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Hopkins_CSI_mobility fuel

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Hopkins_CSI_mobility fuel

  1. 1. C i v i l S o c i e t y I n s t i t u t e : I n t e r n a l R e p o r t Lyle Hopkins The Challenge of Reducing Department of Defense Mobility Fuel Use
  2. 2. II Lyle Hopkins Abstract The Department of Defense (DoD) is the single largest energy consumer on the planet and uses roughly the same amount of oil per day as the nation of Greece (Warner and Singer 2). This voracious energy use is the culmination of five decades worth of weapons systems development that assumed oil supplies where effectively infinite and fuel prices would always be cheap. Global growth changed that equation as burgeoning demand for oil surpassed the world’s ability to find, extract, and refine it over the last twenty years. Global price increases led to a 500% increase in fuel costs to the DoD from the years 2000 to 2008 (Andrews 17). DoD leadership confronted a total fuel bill of close to 18 billion dollars in 2008 (Andrews 2). That represents a one year total that would pay for over 68% of the entire Air Force fleet of 187 F-22 Raptor aircraft at 140 million dollars apiece. The situation is likely to worsen over time, as projections for future oil prices continue to escalate in all but the most optimistic scenarios. This project found that the DoD acquisition process used to develop new systems offers the most potential for reducing fuel demand in the DoD. The current process does not include energy efficiency as a key requirement during the design stage and leads to the creation of grossly inefficient systems. This project recommends the DoD: 1. Make energy efficiency a non-waiverable part of the acquisition design process. 2. Task each service branch to develop energy use baselines for their systems. 3. Add energy efficiency to the acquisition training and professional development curriculum. 4. Establish an energy efficiency center of excellence at a current acquisition base to facilitate best practices and lessons learned.
  3. 3. III Lyle Hopkins Definition of Terms Acquisitions: The process of developing a new system ranging from a tank to computer software. It ranges from plans on the initial drawing board, prototyping, to testing, and then fielding a fully operation system. This term is sometimes used interchangeably with procurement. For this project the word acquisition means the process of developing a system. Procurement will be used when an item is purchased off the open market. Biomemitic: Emulating a shape or attribute found in nature to design a feature with comparable qualities in a human built system. Commercial-off-the-Shelf-Items (COTS): A defense term used for any civilian system that can be bought directly and integrated into an acquisition project or used on its own with no modification. Commodity price: The market price for a barrel or gallon of oil. Does not include any additional refining costs or the fully burdened cost of fuel. Fully Burdened Cost of Fuel (FBCF): The actual price of petroleum fuel used by the Department of Defense once all associated costs such as transportation, security, storage, and other operational cost are included beyond the commodity price. JP-5/JP-8: High octane military jet fuel grades. Milestone: One of the decision points within a defense acquisition system. Typically requires senior executive review and copious documentation requirements. Mobility System: Any non-fixed or non-installation based defense system such as a tank, jet, etc.
  4. 4. IV Lyle Hopkins Table of Contents INTRODUCTION 1 ENERGY USE AT THE DOD 2 REASONS FOR DOD ENERGY DEMAND GROWTH 4 IMPACTS OF UNCONTROLLED ENERGY DEMAND 5 THE DOD’S INITIAL STEPS AT CORRECTION 7 THE ACQUISITION PROCESS AND THE LACK OF ENERGY EFFICIENCY AS A DESIGN REQUIREMENT 7 BACKGROUND 10 GLOBAL ENERGY TRENDS 10 THE DOD, ITS ENERGY USE, AND COSTS 13 DESC THE DOD ENERGY SUPPLIER 17 DOD ENERGY USE FOR MOBILITY PLATFORMS 18 COSTS 19 THE ACQUISITION PROCESS 23 METHODS 27 UNDERLYING ASSUMPTIONS 28 COST PROJECTION ASSUMPTIONS 28 GENERAL PROJECT ASSUMPTIONS 30 METHODOLOGY 30 FORMULAS USED AND RATIONAL BEHIND COST DATA USED 32 LITERATURE SEARCH METHODOLOGY 33
  5. 5. V Lyle Hopkins LITERATURE ANALYSIS METHODOLOGY 35 RESEARCH, DATA, AND RESULTS 36 RESEARCH 36 THE FULLY BURDENED COST OF FUEL 38 CHANGING BEHAVIORS AND OPERATIONAL PRACTICES 40 INTRODUCING RADICALLY NEW TECHNOLOGIES 41 CHANGING THE ACQUISITION PROCESS 43 OTHER UNCATEGORIZED THEMES 44 DATA 46 EIA OIL COST PROJECTIONS 46 DESC OIL COST AND CONSUMPTION DATA 48 RESULTS 50 COMPONENTS OF THE COST PROJECTIONS 51 COST PROJECTIONS IN THE LOW EIA PRICE SCENARIO 52 COST PROJECTION IN THE EIA MID-PRICE SCENARIO 53 COST PROJECTION IN THE EIA HIGH OIL PRICE SCENARIO 55 CONCLUSIONS, DISCUSSION, AND RECOMMENDATIONS 57 CONCLUSIONS AND DISCUSSION OF THE MODELS’ COST PROJECTIONS 57 LITERATURE REVIEW CONCLUSIONS AND DISCUSSION 64 RECOMMENDATIONS 75 RECOMMENDATION 1: MAKE ENERGY EFFICIENCY A NON-WAIVERABLE KEY PERFORMANCE PARAMETER 76
  6. 6. VI Lyle Hopkins RECOMMENDATION 2: CREATE ENERGY BASELINE PROFILES FOR COMMON SYSTEM CATEGORIES FOR USE AS COMPARISON POINTS IN NEW SYSTEM DESIGN 77 RECOMMENDATION 3: ADD ENERGY EFFICIENCY AND SUSTAINABILITY THEORY TO THE ACQUISITION WORKFORCE CURRICULUM 79 RECOMMENDATION 4: CREATE SYNERGY BETWEEN ACADEMIA AND THE ACQUISITION WORKFORCE BY ESTABLISHING AN ACQUISITION CENTER OF EXCELLENCE FOR ENERGY EFFICIENCY 81 FINAL THOUGHTS 82 BIBLIOGRAPHY 83
  7. 7. VII Lyle Hopkins List of Figures Figure 1: Energy Consumption by source, 1635-2000 (U.S. Energy Information Administration XX) ................................................................................................. 11 Figure 2: World Marketed Energy Consumption in Quadrillions of BTUs (U.S. Energy Information Administration 9) ................................................................................. 12 Figure 3: World Marketed Energy Consumption in three economic growth cases, quadrillion BTUs (U.S. Energy Information Administration 20)............................... 13 Figure 4: DoD Total Budget Comparison 2001 - 2011 (Comptroller, Under Secretary of Defense 1.1) .......................................................................................................... 14 Figure 5: Budget Authority for National Defense, FY 1948 - 2009 (Sharp 1)................. 15 Figure 6: Global Distribution of Military Expenditures in 2009 (Shah 1) ........................ 16 Figure 7: Mobility Fuel Use by Service branch (Crowley, Corrie and Diamond A-1) ..... 18 Figure 8: Average Cost of DESC Petroleum Products (Andrews 3)(DESC Factbooks 1997-2007)............................................................................................................. 21 Figure 9: Annual Consumption and Costs for DoD Energy Use (Crowley, Corrie and Diamond G-4) (Under Secretary of Defense)......................................................... 21 Figure 10: World Oil Prices in 3 cases, 1980-2035. 2008 dollars per barrel. (U.S. Energy Information Administration 26) ............................................................................... 22 Figure 11: Projected World Oil Prices to 2035 (U.S. Energy Information Administration 26).......................................................................................................................... 47 Figure 12: DoD Fuel Use Cost Projections Using EIA Low Price Scenario ................... 53 Figure 13: DoD fuel cost projections in the EIA reference scenario to 2035 ................. 54 Figure 14: DoD Fuel cost projections in the EIA high use scenario to 2035.................. 56
  8. 8. VIII Lyle Hopkins Figure 15: World Oil Prices from 1980 to 2007 (U.S. Energy Information Administration 26).......................................................................................................................... 59 Figure 16: Resupply Convoy Casualties 2003-2007 (Eady, Siegel and Steven 3) (Center for Army Lessons Learned).................................................................................... 60 Figure 17: Annual Consumption and Costs for DoD Energy Use (Crowley, Corrie and Diamond G-4) (Under Secretary of Defense)......................................................... 62 List of Tables Table 1: Near-term technologies under review by the DoD energy security task force (Government Accountability Office 9)..................................................................... 42 Table 2: Projected World Oil Prices (U.S. Energy Information Administration 26) ........ 47 Table 3: DESC Fuel Products and Costs (Andrews 2)(DESC Factbooks 1997-2007).. 49 Table 4: DoD Refining Margin Costs (Andrews 4)(DESC factbooks 2000-2008)(EIA).. 50 Table 5: Estimated DoD fuel use in three scenarios'..................................................... 51 Table 6: Refinement Mark-up Estimates ....................................................................... 51 Table 7: EIA Price Estimates Plus Estimated Refinery Mark-up Costs ......................... 52 Table 8: DoD Projected Oil Costs in the EIA low use scenario to 2035 (in Billions of Dollars)................................................................................................................... 53 Table 9: DoD Projected Fuel Costs In the Reference Scenario to 2035 (in billions of dollars) ................................................................................................................... 54 Table 10: DoD Projected Fuel Costs in the High Use Scenario to 2035 (in billions of dollars) ................................................................................................................... 55
