Commercial Aviation: The Quest for Commercial Aviation: The Quest for Sustainable and Affordable Alternative Jet Sustainable and Affordable Alternative Jet

FuelFuelJohn P. HeimlichJohn P. Heimlich

VP and Chief EconomistVP and Chief EconomistDOT Future of Aviation Advisory Committee MeetingDOT Future of Aviation Advisory Committee Meeting

August 25, 2010August 25, 2010

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Average U.S. Price per Gallon of Jet FuelAverage U.S. Price per Gallon of Jet FuelAirline Energy Costs Are High and Poised to RiseAirline Energy Costs Are High and Poised to Rise

Source: Energy Information Administration

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Airlines Have Opportunity to Reinvent Supply Airlines Have Opportunity to Reinvent Supply Chain, Alleviate Dependence on Traditional Chain, Alleviate Dependence on Traditional

Refining EconomicsRefining Economics

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19.6

Propane|Butane|Propylene|Butylene

Kerosene | Jet Fuel

Heating Oil andDiesel Fuel

FinishedMotor Gasoline

(including Naphtha*)

* Feedstock for high-octane gasoline, petrochemicals and solvents

Lubricants|Wax|Asphalt|Tar|Fuel OilsPetroleum Coke and

Other

Light (52%)Distillates

26%

Heavy (13%)Distillates**

11.7

4.1

2.53.3

3.5G

allo

ns t

otal

44.

7 du

e to

“p

roce

ssin

g ga

in”

Sources: EIA and American Petroleum Institute** Includes heavy oils and residuum used in industry, marine transportation and electric-power generation

9%

Middle (35%)Distillates

8%

44%

7%6%

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Quest for Alternative Fuels Aligns with FAAC Focus Quest for Alternative Fuels Aligns with FAAC Focus on Enhancing Industry on Enhancing Industry

Viability/Competitiveness/WorkforceViability/Competitiveness/Workforce

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• Average fuel expense hit 36% of U.S. passenger airline costs in 3Q08; every penny-per-gallon means $175M-200M/year

• A petroleum-dependent aviation industry is susceptible to price shocks, supply disruptions, carbon constraints, etc.

• Alternative fuels can reduce CO2 and other polluting emissions (e.g., sulfur, particulate matter)

• “Drop-in” fuels mean no changes to airplanes/airports/pipelines

• Alternative fuels support green jobs – economic development

• U.S transportation/agriculture/energy policies are key enablers

Economic and environmental aspirations aligned with FAAC mission

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How Can Airlines Derive CO2 Emissions Benefit?How Can Airlines Derive CO2 Emissions Benefit?

CO2 “life cycle” analysis for jet fuel includes:• Feedstock generation (e.g., crude oil versus crops)• Transportation of feedstocks for processing• Processing of feedstocks into jet fuel• Distribution/transportation of jet fuel to airports• Combustion of jet fuel in the aircraft

Opportunities for benefit with alternatives:• Using plants (biomass) as feedstock sequesters carbon

in a loop, whereas fossil fuel releases carbon sequestered long ago

• New methods could be used to reduce or sequester emissions when being transported and/or processed

• Higher energy density could yield CO2 decreases upon combustion

Improvements Across the “Life Cycle” of Improvements Across the “Life Cycle” of the Fuelthe Fuel

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Partnerships and ProgressPartnerships and Progress

• Airlines/airports/manufacturers/FAA co-founded CAAFI in 2006; includes universities, think tanks, government labs, energy start-ups and major oil companies, bankers, etc.

