for biofuels now.
The purchase that was made by DLA, the 450,000 gallons, is going to be used for the Great Green Fleet carrier strike group. We named the Great Green Fleet as a historical reference to the Great White Fleet that went around the world over a hundred years ago under President Theodore Roosevelt. The Great Green Fleet is going to be demonstrated at the Rim of the Pacific Exercise next summer. RIMPAC is our biggest naval exercise every 2 years. It happens with a lot of different partners off the coast of Hawaii. We're going to have the entire strike group, aircraft and ships, sailing on a 50-50 blend of biofuel and diesel for the ships, biofuel and av gas for the aircraft. We think that this represents a major step in energy independence for the United States, in making the United States Navy a better war-fighting operation, and in reducing our dependence on unstable sources of foreign energy and also reducing the budget shocks that come with buying fuel from either potentially or actually volatile places on earth.
I am very happy that we have partnered with the Department of Agriculture and the Department of Energy. Tom Vilsack, Secretary of Agriculture, has been an incredibly good partner. This is not only going to help the Navy, not only going to help our national security, but it's going to help the farmers and agriculture in the United States.
So, with that, I'd like to turn it over to Secretary Vilsack and thank him for all the hard work that he and his Department has done to make today possible.
SECRETARY VILSACK: Secretary, thank you very much, and let me return the compliment. You've been a true advocate for greater energy security and using the opportunity for the military to put the spotlight on the importance of biofuels to national security and to our economic security, and I want to thank you for your leadership. We have a good, strong partnership, which is going to continue.
Secretary Mabus' announcement today, I think, reflects a consistent message that has been sent throughout this year from the Obama administration concerning its commitment to biofuel.
We have been engaged at USDA in helping to finance and close loans on two biorefineries that will be making biofuel from nonfood feedstocks this year, and we anticipate and expect announcing additional projects in 2012. We have established our virtual research centers, which are helping to create new ways and more efficient ways to produce the drop-in fuels that Secretary Mabus and the Navy will be purchasing now and in the future.
Our Agricultural Research Service has been working with scientists within ARS and with the industry to talk about how we can do a better job of finding feedstocks that do not necessarily create a food-versus-fuel discussion and making sure that we have adequate research into the supply chain that will allow product to get to the market the Navy is creating.
Our Forest Service is working through its research efforts on biobased products, including bioenergy research programs this year. NIFA basically announced $118 million of grants in feedstock development. 45,000 acres have been enrolled in the Biomass Crop Assistance Program, which will help create those feedstocks: camelina, miscanthus, switchgrass, prairie grass, as well as woody biomass.
Our Crop Management and Crop Insurance Program is looking at an Energy Crop Feasibility Study for insurance protection for these energy crops, and of course, the Department of Energy and the Navy and the USDA are working on the commitment which we made to work on an innovative, creative partnership to help build biorefineries that will build and produce more drop-in fuel that the Navy can use and the USDA can assist and making sure that commercial aviation in the United States can use as well.
We think that there are tremendous job creating opportunities inherent in every single one of these steps, and today's announcement, I think, underscores the fact that the future for the Navy, the future for this country lies in energy security and basically controlling our own destiny by producing our own fuels in a creative and innovative way, fuels which we believe and processes and technologies which we believe will put us not only in a more secure position vis-a-vis importing oil but, as importantly, help to create jobs and help to out-innovate and out-build the rest of the world in this area and create new opportunities for the United States to export.
So we're pleased with this announcement. We'll continue to work with our partner, the U.S. Navy. We think there are tremendous opportunities here, and we're excited about the future as we head into 2012.
MODERATOR: Thank you both, gentlemen.
Reporters, if you'd like to ask a question, please let us know by pressing Star/1 on your touch-tone pad. We actually do have some callers on the line. Let's start off with Elizabeth Shogren from NPR. Elizabeth.
QUESTIONER (NPR): Hi. Thank you both for having this call, and I'm wondering if you can tell me where this fuel will be produced and what portion of the Navy's fuel over what time it will represent.
SECRETARY MABUS: Dynamic Fuels is headquartered in Louisiana. Solazyme is headquartered in California, and it will be produced in their plants. The one that Dynamic Fuels is producing is going to be from used cooking oil. It's nonfood-grade animal fats and oils and greases, and it's a chemical copy of the oil-based version. Solazyme is algae-based fuel. Solazyme will be used for the aircraft, Dynamic Fuels for the ships, and this is strictly a demonstration. It will demonstrate the Great Green Fleet next summer at RIMPAC. So it's a very small percentage of the fuel that we use on an annual basis.