  9. 9. IX Lyle Hopkins Table 11: Army peace and wartime annual oil use by category (in millions of gallons of oil)(Defense Science Board 44) ............................................................................. 68
  10. 10. 1 Lyle Hopkins Introduction Fossil fuels are an incredible gift that provided our civilization the means to exploit vast amounts of energy and create the man-made world we see around us. Unfortunately that gift is not free. The externalities that go with it such as environmental degradation and energy addiction create powerful incentives to find alternative means to power our society. Over the last 20 years there was considerable and growing focus on finding ways to reduce energy use in the corporate and civil spheres. Within the federal government there are also successful efforts to reduce energy consumption with the Department of Defense (DoD) leading the way. The DoD is the single largest user of fossil fuels within the federal government and the potential savings in total energy use and dollars is enormous (Warner and Singer 2). The DoD primarily focused on reducing energy use in its facilities and structures to date. However, DoD facilities only account for 34% of the energy used with the other 66% used by mobility systems (Crowley, Corrie and Diamond 2-4). A mobility system can be thought of as any non-fixed or non-permanent item like a tank, plane, or ship. Mobility systems represent a vast untapped area within the DoD that has not yet been explored for reduction. One of the primary reasons is that new defense systems are not designed with energy efficiency in mind during the acquisition process. Likewise, acquisition professionals are not trained to view it as important. Those two elements combine during the design process and help explain how the Army’s Abrams battle tank gets .6 miles to the gallon (Warner and Singer 2). The acquisition process itself is highly
  11. 11. 2 Lyle Hopkins complex, requires collaborative efforts from myriad fields, and is fraught with technical and cost risk due to the increasing technological complexity of the systems the U.S. fields. All of the new systems created by the acquisition community go through an established process and this process can be modified in order to reflect new realities within the DoD. The intent of this project is to demonstrate the need to include energy efficiency as an integral part of the design process for new systems and provide recommendations for how to do so. To demonstrate the need for change this project will conduct both a literature review and develop cost projections for future DoD oil prices to 2035. The conclusions from the literature review and the cost projections should provide a clear mandate for change. Energy use at the DoD The DoD has grown in size, scale, and influence over the last 50 years. That growth was literally fueled by a corresponding increase in fossil fuel consumption. During World War II each soldier consumed roughly 1 gallon of oil per day, which can be contrasted with 4 gallons in Operation Desert Storm and 9 gallons per day in 2005 (Crowley, Corrie and Diamond 2-6). The DoD used close to 135 million barrels of oil with a price tag of close to 18 billion dollars in 2008 alone (Andrews 2). As noted earlier, the DoD is already exploring how to limit energy consumption at its many facilities around the globe. The scale of the problem is vast as the 2009 DoD Base Structure Report listed 539,00 facilities spread across 5,570 sites throughout the world, which reveals how extensive the DoD facility network actually is (Installations & Environment, Under Secretary of Defense 2). Ongoing energy reduction efforts cut energy demand at
  12. 12. 3 Lyle Hopkins installations by 30% since 1985 and aim to reduce consumption by another 3% per year to 2015 (DoD Energy Security Task Force 5). Unfortunately the contrast between the successes of reducing installation demand and the extreme inefficiency of current mobility systems could not be more dramatic. This owes in large part to the fact that until the last decade oil has remained extremely cheap and relatively plentiful. The rapid escalations in the price of oil from roughly $34 per barrel in 2000 to $133 per barrel in 2008 changed the DoD’s operating environment completely (Andrews 3). The ongoing conflicts in Iraq and Afghanistan highlighted this changing paradigm. It exposed that military systems are currently designed with consumption demands that are so high as to potentially limit operational capability in anything other than optimal conditions. Or to put it more simply, the most advanced tank in the world does you little good when it uses so much fuel you cannot afford to use it or cannot keep it supplied. To help illustrate this point from 2004 to 2006 DoD fuel costs doubled from 5.9 billion to 13.6 billion dollars as a result of increasing petroleum fuel costs (Defense Science Board 13). Likewise if energy consumption is too high it is entirely possible to be unable to logistically ship in enough fuel to keep units combat effective. A perfect example of this is again the Abrams tank. It uses 12 gallons of fuel per hour simply idling and requires a vast logistical network to support its fuel needs (Komarow 1). In 2006 the DoD used 300,000 barrels of oil per day, and each of those barrels had to be shipped, guarded, and safely delivered to units around the globe (Defense Science Board 42). Fuel use is so great it accounts for 50% of all convoy shipments being sent into Iraq and Afghanistan according to a headquarters Department of the Army estimate from 2008
  13. 13. 4 Lyle Hopkins (Eady, Siegel and Steven 3). This begs the question, how did the DoD fall into this trap of extreme fuel dependency? Reasons for DoD Energy Demand Growth The demand for energy in the DoD has grown over time due to a number of factors. The first is the growth of the DoD itself as an organization. Its increase in physical size over time led to a corresponding increase in energy demand. This accounts for the growth of the four primary branches; the Army, Navy, Air Force, and Marine Corp, along with the Coast Guard. This also includes the growth of accounting, logistical, and administrative agencies that manage various parts of the DoD structure. These administrative groups pay employees, ship everything from beans to bullets around the world, and take care of other administrative tasks needed in a large complex organization. Likewise, the DoD’s command and control, acquisition, and development groups have their own energy demands. Additionally, massive structures like the Pentagon, which nominally acts as a control hub for the whole system of systems, has its own energy demands. The second aspect of energy demand growth in the DoD comes from the increased performance and complexity of the systems it fields. As an example an advanced jet fighter with the ability to go beyond the speed of sound uses a great deal more fuel than the bi-planes used in World War I. The third aspect is the growth in volume of these energy hungry systems. Obviously 30 jet fighters use a great deal more energy than one or two do. The fourth factor is the growth in mission scope for the DoD. It evolved over time to conduct operations from just within the continental U.S. and its littorals to now maintaining a global footprint. The global footprint and ability
  14. 14. 5 Lyle Hopkins to project power uses vast amounts of energy to keep the logistical supply chain flowing. These four aspects provide the underpinnings for why the DoD used over 800 trillion BTUs of energy in 2007 (Valentine 2). Impacts of uncontrolled energy demand The uncontrolled energy demand in the DoD creates many negative impacts to both the DoD as well as the larger world it exists in. Energy demand has grown so great that the physical price of the fuels consumed threatens to break the budget for the DoD. The 2008 DoD fuel bill reached almost 18 billion dollars and represented a 500% increase in price from the year 2000 (Andrews 2). The DoD’s fuel dependency also carries a human cost in addition to the problems related to oil’s physical price. Fuel convoys are regular targets for insurgent attacks in Iraq and Afghanistan. They often cost the lives of the soldiers guarding them as well as the contractors driving them. 130 drivers were killed in Pakistan in the 2009 time frame, and that was prior to actually entering the declared insurgent zones within Afghanistan (Tyson 1). The Army Center for Lessons Learned estimates that 10-12% of the total military casualties in Iraq and Afghanistan stem from convoy attacks (Eady, Siegel and Steven 9). The services responded by initiating various independent working groups to find energy savings in the field. The Army created a Rapid Equipping Force (REF) in 2003, and a Power Surety Task Force to rapidly implement energy efficiency programs for systems already in the field (Defense Science Board 45) (Government Accountability Office 11). The DoD also commissioned a series of reports from government groups like the Congressional Research Service, Defense Science Board, and an internal DoD energy security task force. These
