Defense logistics agency issue - KMI Media Group

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As a primary level field activity of the Defense Logistics Agency, DLA Energy is the agency’s fuel supplier, providing the Department of Defense and other government agencies with comprehensive energy solutions in the most effective and efficient manner possible. DLA Energy provides a host of ground, marine and aviation fuels as well as space and missile propellants, chemicals and gases, utility fuels and electricity. In addition, DLA Energy is the DoD’s center of expertise for alternative fuels and renewable energy and serves as the executive agent for DoD’s bulk petroleum supply chain. DLA Energy bought the equivalent of approximately 144 million barrels of fuel, energy and power, worth about $20 billion in the last fiscal year. That total included petroleum products for aircraft and ships; diesel fuel and gasoline for vehicles; heating oil, natural gas, coal and electricity for installations; aerospace fuels and products for the National Aeronautics and Space Administration (NASA), DoD, and the commercial space launch programs; and small quantities of alternative fuels for the military services’ testing and certification programs. Although the military services are occasionally granted local purchase authority to buy fuels in unique circumstances, DLA Energy buys more than 99 percent of fuels used by the U.S. military. “By purchasing our customer’s requirements in aggregate we get buying power,” explained Director of Supplier Operations Mark Iden. “Rather than having each military service buy its own fuel requirements independently with its own acquisition office and service-specific contracting methods, we provide the overall DoD purchasing leverage, do it in a consistent manner, and generally issue solicitations for our recurring buys on set schedules that industry has grown accustomed to over the years.” Iden noted that “for the bulk petroleum products, we generally buy the products from the producers and manage the supply chain end to end.” DLA Energy does not own the assets that distribute these petroleum products throughout the supply chain. DLA Energy arranges transportation via U.S. Transportation Command activities, the Military Sealift Command and the Military Surface Deployment and Distribution Command. But DLA Energy is responsible for ensuring the on-time delivery of these products to their end-use customers. Iden also noted that DLA Energy owns the bulk fuel products generally up to the point of sale to their customer, which typically takes place at the wing of the aircraft or into the piece of equipment being refueled. 14 | MLF 6.5 fueL By the BiLLions of gaLLons. By henry canaday mLf correspondent Tied in with this fuel-ownership role is DLA Energy’s responsibility to fund the sustainment, restoration and modernization requirements for the military services’ fuel storage and distribution systems that contain this DLA-owned fuel. For bulk purchases of conventional fuels like JP8 aviation turbine fuel, JP5 naval aviation turbine fuel and F76 ship propulsion fuel, DLA Energy obtains requirements from their customers and then puts out a request for proposal, explained Research and Development Strategic Energy Analyst Jeanne Binder. “Our bulk petroleum business unit then receives the bids and evaluates them, seeking the lowest total cost to the government,” Binder said. Then an indefinite delivery/indefinite quantity award is made for a one-year delivery period, with an estimated quantity and a guaranteed lift of 75 percent of this volume. The initial price is adjusted weekly or even daily based on changes in commercial fuel indexes. Other purchases of conventional fuels, for example of the diesel fuel, gasoline or heating oil handled by DLA Energy’s Direct Delivery Fuels business unit, are conducted in a similar fashion, except that these can result in multi-year requirements contracts with up to five-year delivery periods. All RFPs are posted on the Federal Business Opportunities website. The vast majority of purchases, for both bulk petroleum products and for the direct delivery products, are competitive, and all acquisitions comply with both Federal Acquisition Regulations and Defense Federal Acquisition Regulation Supplement, noted Iden. DLA Energy bulk fuel purchases are also subject to small business set-aside rules. DLA Energy is currently working with the Small Business Administration to consider an increase in the size definition of small refineries. “Over the years, the number of small refineries has diminished as these refineries have been bought out or have merged or consolidated with other firms, thereby losing their current small business status,” Iden explained. “A revised small refinery size determination could help us increase the number of potential small business participants in our key bulk petroleum acquisition programs.” DLA Energy is also actively engaged with the military services in support of their current efforts to test and certify a number of new alternative fuels. Binder said the major difference for purchases of the new brand of alternative fuels is that these are generally for a small quantity specifically requested by the military services for testing and certification purposes. The quantities requested range from a couple www.MLF-kmi.com
hundred to a couple hundred thousand gallons, compared with more than 4 billion gallons for the bulk fuel purchase programs. However, the one-time buys of alternative fuels are still competitively bid on by several alternative fuel suppliers. Iden said DLA Energy plans to stick with its basic fuel procurement processes as the alternative fuel program matures into larger acquisition volumes. “It is tried and true, industry is comfortable with it, and they know when the RFPs for our recurring acquisition programs will come out.” However, one possible change in DLA Energy’s bulk petroleum acquisition programs is a shift toward more commercialspecification type fuels. “Instead of military specification JP8, we may see a move to the Jet A commercial specification fuel used by the airlines,” Iden noted. “We are in the beginning phases of this conversion. It is not fully approved, but we are beginning the necessary steps in that direction. Using a commercial specification fuel may make it easier for refiners to supply us and may broaden our potential supplier base.” All alternative fuels