Energy is an incredibly important necessity for Uncle Sam. Unfortunately, it also happens to be quite expensive. In 2011 the Department of Defense spent $20 billion on energy and consumed nearly 5 billion gallons of petroleum, according to Sharon Burke, assistant secretary of defense for operational energy plans and programs. Almost three-quarters of that consumption is tied up in the "training, moving, and sustaining military equipment and weapons."
The armed forces are well aware of their dependence on a single source of energy -- petroleum -- for smooth operations, but with so much equipment relying on dinosaur sauce, it would be a logistical nightmare to retrofit every engine to run on alternative fuels. That is precisely why next-generation drop-in fuels are so important.
A disruptive future
You may not be enthusiastic about the feasibility of industrial biotech, but many companies in the nascent industry are finally reaching commercial-scale production of products. The driving force in the disruptive future of the field is the ability of each technology platform to create products that touch multiple unrelated industries such as food, cosmetics, flavors and fragrances, chemicals, and fuels. Thus, it's unfair to associate any of the following companies solely with fuels. The Pentagon is certainly eyeing the potential, however.
Renewable-oils manufacturer Solazyme (NASDAQ: SZYM ) began supplying the U.S. Navy with Naval marine diesel and Naval jet fuel in 2010. In all, the company delivered nearly 1 million liters of fuel under various contracts between 2009 and 2012. The company took a lot of heat for the $15-per-gallon price tag for the contract -- nearly four times the price of conventional jet fuel at the time -- but critics seemed to have dismissed the fact that those selling prices included costs for new equipment and non-commercial scale inefficiencies.
The company will have 120,000 metric tons of renewable oil capacity as soon as the beginning of 2015, which will go a long way toward greening supply chains of the global chemical markets. Successful commercial performance should also turn heads at the Pentagon. Would it make sense for the DoD to subsidize a Solazyme biorefinery for the sole use of fuels?
Mountains to move
The amount of renewable fuels needed to make a sizable dent in Uncle Sam's fuel requirements is enormous. Consider that a Solazyme biorefinery with a capacity of 100,000 metric tons would be able to produce about 33 million gallons of jet fuel each year. I imagine a dedicated fuel facility -- if constructed -- would be much larger to improve the economics.
Nonetheless, skeptics would probably criticize low annual production figures, even though a built-for-purpose facility could have process scheduling and cost advantages. To put it bluntly, the Pentagon would need 153 such facilities and tens of billions of dollars to completely replace its fuel consumption with the technology. Rather than file the problem away in the "too hard" category, I suggest we get started today. What do we have to lose?
Think the days of $100 oil are gone? The Pentagon is preparing for just such a scenario. In fact, the market is heading in that direction now. But for investors that are positioned to profit from the return of $100 oil, it can't come soon enough. To help investors get rich off of rising oil prices, our top analysts prepared a free report that reveals three stocks that are bound to soar as oil prices climb higher. To discover the identities of these stocks instantly, access your free report by clicking here now.