  15. 15. 6 Lyle Hopkins government efforts were joined by think tank reports from the LMI Corporation, the Brookings Institute, and others. These working groups and their efforts will be discussed more fully in the literature review portion of this project. As a preview, a recurring theme occurs throughout the literature. If systems are designed initially to be more energy efficient it is usually far cheaper and easier than trying to jury-rig solutions for already developed systems. Returning to the Abrams battle tank as an example, the Army cancelled a program to replace the current engines with more efficient diesel versions due to the cost of the program (Komarow 1). The army discovered the engine refit would require a complete redesign of the interior of the vehicle and instead opted for a 5-year refit program in 2006 to the cost of 1.2 billion dollars (Komarow 1). The most cost-effective time to design energy efficiency into a system is while it is still on the drawing board. After-the-fact changes are difficult from both a cost and technical feasibility perspective. So far the discussion has hinged on the impacts within the DoD to its budget and its operational abilities. The DoD’s energy use is so large as to create larger negative externalities that impact both the U.S. and the larger world. At the U.S. level the DoD’s energy use acts as a drain on the total national funding that could be used for other purposes. Or to put it another way, every dollar spent to power systems designed without any thought to energy efficiency is a dollar not spent on education, infrastructure, or any other constructive purpose. The fossil fuels themselves are non- replaceable and every gallon of oil used is one less available for domestic use and one less available, ever, in the global inventory. This begins to point to the global impacts of
  16. 16. 7 Lyle Hopkins DoD energy use, which includes the consumption of so much raw energy stock at the expense of other projects. These impacts will be covered in more detail in the background section of this document. The DoD’s initial steps at correction One of the largest problems the DoD faces is that there existed no internal agency or department to monitor fuel use and its implications across the entirety of the enterprise. No one thought such an organization was needed until the last decade. It was difficult for the services to justify spending funds to research the problem until oil prices had real world impacts. From the DoD viewpoint there were more pressing problems that go along with managing an organization with a global footprint. The oversight gap is beginning to change as the DoD created the Director of Operational Energy Plans and Programs Office in 2009 (Warner and Singer 5) This new organization received its first director when President Barack Obama appoint Ms. Sharon Burke to oversee it in 2010 (Daniel 1). The new department will face enormous challenges in interacting, integrating, and developing a picture of where the DoD stands. From there it will need to find ways to work with the service branches to reduce mobility fuel use and tackle the deficiencies in the current acquisition system. The acquisition process and the lack of energy efficiency as a design requirement One of the biggest steps the DoD must make, and one with vast potential for both improvement and impact, is to design systems with energy efficiency in mind from the start. Energy efficiency is not currently considered when designing most new planes, tanks, trucks, or other systems. To understand why you have to first understand what
  17. 17. 8 Lyle Hopkins drives the acquisition process and how it operates. New systems for the DoD normally originate one of two ways; the first is the DoD identifies a gap, deficiency, or similar problem with its current systems and decides to make a new system to fulfill the identified need. The second method, and less favored officially, is for a corporation to show a new capability it developed and attempt to show the DoD how it would fulfill a need it has. Or to convince the DoD it fulfills a capability the DoD did not previously recognize existed. Under either method if the DoD wanted to explore its options for developing a new system the user community, which means the specific group who will be using the system, are tasked to generate the requirements that will define the system. Using a jet as an example, the Air Force could create requirements stating the new system must fly above 50,000 feet for 12 hours at a time or more, and not need engine maintenance for 2 weeks. These requirements can and do become lengthy documents that stipulate a diverse range of subjects. They are often a point of contention within the acquisition community as poorly defined requirements generally lead to poorly defined systems. The requirements are then given to the acquisition community, which is charged with turning them into a prototype after conducting technology and cost feasibility studies, seeking approval for the project, being recognized by congress for funding, and a host of other steps. This leads to the heart of the problem; in the vast majority of projects energy efficiency is not considered as a requirement unless it is for a system that specifically requires it. So for a jet as an example, the requirements almost always focus on combat ability and ability to stay in the air. Any fuel efficiency stipulations are done with combat performance in mind, not for its own sake. Future DoD acquisition projects must include energy efficiency as a
  18. 18. 9 Lyle Hopkins design requirement for all systems with the intent of making it as “energy lean” as possible. This is while also meeting its combat and endurance requirements. But again, it requires a fundamental change in thinking for the acquisition and user community to acknowledge both the need for energy lean systems and then to implement energy efficiency for its own sake. One of the single most important elements of this process is the acquisition professionals who actually design the new systems. They are the driving force guiding the development on new systems and ensure that energy efficiency requirements are met if not exceeded. This community is well trained and suited to tracking similar regulations and requirements. However two main problems exist for integrating energy efficiency into the design process within this community. The first is the incredibly difficult task of managing the already complex requirements levied by congress and the service branches for documentation needs, meeting funding targets, and a host of other responsibilities. Energy efficiency will be yet another item to be tracked and validated in an already complex and convoluted process. The second problem is the lack of training in sustainability concepts and energy efficiency within the acquisition workforce. This is a fairly easy piece to fix as acquisition professionals must conduct a certain amount of professional and educational development every year. A multitude of agencies exist that can add green theory and design to their existing curriculum. Institutions like the Air Force Institute of Technology, Defense Acquisition University, and the various War Colleges are ideal candidates to expand their curriculums into this area. In order to integrate energy efficiency into the design process it must be demonstrated to the DoD that it needs to do so. That will be accomplished later in this project through the conclusions and recommendations driven from the
  19. 19. 10 Lyle Hopkins literature review and DoD oil cost projections we develop. This section provided a cursory overview of the problem and we will now explore a much more detailed analysis of the elements that make up this issue. Background This section will provide further detail on the topics of global energy trends, DoD energy trends, how energy is supplied to the DoD, and how much it costs. This section also reviews the defense acquisition process, as it is responsible for creating the systems that use so much energy within the DoD. The intent is to provide a detailed reference source discussing the issues and complexities that surround reducing energy use in the DoD from a sustainability perspective. Global energy trends Global energy use changed dramatically over time in both the means we harness energy as well as how much is used in total. Prior to the development of the steam engine in the industrial revolution humanity harnessed the power of food calories and was able to accomplish great feats of engineering (Catton 41-42). As an example the Roman Coliseum used more than 44 billion kilocalories of energy derived from sunlight powered food sources during its construction (Homer-Dixon 48). Food acted as the master resource to fuel ancient societies, which also governed economics and trade. During the later period of the Roman Empire up to 90% of all government revenues came from agricultural sources (Tainter 133). It was a world that lived and died according to the seasons and depended heavily on maintaining stable crop yields.