MODERATOR: We continue with callers on the line. Wired Magazine's Noah Schachtman. Noah.
QUESTIONER (Wired Magazine): Hey, a question for you. I saw there's a 12-million set-aside for Dynamic. I assume it's an equal number for Solazyme. Is that right?
SECRETARY MABUS: Well, the entire contract was 12.
QUESTIONER (Wired Magazine): For all 450?
SECRETARY MABUS: Right.
QUESTIONER (Wired Magazine): Right. So maybe I'm doing the math wrong, but that still looks like a thousand bucks a barrel to me. I know you talked about trying to get the price down for this demonstration. Are you satisfied you're paying the right price for that?
SECRETARY MABUS: Well, if you look at it on a per-gallon price, it's about $26 per gallon. If you look at it blended with the 50-50 blend of petroleum, we're going to end up paying about $15 a gallon for the demonstration that we use.
But this is still R&D. This is still R&D purchase. It's half of what we were paying this time last year, and it shows that as the market develops, you're going to see costs come down.
Dynamic, the fuel that it's producing is already being used on a pretty regular basis by KLM, by Finnair, by Alaska Air, by Thomson airlines. Solazyme signed a deal with United, and they'll start producing 20 million gallons a year starting in 2014 for United. So, as the market develops, we think that the price of fuel is going to come down pretty dramatically.
SECRETARY VILSACK: Ray, if I can add to that. The commercial aviation industry is a 12-to-13-billion-gallon industry. This biofuel industry is that there are roughly 40 airports in the country; that if we get to the point that we can develop adequate supply, the supply chain logistics are a lot easier than, say, with automobile and truck traffic. So this is an enormous opportunity for us, and obviously, we are doing a lot at USDA to try to identify the most efficient feedstock and the most efficient way to produce these fuels and working with the industry.
So there will obviously be costs at the outset, but the enormity of opportunity of being able to give our commercial aviation industry and our military the capacity to rely on domestically-produced fuel that's not subject to the whims of countries that don't necessarily like us and creating jobs, I think really you need to factor all of that into consideration as you look at the cost-benefit analysis to this effort.
QUESTIONER (Wired Magazine): I'm sorry. A quick follow-up. I know that the Navy had only certified oil from algae and camelina. Now that you're doing this waste-grease-based fuel, do you need to back and recertify all the jets and whatnot on that?
SECRETARY MABUS: No. We certify it on biofuel, and we certify it based on a chemical composition, and the chemical composition of Dynamic in these fuels meet all our requirements.
And I did misspeak. It's not divided, Dynamic doing ships and Solazyme doing air. It's all blended together. So they'll both be doing both, the shipboard portion and the aircraft portion.
MODERATOR: All right. We continue with callers on the line. Amy Harder with the National Journal.
QUESTIONER (National Journal): As you know, the ethanol tax credits are expiring at the end of this year, and I just wanted to ask you, broadly, what do you think Congress needs to do in order to help establish this market more. Do you think Congress needs to renew those subsidies? Are there other types of tax credits that you think Congress could pass that would help establish the market?
SECRETARY VILSACK: I think it's really important for Congress to continue to do two things: one, to have confidence that the Renewable Fuel Standard will work to provide a greater energy security in the future for the country; and two, making sure that there are sufficient resources being made available to the USDA in its regular ordinary programs. To the extent that we're doing a virtual research center, to the extent that ARS is engaged, to the extent the Forest Service is involved in research, to the extent that we can give out grants to universities to work collaboratively to help produce these fuels and more efficient ways to produce, those are regular programming resources that we hope we can continue, notwithstanding the fiscal difficulties that USDA and the Federal Government faces.
I do think it's important also that we continue to have some degree of assistance in the Biomass Crop Assistance Program, which will encourage farmers to produce the feedstocks that the military and the commercial aviation industry will rely on.
I'm not certain that we necessarily need to have a continuation of the tax credits that you've alluded to. I think it would be helpful if we had flexibility within our existing programs, not new programs within our existing programs, to make sure that we can continue to do the research to create the supply chain and supply necessary, both in terms of aviation and in terms of transportation fuels.
MODERATOR: Next on the line, we have Phil Brasher with Gannett.
QUESTIONER (Gannett): Yes. Secretary Mabus, could you give a perspective here of fuel consumption of a carrier strike group and of your Hornets and Super Hornets, because they use a lot of fuel obviously, in this perspective on how much this 450,000 gallons is going to -- how far it's going to take you?
