One of the most remarkable changes over the last five years has been the military's 'awakening' on energy issues. Before the Iraq War, the Pentagon just 'assumed' energy was always available when it war-gamed conflicts. But we now know that availability of energy – especially liquid fuels – is critical for our ability to fight and win our wars.
The US Department of Defense is the largest user of petroleum in the world. In fiscal year 2011, it used 117 million barrels of oil – almost 5 billion gallons of petroleum products in one year. This amounts to about 2 percent of the total usage of the country. This all came at a cost of $17.3 billion in 2011. This adds up to about 80 percent of the government's total energy consumption.
Napoleon used to say that an army marches on its stomach. Our military today fights based on a sea of oil. During World War II, our Army used about one gallon of fuel per day, per soldier. We now use an average of 20 gallons per day, per soldier when deployed in Afghanistan.
For strategic and budgetary reasons, the military has identified this dependence on oil – a single point of failure – as a threat to national security. The Air Force and (especially) the Navy have embarked on a program to address this threat. Put together, the potential market for Air Force and Navy biofuels is expected to be about 700 million gallons per year by 2020. For an industry that is only just beginning to commercially produce fuel now, that will require significant investment. But it also should give investors some certainty that there will be a buyer for these fuels, so long as they are available. Once capital is made available for commercial-scale plants, this sector can grow very quickly.
On Wednesday, the Senate passed an amendment to the 2013 Defense Authorization bill that would restore the military's ability to buy biofuels. A previous amendment by Sen. James Inhofe (R) of Oklahoma, inserted earlier this year in the committee markup, would have prohibited biofuels purchases, unless they were cheaper than petroleum fuels. Sixty two senators voted in favor of the amendment, and restored the Department of Defense's ability to choose how it fuels and equips its forces.
The military has a long tradition of incubating and stimulating new industries, ranging from steel to the Internet, microchips to nuclear power. The advanced, drop-in biofuel industry could be the next industry that is stimulated by the military's vast buying power.
– This article is a modified version of a story in Energy Trends Insider, a free subscriber-only newsletter that identifies and analyzes financial trends in the energy sector. It's published by Consumer Energy Report.