  20. 20. 11 Lyle Hopkins Human population growth and available energy was tethered to the land. A bad growing season could spell disaster for many communities. This paradigm remained in place for centuries until the advent of the industrial and agricultural revolutions. It required the large-scale use of fossil fuel sources to break the agricultural tether. Fossil fuels provided an incredible increase in energy available for tasks compared to the previous food and wood powered world our ancestors lived in. As a comparison point, all of the energy used to build the Great Pyramid in Egypt, which included 2.3 million stones, was used within a few minutes of the launch of a single Saturn 5 rocket in the 1960’s (Catton 42) (Lewis 504,546). The incredible increase in total energy use is demonstrated below in a chart showing U.S. energy use by source from 1775 to 2009 from EIA in quadrillions of BTUs. Figure 1: Primary Energy Consumption by source, 1635-2000 (U.S. Energy Information Administration XX) Petroleum in particular is the most used fossil fuel and acts as a master resource within the heavily industrialized west. Coal also remained a dominant player ever since its wide scale adoption for steam power in the mid-to-late 1800’s. The chart above shows
  21. 21. 12 Lyle Hopkins the growth of energy demand from 1950 on, and also shows the dip in energy use from the on-going recessionary period since 2008. The recent economic implosion caused a 2.2% global drop in energy use in 2009, but this dip is not expected to last long (U.S. Energy Information Administration 9). The most recent global energy scenarios developed by the US energy information administration project total world marketed energy consumption to increase 49% by 2035 (1). The following chart depicts the growth based on the EIA projections (9). Figure 2: World Marketed Energy Consumption in Quadrillions of BTUs (U.S. Energy Information Administration 9) The previous chart shows the reference case for the EIA projections, but forecasting out for 25 years is a tricky proposition. Energy demand is dependent on a host of factors including population growth, levels of industrialization, the density and velocity of energy use in a given country, reductions in demand from sustainability efforts, and a host of other factors. Likewise, any number of economic or resource productions factors could
  22. 22. 13 Lyle Hopkins also make energy so expensive as to put a ceiling on future energy demand totals. For that reason EIA created several scenarios to 2035 as depicted below: Figure 3: World Marketed Energy Consumption in three economic growth cases, quadrillion BTUs (U.S. Energy Information Administration 20) The EIA study used several cases to project energy use to 2035 and even the low growth scenario still called for an increase in total marketed energy use in absolute terms. With global energy use projected to rise in the coming decades there are important ramifications for the US and the DoD. The next section will examine current DoD energy use and its associated costs to give a better perspective of why the DoD needs to change its energy consumption patterns. The DoD, its Energy Use, and costs This section will provide some basics on what the DoD is, its mission, history, and its voracious energy needs. The Department of Defense was founded in 1949 as part of an amendment to the National Security Act and is the largest and oldest government agency today (U.S. Department of Defense 1). Per the DoD website the mission of the DoD is to: “provide the military forces needed to deter war and to protect the security of
  23. 23. 14 Lyle Hopkins our country (1).” The DoD is headquartered out of the Pentagon and is made up of the Army, Navy, Air Force, Marine Corps, Coast Guard, and various other defense sub- agencies (1). The DoD acts as the nation’s largest employer with 1.4 million citizens on active duty in the military and another 718,000 civilian workers on their payroll (1). As the nation’s largest government agency and employer the DoD’s budget is very large, especially after considering the extra costs that go into maintaining our operations in the Middle East. The total DoD budget proposed for fiscal year 2011 is 708.2 billion dollars (Comptroller, Under Secretary of Defense 1.1). The total budget is then broken out further with 548.9 billion allotted for baseline DoD operations and another 159.3 billion available for operations in Iraq and Afghanistan (1.1). Geographically these funds reach all over the globe, with DoD sites in all 50 states, 7 territories, and 38 foreign countries (Installations & Environment, Under Secretary of Defense 7). Funding levels steadily increased since the attacks on September 11th with a year-by-year increase depicted in the chart below: Figure 4: DoD Total Budget Comparison 2001 - 2011 (Comptroller, Under Secretary of Defense 1.1)
  24. 24. 15 Lyle Hopkins Though it is obvious that funding is on an upward trend, how do the last 10 years compare to prior decades of spending? For context the following chart shows DoD spending since 1948 in billions of FY09 constant dollars: Figure 5: Budget Authority for National Defense, FY 1948 - 2009 (Sharp 1). In constant dollar terms defense spending increased to levels greater than both the Vietnam and Korean wars in recent years. I will explore the energy contributions to this spending shortly, but first it is worthwhile to put DoD spending in context with the rest of the globe. After all, determining how much funding is too much or too little is difficult in a multi-decade time frame. As inflation acted on the U.S. dollar it created resulting shifts in both the perception and reality of funding. Dollar amounts changed from millions, to billions, and then trillions of dollars. How do we gain context for the DoD’s current spending levels? A potential comparison is to show US defense spending against the other industrialized powers to get a feel for where we stand. Figure 6 below depicts DoD spending as a percentage of total global spending on each nations armed forces. It was
  25. 25. 16 Lyle Hopkins produced by GlobalIssues.org using data from the Stockholm International Peace Research Yearbook 2010 and The Center for Arms Control and Non-Proliferation 2010: Figure 6: Global Distribution of Military Expenditures in 2009 (Shah 1) The U.S. is clearly paying a disproportionate share of the global military budget but how does that break down internally within the U.S. budget? Defense spending accounted for over 40% of US domestic spending in the same year depicted in figure 6 above (Friends Committee on National Legistlation 1). The total health care costs paid for by the U.S. budget accounted for 19.7% and education spending registered in at a paltry 2.2% in that same time frame (1). The DoD’s budget is vast, growing quickly, is larger than nearly every other nation’s combined, and accounts for the majority of the domestic budget.
  26. 26. 17 Lyle Hopkins DESC the DoD Energy Supplier The DoD purchases its energy supplies several different ways, but the purchases can be broken down into two broad categories; facility energy use and mobility platform energy use (Crowley, Corrie and Diamond 2.4). Facility energy is the power used to operate buildings and installations. It is heavily reliant on electricity as the source and 98% of the power consumed is bought straight from the civilian market (Warner and Singer 3) (Department of Defense Table 1-1,1-2). To illustrate, a base in Alabama would buy power directly from the local electricity provider in the same way a private citizen or local business would. This is very different than the system used to provide power to mobility platforms, which requires a fuel source. Mobility platforms gain their energy from the Defense Energy Support Center (DESC), a government agency that is part of the Defense Logistics Agency (Andrews and Schwartz 1). DESC purchases fuels in bulk and then sells them to the various DoD service branches along with a markup to cover their overhead costs (1). Though it sounds slightly odd that the government purchases fuel from itself this arrangement keeps each of the four service branches from needing to develop independent purchasing policies. By using DESC as the consolidated buyer, it also saves considerable logistical dollars as they do not need to man and train fuel purchasing units internally. Likewise, without DESC the service branches would likely develop fuel contracts in wildly varied directions and make any kind of uniformity in tracking and comparing them a logistical nightmare. As an example, each of the service branches does develop solicitation documents based on their individual fuel requirements (Le Pera, Giannini and Owens 1). However, the military’s fuel specifications differ from civilian formats, which creates a continual headache for
  27. 27. 18 Lyle Hopkins both DESC and the petroleum companies seeking to offer their services (1). DESC acts as a much-needed consolidated control agency that imposes some measure of unity on energy purchasing and pricing policy. DESC purchases fuel from roughly 20 refining companies geographically spread around the U.S. (Canes and Jonassen 3-1). It obtains fuels from suppliers via a solicitation system that awards contracts to the lowest bidder, with up to 75% of contracts going to bulk delivery orders (Le Pera, Giannini and Owens 1). DoD energy use for mobility platforms For such a large organization the DoD uses a surprisingly small variety of petroleum energy sources. DESC fuel purchases include jet and diesel fuel, along with gasoline, and are purchased both within the U.S. as well as in the regions where the U.S. military operates (Andrews and Schwartz 1). DESC’s three largest fuel purchases are JP-8, JP- 5 jet fuel, and then diesel fuel in that order (2). Of the three, JP-8 is the single largest purchase as it is used by both the Air Force and Army for their aircraft along with some of the Army’s ground vehicles (2). JP-8 jet fuel is so commonly used that it represented 50% of the total fuel purchased by DESC in 2007 (2). The following chart shows the breakdown of mobility fuel use by service: Figure 7: Mobility Fuel Use by Service branch (Crowley, Corrie and Diamond A-1)