• Collaboration between CAAFI and DOD/DOE/EPA/USDA

• Secured passage of ASTM D7566 for synthetic fuels; working to ensure approvals of HRJ and other pathways

• CAAFI received Joseph S. Murphy Industry Service Award from Air Transport World in Jan. 2010 for efforts to pave the way for use of sustainable biofuels in aviation

• Forging deeper ties with state and local economic development authorities to facilitate projects, along with Sustainable Aviation Fuels Northwest and others

The Commercial Aviation Alternative Fuels The Commercial Aviation Alternative Fuels Initiative (CAAFI)Initiative (CAAFI)

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Commercial & Military Aviation in Strategic Commercial & Military Aviation in Strategic AllianceAllianceDOD Ability to Contribute to Accelerated DOD Ability to Contribute to Accelerated

Deployment ConstrainedDeployment Constrained• ATA/DLA formed strategic

alliance “to explore cooperative market engagement for fuel, improve the financial prospects for alternative fuels infrastructure, accelerate fuel certification and refine methodology for determining environmental impacts”

• Jointly advertise requirements to supply airports/USAF/USNA with competitively priced, environmentally preferred, reliably delivered, operationally secure jet fuel

• DOD contracting authority limited to 5 years; seeking up to 20 years (supported by ATA)

• DLA and PACOM partnering with ATA, Boeing, FAA and USDA in “Farm to Fly”

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Commercial Off-Take Agreements Key to ProgressCommercial Off-Take Agreements Key to ProgressATA/CAAFI Key Facilitators of Airline-Supplier ATA/CAAFI Key Facilitators of Airline-Supplier

DiscussionsDiscussionsATA has facilitated one ground-fuel contract and two jet-fuel MOUsAug. 2009 – 8 U.S. airlines signed 5-year contract with Rentech and ASIG for renewable synthetic diesel from urban woody waste for 2012 use in LAX GSE Dec. 2009 – 15 airlines from the U.S., Canada, Mexico and Germany announced MOUs with two suppliers supporting two refining processes• Rentech: Fischer-Tropsch jet fuel (250m gal/year) using coal or

petroleum coke and biomass, with CO2 sequestration, at a plant in Natchez, Mississippi

• AltAir Fuels: HRJ fuel (50m gal/year) and diesel (20m gal/year) using camelina or other non-food crops (e.g., algae, jatropha) at a West Coast refinery by 2013

July 2010 – United Airlines signed MOU with Gevo for future supply of biobutanol for flights at Chicago O’Hare; other airlines evaluating this project and others

Aug. 2010 –Discussions ongoing with AltAir, Amyris, BioPure Fuels, Byogy, Gevo, JetE, LS9, NextStep Energy, Rentech, Sapphire, Sasol, Solazyme, Solena, others

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Key Challenges Remain to DeploymentKey Challenges Remain to Deployment

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Price Stability and Affordability• Getting facilities built and crops grown is important, but price

of resultant fuel (largely derived from cost of feedstock) must be competitive with market price of jet fuel; multiyear financial incentives (e.g., tax credits) critical to enable airline/supplier off-take agreements

Certification• Hydrotreated renewable jet (HRJ) not yet approved by ASTM

(est. 1Q11); additional pathways (e.g., hydrolysis/fermentation, lignocellulosic bioconversion, pyrolysis/liquefaction) promising large, environmentally beneficial volumes could take years (and $) to approve

Feedstock Readiness• Industry working with USDA to enhance commercial quantities

of sustainable, cost-competitive, flight-ready aviation biofuels

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Key Challenges Remain (Cont’d)Key Challenges Remain (Cont’d)

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Crediting of Environmental Benefit• Airlines typically commingle the fuel they purchase in

common-carrier multiproduct pipelines and airport fuel-storage facilities, such that the purchasing airline might not actually fly with the exact fuel it purchases

• Uncertainty as to whether regulatory structure will accord credit to airline that purchases the more environmentally beneficial fuel

Compatibility of International and Domestic Acceptance Criteria

• Lack of consistent/compatible environmental criteria worldwide for alternative fuels in international aviation could impede deployment

• Applies not only to compatibility with other countries, but also within the United States (e.g., emerging state programs for low-carbon fuel)

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Alternative Energy Is Inevitable,Alternative Energy Is Inevitable,But Aviation Must But Aviation Must NotNot Be Left Behind Be Left Behind

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“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.”

— Sheikh Zaki Yamani, former oil minister of Saudi Arabia, Oct. 23, 2003

“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.”

— Sheikh Zaki Yamani, former oil minister of Saudi Arabia, Oct. 23, 2003

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When America Flies, It WorksWhen America Flies, It Works