approved as a replacement for military specification fuel for military use will be drop-ins, and will be blended with conventional fuels, thus having the same performance characteristics as the straight conventional fuels. So far, the Air Force has an updated military specification for JP8 blended with coal, natural gas or biomass converted to liquid by the Fischer–Tropsch (FT) process, Binder noted. Original prices for purchases of the FT product ranged from $4 to $7 per gallon. The Navy and Army are working on their FT certification, and the services are also testing hydrotreated renewable fuels, with completion expected next year. “They are also starting on sugar to hydrocarbons,” Binder noted. For operational buys, in contrast to testing and certification, the price of alternative fuels will also be important. “Prices are going down,” Binder observed. For the latest purchase of 350,000 gallons of biofuel l for the Navy, the price was $26 per gallon. “When we started purchasing biofuels three years ago, the price was in the mid-$60 per gallon range,” Iden said. “Recently, we have seen the price drop by a factor of two or three for our more recent contracts.” The next step in gaining economy of scale for alternative fuels will come with larger purchases in the range of millions of gallons. “It’s a chicken-and-egg thing,” Iden said. “You must have volumes to lower cost. But to ramp up to the larger volumes, it will take time for the costs to come down.” DLA Energy’s purchases of alternative fuels will be set by customer requirements. The Navy has set a goal of 50 percent of its fuel coming from blends of alternative fuels by 2020, and the Air Force wants the same portion for its domestic fuels by 2016. DLA Energy has calculated that these goals translate into 387 million gallons of alternatives blended into JP8 and 336 million gallons blended into JP5 and F76. Iden emphasized that these are still just goals and objectives. “The assumption is alternatives will be competitive in price with conventional fuels by time we buy them for operational requirements.” Private companies play a very important role in getting fuel to DLA Energy and to the field where these fuels are needed. For example, the Supreme Group supplies primarily jet fuel to DLA, according to John Segleski, managing director for fuels. Volumes vary month by month, but are typically between 4 to 10 million gallons each month. Segleski said Supreme delivers this fuel to a range of locations across Afghanistan. “Supreme has been operating in challenging environments for more than 50 years, and has been providing services in Afghanistan for over 10 years,” Segleski stressed. “Supreme made a commercial decision to establish regional distribution centers to facilitate improvements in supply chain performance and has developed excellent infrastructure and storage facilities close to point of consumption on military bases, thereby reducing risk and enhancing service to the warfighter.” The company operates a robust supply chain, with multiple sources, multiple suppliers, multiple entry points and multiple local partners. “Supreme has the capability to move large volumes in what is a long, 90-day, supply chain.” Solazyme is working with DLA Energy and the U.S. Navy in fuel certification for the scale-up in renewable oil technology, said Bob Ames, vice president of Fuels Commercialization. To date, Solazyme has delivered what it believes to be the largest quantities of microbially-derived advanced biofuels in history, including over 600,000 liters of in-specification jet fuel and marine diesel to the Navy. “Since 2008, we have had several contracts with DLA Energy to deliver to the Navy increasingly larger quantities of algae-derived fuels,” Ames said. In 2009, Solazyme contracted with DLA Energy to provide over 80,000 liters of algae-derived renewable F76 marine diesel fuel to the Navy. A second 2009 contract was for production of algae-derived renewable JP5 naval jet fuel. In 2010, Solazyme entered into a third contract to produce up to 566,000 liters of renewable F76 fuel. The Navy funded the contract option for purchase of 283,000 liters, which the company anticipates producing through the second half of 2012. “We believe that our performance of this third contract progresses the completion of the technical testing and certification program for our algae-derived fuel,” Ames said. Solazyme’s algae-derived fuels have been successfully tested in multiple Navy vessels. Its algae-derived jet fuel was tested successfully in May 2011 in a MH-60S Seahawk helicopter test flight using the fuel in a 50 percent blend with petroleum-derived jet fuel. This Seahawk flight was the first-ever military aircraft to fly on an algae-based jet fuel. The Navy also tested Solazyme’s marine distillate fuel in a destroyer over a 20-hour voyage up the California coastline. A biofuel speed record was set by the Navy when testing Solazyme fuel in a landing craft utility vehicle. The Navy has also supplied Solazyme’s algae-derived diesel to Maersk Shipping Line, which tested the fuel in a 300-meter Maersk Kalmar container vessel over a one-month, 6,500-nautical mile voyage. Solazyme fuel was also successfully tested in a Navy frigate, USS Ford. Solazyme agreed in December 2011 to supply 10 percent of the total feedstock required under a Navy contract for 100,000 gallons of renewable jet fuel and 350,000 gallons of renewable marine diesel. This new contract will be fulfilled by Solazyme in conjunction with Dynamic Fuels and represents the single largest purchase of biofuel in government history. The fuel will be used as part of the Navy’s efforts to develop a Green Strike Group composed of vessels and ships powered by advanced biofuel. The company is now taking steps toward supplying commercial quantities of tactical fuels, renewable JP5 and F76 to DLA and the Navy for operational use. Ames said fuels refined from Solazyme’s oil offer superior environmental benefits when compared to a majority of other biofuels. Life cycle greenhouse-gas emissions are reduced by a minimum of 66 percent when used for road transportation, as determined by Life Cycle Associates, an independent carbon intensity measurement firm. O For more information, contact Editor-in-Chief Jeff McKaughan at jeffm@kmimediagroup.com or search our online archives for related stories at www.mlf-kmi.com. www.MLF-kmi.com MLF 6.5 | 15
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