  28. 28. 19 Lyle Hopkins The Air Force uses the most fuel by far, with the Navy ranking second due to fuel use for its carrier based aircraft and ship borne needs. The Air Force as the single largest user allots 80% of its total toward flying its numerous aircraft around the globe (Crowley, Corrie and Diamond A-1). Costs An organization as large as the DoD has a correspondingly large energy bill. Unfortunately that bill is rising steadily as the increased demand for petroleum products led to price increases that dramatically ate into DoD budgets. In 2007 the DoD purchased 5.544 billion gallons of oil from DESC for 12.6 billion dollars, that amount quickly rose to roughly 20 billion by 2008 due to price increases in global energy markets (Warner and Singer 3). The DoD’s budget is set at a fixed rate every year and any upwards tick in energy prices requires a funding sacrifice somewhere else in the DoD. As an example, for every ten-dollar increase in petroleum prices the costs to the DoD rose by 1.3 billion dollars, a figure that equates to the entire procurement budget for the Marine Corps as noted by the Brookings Institute (3). In a strange twist DESC charges the same price for fuels to its military users irrespective of their geographic location (Andrews and Schwartz 1). It creates the surreal situation where fuel costs the same for a military unit operating in Florida as it would in Afghanistan (1). Since DESC negotiates the contracts with each of its suppliers the military has no say or ability to haggle for price changes (Canes and Jonassen 3.1). Likewise DESC charges for oil based on commodity prices and then this number is what is used to report the costs to the DoD budget. However, this does not reflect the actual
  29. 29. 20 Lyle Hopkins price of oil when you factor in the costs of protecting it, transporting it within warzones, operational costs needed for aerial refueling, and a host of other factors. The term used to describe these extra costs is the “fully burdened cost of fuel” (FBCF) and is officially defined as: “the price of the fuel, plus its delivery chain and force protection requirements, all taken from a range of the applicable defense planning scenarios (DoD Energy Security Task Force 17).” There exists some differences as to what actually comprises the various of portions of that definition as the areas that have to be analyzed include: “…standard fuel price, direct ground fuel infrastructure, indirect base infrastructure, environmental costs, delivery asset operations and support, delivery asset depreciation, and other specific costs (Crowley, Corrie and Diamond 2-10).” As a result the FBCF is currently highly variable based on the weapon system being discussed, what mission it is performing, and what part of the world it is operating in. An earlier DoD study in 2001, conducted prior to the recent price increases, found that actual FBCF costs can range from $4 per gallon for ships at sea, to $42 for in flight refueling operations, and up to hundreds of dollars per gallon for ground forces in war zones (Defense Science Board 30). Considering that oil prices more than doubled on a per barrel basis to DESC from the time the 2001 study was conducted one can assume that the current FBCF rates are considerably higher (Andrews and Schwartz 2). We know that the FBCF rates for fuel use are significantly higher than the pure commodity cost as measured by DESC, but what is the status of the commodity costs over the last decade? In 2009 Anthony Andrews compiled data from DESC from 1997 to 2007 to create the following chart for a Congressional Research Service Report on average DoD commodity costs for fuel:
  30. 30. 21 Lyle Hopkins Figure 8: Average Cost of DESC Petroleum Products (Andrews 3)(DESC Factbooks 1997-2007) The previous chart depicts the average cost to the DoD on a per barrel basis but does not show total use or the total costs. LMI consulting created the following chart from the 2006 DoD Annual Energy Management Report and shows the total cost, total use, and average total consumption per year: Figure 9: Annual Consumption and Costs for DoD Energy Use (Crowley, Corrie and Diamond G-4) (Under Secretary of Defense)
  31. 31. 22 Lyle Hopkins The chart above does not reflect the increase in total DoD fuel costs in 2008 to 20 billion dollars. To do so would have effectively doubled the reference scale within the chart and is roughly twice the total spent in 2006. The two charts cover slightly different years with the LMI chart starting and ending earlier than the one produced by Andrews. Also both end around the same 2006-2008 period when oil prices sky rocketed, however 2009 and 2010 saw a reduction in oil prices as a result of the global recession. Additionally, the charts and costs above are still referring to the pure commodity costs. If the true FBCF was being calculated the costs would be much, much higher given the implications of the 2001 FBCF study. So what does that mean for the future? Where the price increases from 2004 - 2008 an anomaly or part of a longer-term trend? The following chart shows projected oil costs through 2035 based on three cases developed by EIA. Figure 10: World Oil Prices in 3 cases, 1980-2035. 2008 dollars per barrel. (U.S. Energy Information Administration 26) Increased demand for fossil fuels to 2035 will lead to an increase in costs, short of some spectacular increases in both oil production and political stability in oil producing regions. Only in the low price scenario do oil costs actually fall below current 2010
  32. 32. 23 Lyle Hopkins levels. The EIA low price model assumed increased production by OPEC as well as “attractive fiscal regimes” in Russia, the Caspian basin and other non-OPEC countries; essentially full optimal production on a global basis combined with an optimal fiscal environment (U.S. Energy Information Administration 26). The results section of this project will include projections for DoD oil costs based on all three EIA scenarios. The acquisition process Few people outside of the DoD, and even many within it, are not aware of how these systems are designed, constructed, and put in the field. Much of the energy use for mobility systems is extremely inefficient, as energy efficiency was never considered an important characteristic from a military perspective. A few select examples of the problem include the STRYKER vehicle with 5 MPG, mine resistant vehicles employed in Iraq with 3 MPG, and armored HUMVEEs with 4 MPG (Warner and Singer 2). Though these are all Army examples the other service’s systems are just as bad and all contribute to DoD daily fuel use, which is nearly on par with the daily total for the nation of Greece (2). The acquisition process is often confused with procurement, but within the DoD the two are separate entities that can and will overlap at times. Acquisitions is defined in different ways by different sources but within the DoD it typically refers to the process used to conceptualize, design, construct, test, and field a tangible physical system or an automated information system. For the purposes of this project procurement is the process of buying already established civilian systems or products for use by the DoD,
  33. 33. 24 Lyle Hopkins otherwise known as Commercial Off-the Shelf (COTS) items. Procurement can also include the purchase of systems near completion in the acquisition process. The framework the system operates under is the Planning, Programming, Budgeting, and Execution system (PPBE) which uses a bi-annual approach with funding given in even years and program reviews conducted in the odd years (Sorenson 41). The planning phase is driven by national strategy documents outlined in The National Security Strategy, The National Defense Strategy of the United States, The National Military Strategy, and The Quadrennial Defense Review (41-44). Each document has its own flavor and purpose but all essentially look at strategy needs over differing time scales to determine shortcomings in the current U.S. arsenal. The planning phase draws on these documents along with inputs from military units based on their needs in the field, as well any obvious gaps in current capabilities that come to light. This leads to the Programming Phase where needs identified during planning are allotted against actual defense projects. The need for vehicles resistant to improvised explosive devices in Iraq and Afghanistan is an example of a capability gap the military did not realize it had until after the fact, which was then addressed in the programming phase (46). The budgeting phase allocates money to programs, the phasing of funding reaching a program, and its overall priority against other DoD needs (46). The Execution phase is initiated when the president signs a Defense Appropriations bill and is when programs actually get their “checks in the mail” (47). An additional level of complexity is added by the use of the Joint Capabilities Integration and Development System (JCIDS) which has to mesh with the PPBE process. JCIDS is the requirements portion of the acquisition process and literally defines what a weapon
  34. 34. 25 Lyle Hopkins system needs to be able to do (48-49). For the purposes of energy efficient design in the acquisition process it is one of the key areas that needs further refinement to ensure future systems come off the drawing board with efficiency as part of the process. With the multitude of defense programs in various stages of development the DoD assigns one of four categories to every program to make it easier to evaluate its importance at a glance. The categories are assigned by cost, with category one going to programs with more than 335 million dollars in R&D or over 2.135 Billion dollars in procurement costs (51). Category two programs have 75 million or more in R&D expenses or a procurement price of more than 300 million dollars (51). Categories three and four thus continue down the food chain of R&D costs or procurement costs. In essence, the higher the acquisition category the more important the program, the more expensive it is, and the more oversight it receives. Since an acquisition program can last up to a decade or longer it quickly became apparent that program’s needed to have evaluation points to determine if they were on track or not. As a result a milestone decision system was implemented that created three major checkpoints that examined the program in different ways. Milestone A is the first and most important hurdle as it requires the most documentation and essentially determines whether a program will begin or die on the vine (55-56). Also referred to as the concept refinement stage, “Milestone A” focuses on the initial assessments for the feasibility of the program, its likely costs, and the risks involved (55-56). If a program makes it through this initial hurdle it will eventually face Milestones B and C, which respectively examine the development of the technology in the system and then its demonstrated ability to actually work (55-56).