SECRETARY MABUS: Well, as you pointed out, we use a lot of fuel, but our carrier, as you know, is nuclear-powered, so it will be the surface ships around the carrier. It will be the aircraft coming off the carrier that will be using this, and what it will allow us to do, the amount, 450,000 gallons, will allow us to at the RIMPAC exercise, Rim of the Pacific Exercise next summer off Hawaii, it will allow us to demonstrate that during that exercise. It will allow us to use the strike group on biofuels during RIMPAC to show that this is a very viable concept, and what we're aiming toward overall is in 2016, is deploying a carrier strike group on a normal multi-month deployment using 50-percent biofuels for the surface ships and the aircraft.
MODERATOR: Up next on the line, we have Bill Eby with Agri-Pulse. Bill.
QUESTIONER (Agri-Pulse): Gentlemen, thank you for taking our questions this morning. Secretary Vilsack, given this event and the amounts that obviously promotes the potential for biofuels, but there's also a lot of vulnerability for the programs that would enhance these industries, you mentioned BCAP, but loan guarantees obviously are the targets of a lot of budget cutters up on Capitol Hill.
Jim Lane of Biofuels Digest just reported this morning that Range Fuels or at least the lead creditor is getting ready to auction off their facility down in Soperton, Georgia. What impact do you think these events will have? This event in Georgia with Range Fuels, what impact will this have on basically programs going forward in the eyes of Congress where the programs are already somewhat vulnerable under the budget-cutting process?
SECRETARY VILSACK: Well, you know, there are over 300 facilities that are producing ethanol and biodiesel in the country today, and obviously, there are going to be circumstances with new technologies that may not work. That's part of research and development. That's part of helping an industry get off the ground.
I don't think we want to get to the point where we're totally risk averse here, because that's how this country was built. This country was built on risk takers, not those who avoid risk. Obviously, you have to be reasonable about it, and I think over the course of time, we have been.
Our budget was just approved by Congress, and while we have been faced with a reduction of roughly 12 to 13 percent over the last 6 months, between the 2011 Continuing Resolution and the 2012 budget that was passed, our programs for the most part are still pretty much intact, some slight reductions but not any that would make it more difficult for us to continue the work that we are currently looking at. We still have resources under the 2008 Farm Bill to do additional biorefinery assistance programs. We're looking at some announcements very shortly. There is still a commitment to Biomass Crop Assistance Program, certainly not at the level that we saw in the past. We'll have to deal with the consequences of that, and hopefully, we can make a better case to Congress in the future about the need for continuation of that. Our research budgets were pretty much maintained in good shape, so we'll be able to continue to do the collaborative work on research.
So I think on the whole, given the difficulties that we face, we're still in a good position to be of assistance to this industry, and we have, as I said before, this unique relationship with the Department of Navy and the Department of Energy, which we think over the course of the next year or so, you're going to begin to see a significant interest in and hopefully additional biorefineries, additional assistance, and additional marketing opportunities for this fuel.
And you certainly have a commercial aviation industry that is very interested in drop-in fuel for a multitude of reasons, not the least of which is that they are anxious to comply with international carbon standards that this fuel will help comply, allow them to comply, and they are also interested in a more stably-priced product produced in the United States, creating jobs here.
So, you know, we will get around the difficulties from a fiscal standpoint, so long as we continue to have announcements like the one that Secretary Mabus is making today, which is an indication that there is a market, there is a desire, and there is a need, and it's important.
SECRETARY MABUS: If I could throw in a couple of points here, one is that Department of Agriculture, Department of Energy, and Department of Navy put out a Request for Information in August, and we received the answers at the end of September about what sorts of biofuels were available, about what sorts of products and facilities that we could look forward to, and we got more than a hundred responses to that. More than a hundred different entities responded to this request for information. As Secretary Vilsack said, there is a lot of activity going on out there.
Second, I want to underscore another thing Secretary Vilsack said, and that is that none of these Departments is asking for additional money. We're asking that we be allowed to use the money that we use in the normal course of business for this sort of research, this sort of development, and this sort of early projects. As I said, the thing the Navy brings is a market. We have a big appetite for fuel, and we can bring a fairly big market for biofuels, as can the commercial aircraft industry and other industries that are actively looking at it today.
MODERATOR: Well, we've run out of time. We want to thank both of our panelists, Secretary of Agriculture Tom Vilsack and Secretary of the Navy Ray Mabus, and thank you all for calling.
SECRETARY MABUS: Thank you very much.
MODERATOR: Thank you. That completes today's media briefing.