  35. 35. 26 Lyle Hopkins It is probably not a surprise that a process that handles billions of dollars over years at a time requires a great deal of oversight and includes a large number of organizations. I will now briefly examine some of the major players and the role they play in the process. The top of the military acquisition food chain resides with the office of the Undersecretary of Defense (USD). Though a single political appointee embodies that position it also represents a host of sub-groups within the USD office (30). To greatly simplify, the USD functions as the civilian oversight and leadership which manage the entire defense acquisition hierarchy and report to the President and Congress (30). The purely military body which works with the USD is the Joint Staff and the Joint Requirements Oversight Council (JROC), which has oversight of the entire defense acquisition process from within the military but under the USD (32-34). Falling under both the USD, the Joint Staff, and the JROC come each of the service branches. The service branches are made up of the Navy, Air Force, and Army and though all of them must comply with the guidance from the USD, JROC, etc. they each maintain independent acquisition workforces that are not standardized in organization and character (34-35). Each service branches’ acquisition force has its own strengths, weaknesses, and quirks, which they inherit from the service they work for and with. Though the executive branch tends to weigh in on the creation of national strategy the ability to appropriate, authorize, oversee, and provide budgets to the DoD resides with Congress (35). Three major committees, two in the house, and one in the senate primarily deal with acquisition issues. The House and Senate Committee on Armed Services perform roughly the same function in both chambers and provide oversight, due diligence, and examine the budget requests by the DoD (36-38). The House
  36. 36. 27 Lyle Hopkins Committee on Appropriations is the third body and is required to give its blessing before and federal funding may be spent (37). All three heavily rely on sub-committees to do the heavy lifting, research, and coordination prior to major votes or decisions going forward. Methods This topic was chosen due to the importance of finding ways to reduce overall DoD energy use. To give a sense of the scale of the problem, the DoD accounted for 78% of all energy used by the federal government in 2006 and is the single largest energy consumer in the United States (Defense Science Board 11). Energy costs are putting enormous strain on defense budgets as fuel costs doubled from 5.9 Billion to 13.6 Billion in 2006 due to rising commodity prices (13). This situation will worsen in coming decades with the U.S. Energy Information Administration predicting oil costs near $108 per barrel in 2020 and $133 per barrel in 2035 (U.S. Energy Information Administration 2). Innovative solutions need to be found, and quickly, as it will take years for them to be implemented and then even more time will be needed to gauge their effectiveness. Many of the proposed solutions to date focus on either changing how current systems are used in order to reduce their energy use or to attempt to retrofit them to make them more energy efficient. Changing the design process to integrate energy efficiency into systems before they are fielded offers the potential for substantial energy and cost savings.
  37. 37. 28 Lyle Hopkins Underlying assumptions There are several assumptions the researcher made while exploring this topic. They fall into two categories: assumptions used to develop the cost projections and more general assumptions about the DoD and energy supplies. Cost Projection Assumptions The following assumptions were made to build the cost projections due to the high number of variables that could impact both the DoD’s size, operational tempo, and involvement in future conflicts.  DoD force structure and size to 2035 is roughly equivalent to today  DoD peace time fuel use is roughly equivalent to the historical amount used in the year 2000 prior to the conflicts in Iraq and Afghanistan  DoD wartime fuel use is equivalent to the historical amount used in the year 2003 during the invasion of Iraq and with troops on the ground in Afghanistan  DoD mid-range fuel use is equivalent to the average annual historical fuel used from 2005-2008 during the low level but continuous warfare in Iraq/Afghanistan In addition to assumptions made about the DoD use and size, the cost projections will also need to add the refinement mark-up to the future commodity prices of oil as depicted in the EIA scenarios. For the refinement mark-up costs the following assumptions were made:  Refiner mark-up costs will remain comparable to actual historical costs and remain steady in absolute terms.
  38. 38. 29 Lyle Hopkins o IE no mark-up due to inflation over time. This is unrealistic but adequate to create a rough estimate of future costs given the time constraints of this project.  The EIA reference and high use scenarios have no price below $95 per barrel out to the year 2035. In both scenarios oil costs quickly escalate up to a maximum high of $210 a barrel in the high use scenario. I will use the historical mark-up data in table 3 in the data section from 2008 when oil was $101.52 a barrel as it is the closest historical match. o Though it is unrealistic I will assume that the maximum mark-up refinement price is the .91 cents listed for 2008 in table 3. It is very likely that the refinement price would go far higher for a barrel of oil at $210 but crafting multi-decade refinement mark-up projections is beyond the scope of this project.  The EAI low cost scenario forecasts future year oil costs at roughly $51-$52 per barrel to 2035. I will use the refinement mark-up value of .41 cents from 2005 in table 3 as that year was closest to the EIA low-cost projections. o As noted before I will hold that value constant instead of calculating inflation adjusted figures due to the limited scope of this project. The final set of assumptions used for the cost projections is that the EIA low, mid-range, and high-price scenarios are realistic depictions of future oil prices. If EIA’s methodology is flawed or their scenarios wildly off-target then the cost projections built for this project will also be dramatically wrong. However, as a government organization EIA acts as a
  39. 39. 30 Lyle Hopkins credible source and no one truly knows what will happen to oil prices in the future based on a variety of global wild cards that could come into play over the coming decades. General Project Assumptions The first general assumption is that it is even feasible for the DoD to reduce its energy use in a meaningful way. There is a widely held belief within the DoD that even if ways were found to reduce energy use the service branches would still keep the same vast logistical footprint out of institutional inertia (Defense Science Board 35). Thus the DoD would still accumulate many of the same costs and this removes the incentives for the service branches to attempt any changes (35). Other assumptions include that energy prices will continue to rise, that energy demand will continue to rise, and that no new replacement energy sources will be developed on a scale comparable to current oil use. Another assumption is that the DoD will continue to be a global presence due to US foreign policy, as a domestically focused DoD would have a vastly smaller energy need. The largest single assumption is that the DoD’s energy use is even a problem and not simply a cost of doing business. The argument could be made that DoD policies have no need of change, irrespective of the actual energy costs involved, since budget issues are ultimately the responsibility of Congress. Methodology The cost projection methodology is based on a modified version of the one used by Professor Anita Dancs of Western New England College in her 2008 report “The Military Cost of Securing Energy.” In her report Professor Dancs used an estimation process
  40. 40. 31 Lyle Hopkins based on either a force-construct planning view or regional breakdown of where U.S. forces were located to develop her cost projections (Dancs 5-7). In Professor Dancs report a great deal of the costs to the DoD had to be estimated due to a dearth of information available at the time. The last few years have seen a wealth of data released by the Congressional Research Service and other sources, which have removed the need for estimating DoD fuel costs, fuel use, and military costs in the Middle East. For the purpose of this project it makes the cost projection process a matter of using factual historical data to build on with no estimations of cost components needed. Professor Dancs’ final product was a cost estimation for the amount of funding spent to protect fuel sources in the Middle East. However, the cost of securing energy in the Middle East is not really within the scope of this project as I am more interested in projecting DoD fuel costs into the future. Therefore I will not use the final elements from Danc’s process to give the percentages of U.S. forces and their equivalent costs for securing energy sources in the Middle East. Though finding the percentage of current forces and their costs used to secure energy as a ratio to the amount of projected fuel cost growth would be fascinating, it is unfortunately beyond the time limitations of this project and the scope was reduced somewhat. The formulas used to create the projections in this project are shown below. The information used to populate the formulas is shown in the data section of this document as are the products of the formulas, which shown in the results section for verification.
  41. 41. 32 Lyle Hopkins Formulas used and Rational Behind Cost Data Used Several very simple formulas were used to develop the cost projections used in this project. Fortunately now that government data has been release on DoD energy use it removes the need to use the estimation portion of the process used by Professor Dancs and allows for a much more straightforward cost estimation process. This project’s cost estimations relied on finding the DoD’s future year per barrel price. This was done by multiplying annual use by future commodity price estimates plus a mark up to the commodity price due to refining costs. Each of these elements are covered below. There were no formulas needed to determine future oil commodity prices as the EIA scenario oil costs were used. There were no formulas needed for the refinery mark-up cost estimates based on the assumptions laid out in the methods section as I used actual historical mark-up costs as a baseline. The DoD peace-time and war-time oil use estimates relied on similar historical data and needed no formulas. The DoD mid-range fuel demand used the following formulae based on the average of fuel consumption from table 3 shown later in this document for DoD actual fuel use from 2005-2008:  (A + B + C + D)/4 = Avg. As stated in the assumptions section, these years were chosen as they captured the fuel demand needs for on-going mid-level conflict requirements in Iraq and Afghanistan. Peace-time fuel use came from the DoD’s actual year 2000 use as it represented typical fuel consumption prior to the post 9/11 environment. War-time fuel use came from the DoD’s actual 2003 consumption as it represented the demand needed for the initial
  42. 42. 33 Lyle Hopkins invasion of Iraq while maintaining operations in Afghanistan. The formulas used to make the final cost projection totals were uncomplicated and consisted of:  EIA yearly oil price estimation + refinery mark up cost based on oil price category = total annual price per barrel to the DoD The preceding formula finds the annual price per barrel to the DoD based on the commodity price plus the refinery mark up which varies depending on the commodity price. The decisions for which refinery mark up price to use is outlined in the assumptions section of this project. The commodity plus refinement mark-up cost is then multiplied by the DoD annual use during peace-time, mid-range, and high-use operational tempos as shown below.  (Total annual price per barrel to the DoD) X (DoD annual fuel use based on peace-time, mid-range, or wartime tempo) = estimated DoD future oil cost per year for each category The tables showing the data for the EIA oil cost scenarios to 2035, refinery mark up costs, and DoD fuel use based on operations tempo are all presented in the data section of this project. Likewise the results of the formulas above are shown in tables provided in the results section of this document for verification. Literature search methodology The literature search methodology consisted of using the following search engines to find appropriate, credible, and up-to-date primary and secondary sources:  Hollis and Hollis classic  Google Scholar
  43. 43. 34 Lyle Hopkins The following search criteria were used for all sources:  All sources must be less than 10 years old, DoD energy use data less than 6 years old, and projections for future energy cost and demand less than 3 years old. o Government policy and regulation documents are an exception, as they are used to show regulatory changes over time. o A handful of other older sources were used in the background section to describe human energy demand over time.  All sources from the U.S. government and government agencies that show DoD oil cost and use data are the top priority for data procurement.  Sources from think tanks, non-profits, periodicals, and peer-reviewed journals were given lesser priority during data procurement.  Sources that frequently cover DoD policies, were familiar with the issues, and have a reputation for objectivity were preferred for use.  Sources that could be categorized into the topics below were saved for use on the project. Sources which did not fit into these categories were deleted: o Global/US energy use data or historical context. o Data in the public realm for DoD energy us. o Data in the public realm for specific military systems. o Acquisition or logistical policy or regulation information pertaining to the early design process, energy efficiency, etc.
  44. 44. 35 Lyle Hopkins  All documents or data showing DoD, government, service branch, or specific military systems or programs information came from the public realm. (I.E. no use of data marked “for official use only” or higher.  Likewise no data leaked to the public realm but not approved for public disclosure by the DoD was used. Literature analysis methodology All of the sources acquired where then analyzed to determine potential data deficiencies and gaps for building a comprehensive picture of the topic. The researcher developed a list of analysis questions to determine if the data quantity was sufficient. For each question if the answer was yes then data collection stopped, if no then collection and analysis continued until the gap was closed within the time limitations discussed previously.  Can the project broadly depict global and US energy use for roughly the last 10 years from sources?  Can the project broadly depict DoD energy use for the last 5 years from sources?  Does the project have energy demand and costs projections developed within the last 3 years that relate to global, US, or DoD specific energy use from sources?  Can the project depict applicable acquisition laws and regulations that relate to the acquisition design process?  Does the project have sufficient historical energy cost and demand data to create a compelling argument to change DoD energy use?
  45. 45. 36 Lyle Hopkins  Does the project have sufficient projections for future energy costs to create a compelling argument to change DoD energy use?  Does the project have sufficient data to identify alternative solutions, other than changing the acquisition process, for reducing DoD energy use?  Does the project have sufficient data from sources to broadly depict the academic and professional discussions on this topic? Identified gaps garnered a second round of data collection until enough information was present to reasonably answer the analysis questions above. When unexpected questions arose as a result of the initial or follow-on data search, another round of limited data collection began. Any remaining data gaps or vexing questions will be listed in the results section later in this paper. Research, Data, and Results Using the criteria and methodology outlined in the previous section I will now cover the current state of discussion on this topic found in the literature review. I will then explore the data sets, which will be used in the Dancs method to create cost projections for future DoD operations to 2035. The conclusions section will examine the implications of the projections created and provide specific policy recommendations based on the findings. Research Burgeoning fuel costs over the last decade prompted discussion in the government, think tank, and academic communities for how to solve the problem. Given the volume
  46. 46. 37 Lyle Hopkins of data and articles devoted to this previously unidentified issue I will review a selection of documents that are most pertinent and provide an overview of the current state of play. Given the time limits involved in this project this will not be a comprehensive review of the existing literature. Instead I will paint with broad strokes the rapidly developing consensus view on reducing DoD fuel use. As an overview, four common themes emerge from the literature review for dealing with rising DoD fuel costs. The first is that the fully burdened cost of fuel (FBCF) must be incorporated into DoD pricing mechanisms to gain an accurate picture for what the true price of fuel is. The inclusion of the FBCF would dramatically change perceptions within the DoD by senior leadership as a study conducted in 2001 found fuel costs in the hundreds of dollars for moving fuel to deployed locations (Defense Science Board 30). This study was conducted prior to the rapid cost escalations of the last five years so the true FBCF for oil above $100 a barrel would likely be staggering. The second broad theme is to change the behavior and practices of soldiers in the field to reduce fuel use as there existed a great deal of waste by units in the field. A popular example includes the use of diesel fuel generators to provide round the clock air conditioning to tents regardless of if anyone was actually in them. The third broad theme is to utilize radical new technologies to reduce the fuel needed for future systems. Unfortunately, most of these technologies exist only in the imagination of their writers and provide limited applicability in the short term. The fourth broad theme is to alter the defense acquisition process so that all new systems are designed to be energy efficient while still in the initial design phases. This differs from the third theme in that it would apply existing energy efficiency technology to already proven technologies that are being developed.
  47. 47. 38 Lyle Hopkins Of the four themes the least developed and implemented is the fourth theme of changing the acquisition process. It is little understood by non-acquisition professionals, even within the DoD itself, as military culture is most focused on fighting and winning wars. The irony is that of the four themes changing the acquisition process will be a vital ingredient needed to field systems that require less fuel to operate. The Fully Burdened Cost of Fuel The first broad theme found throughout the literature review was the need to incorporate the fully burdened cost of fuel (FBCF) as a pricing mechanism for DoD fuel use. The first report refered to is a study conducted by the Government Accountability Office (GAO) for the subcommittee on readiness in the House of Representatives in 2008. The GAO noted that the DoD started three test projects to study the impacts of the FBCF on systems development (Government Accountability Office 10). The GAO report also reported that the Army developed a project in 2004 to develop a methodology for calculating FBCF based on its historical data and price patterns (11). The GAO report also interviewed multiple agencies within the DoD and was told by unattributed DoD officials that FBCF and energy efficiency was often not considered for system upgrades due to the perception it would increase the up-front costs of the upgrades (25). The GAO report went so far as to advise the DoD to incorporate FBCF throughout the acquisition process and was told by the DoD that they are still developing a plan to do so (30). Another major report was built in 2008 by the Defense Science Board (DSB) Task Force which is a federal advisory committee designed to provide independent DoD energy analysis to the Under Secretary of Defense (Defense Science Board 3). The
  48. 48. 39 Lyle Hopkins DSB included FBCF as one of two elements in their top recommendation to the DoD and called for acceleration of its use (5). In many ways the FBCF concept and changing the acquisition process are joined at the hip as FBCF provides the justifications to change the acquisition process. FCBF on its own does nothing to reduce fuel use or dependency. It is merely the metrics and accounting tool to determine actual fuel costs. The DSB report stated as much when it concluded that: “If the acquisition process does not understand the total ownership cost of buying, moving and protecting fuel to systems in combat (fully burdened cost of fuel), then its business case analyses will use only the commodity price for fuel (26).” A report by the Defense Energy Security Task Force created as part of its semiannual update to congress stated the inclusion of FBCF would be part of the lifecycle management framework process (DoD Energy Security Task Force 17). Another major study was conducted and released by LMI Corporation in 2007 on behalf of the Office of Force Transformation and Resources to help chart a path for a DoD energy strategy. The LMI report stated the DoD relied on the pure commodity price of oil for determining its oil costs instead of using the FBCF (Crowley, Corrie and Diamond 4-4, 4-5). LMI also recommended that the DoD use the FBCF for its decisions and also to ensure that energy infrastructure and logistics supports requirements are included as part of the process (5-5). Other think tanks such as a 2009 report by the Brookings Institute on DoD energy use also mention FCBF as a cost multiplier but did not dwell on the topic for very long (Warner and Singer 3).
  49. 49. 40 Lyle Hopkins Changing Behaviors and Operational Practices Of the four themes found in the literature review the option to change the behaviors and practices of already fielded systems seems the most implemented and least controversial. The DSB report included this as their 5th ranked recommendation to the DoD and stated that: “Changing a culture that considers energy cheap and abundant is one of the most difficult challenges facing the Department and the nation. The business changes recommended by the Task Force will take time to show results, but changing operational practices to conserve energy can show immediate results (Defense Science Board 7).” The DSB report continued exploring this theme and went so far as to provide two pages of examples to reduce operational fuel use through behavior and policy changes (32- 33). Likewise, the GAO report noted that all four service branches are making changes to their operational practices to try and reduce energy use for systems that are already in the field (Government Accountability Office 2-3, 11, 12, 14). Anthony Andrews found in a Congressional Research Report that increased fuel costs in 2006 led to the Air Force’s Air Combat Command reducing the training flight time allowed for its pilots (Andrews, Department of Defense Fuel Spending, Supply, Acquisition, and Policy 17) (Wicke 1). Likewise the Energy Security Task force described DoD efforts to rely more heavily on training simulators in the future to reduce fuel costs (DoD Energy Security Task Force 9). Academic papers quickly noted that behavior changes such as reducing flight time hours eventually face diminishing returns as they impact on operational performance due to lost flight time (Umstattd 2870). The DoD will have to find some
  50. 50. 41 Lyle Hopkins balance between saving energy by this means while not losing war fighting capability in the process. The 2007 LMI report did not focus much on this aspect aside from a lengthy discussion of energy initiatives for installations and to point out that mobility systems have not received as much attention from the DoD (Crowley, Corrie and Diamond 4-7 - 4-9). The 2009 Brookings institute report also noted that the DoD’s focus has been primarily on changing installation energy use practices instead of on mobility system energy use (Warner and Singer 4). Introducing Radically New Technologies The third consensus theme explores the use of new and largely unproven technologies to foster energy efficiency in future systems. This theme is different from changing the acquisition process as it is focused on technologies to put into new systems as opposed to changing the process itself. The call for the use of new technology was one of the most common themes throughout the literature review. As an example, the DSB report’s 4th recommendation explicitly stated: “Invest in energy efficient and alternative energy technologies to a level commensurate with their operational and financial value (Defense Science Board 6).” Further DSB called for the exploration of technologies such as blended wing-body aircraft, variable speed tilt-rotor aircraft designs, and biomimetic design elements in new systems (7, 37-40, 49). Likewise the GAO report compiled a partial list of technologies in various stages of development as shown below:
  51. 51. 42 Lyle Hopkins Table 1: Near-term technologies under review by the DoD energy security task force (Government Accountability Office 9) The DoD Energy Security Task Force also released its own list of five promising technologies in its 2008 findings to congress (DoD Energy Security Task Force 6-7). The 2007 LMI report also called for the use of new energy technologies but noted they should focus on alternative supply sources and efficient consumption of fuel for DoD operations (Crowley, Corrie and Diamond 2-7). The 2009 Brookings Institute report also called for the use of new technologies but attempted to provide a prioritization methodology for deciding what to pursue that consisted of: “(1) reduction in use; (2) conversion of petroleum-driven equipment to non- petroleum energy sources; (3) substitution of petroleum with alternative fuels, bolstered by (4) factoring lifecycle energy costs into development and purchasing (Warner and Singer 7).” The Brookings report also called on the DoD to partner with private sector more closely in order to develop technology breakthroughs (7).
  52. 52. 43 Lyle Hopkins Changing the Acquisition Process The last of the four themes refers to various changes that need to be made to the acquisition process for designing energy efficiency into new systems. This is one of the most needed but least accomplished of the four themes. The DSB report included this item as its number one recommendation along with FBCF incorporation. The DSB report concluded in regards to changing the acquisition process and using FBCF that: “little progress has been made in implementing them and little action has been taken to develop the necessary analytical capabilities to establish meaningful values for either initiative (Defense Science Board 5).” This is backed up by the findings of the DoD’s internal Energy Task Force findings, which summarized the totality of current changes to the acquisition process in roughly two paragraphs (DoD Energy Security Task Force 16-17). One of the few positive actions within the DoD was the creation of a memorandum calling for selective application of energy efficiency as a requirement to be selectively used for new programs (Defense Science Board 24). This was a welcome change to an earlier 2001 decision in regards to the same topic when the Joint Staff had stated: ““We do not agree that ‘fuel efficiency’ should be a mandatory performance parameter expressed in operational requirements documents (24).” The GAO also noted that the Joint Staff included energy efficiency as key performance parameter for some new acquisition projects (Government Accountability Office 2). However the GAO report concluded: “…because DoD has not developed a methodology to determine how best to employ the energy efficiency key performance parameter, implementation of this key performance parameter remains uncertain (Government Accountability Office 24).” The 2007 LMI report also recommended the use of energy efficiency as a KPP within
  53. 53. 44 Lyle Hopkins the acquisition process so long as: “aggregate energy consumption is a significant contributor to life-cycle cost or energy logistics support (Crowley, Corrie and Diamond 5- 5).” The 2009 Brooks Institute report found that the lack of energy requirements keep defense contractors from knowing “how seriously to program energy efficiency into their submissions…” which limits the amount of time they spend considering the issue (Warner and Singer 4). The Brookings report also noted that the earlier DSB and GAO studies recommendations on the lack of government oversight led to the creation of a Operational Energy Plans and Programs office in the DoD to manage these issues in 2009 (Warner and Singer 5). It is too soon to say but this new office may be the missing piece needed to give the DoD unified direction on reducing energy demand and giving needed guidance to the acquisition community. Other Uncategorized Themes In addition to the four broad themes discussed above there were also smaller common refrains that one or two of the biggest studies discussed, but was not covered throughout the literature. The GAO report’s major finding centered on the need for the DoD to develop an overarching organizational framework to reduce mobility energy use as the capability is currently non-existent (Government Accountability Office 3). The GAO determined this based on reviewing many of the other reports on this topic as well as interviewing many DoD officials. The 2007 LMI report also emphasized the need for the DoD to change its corporate processes (Crowley, Corrie and Diamond 5-1, 5-2). The 2009 creation of the Director, Operational Energy Plans and Programs office will help address alleviate these issues but it will take time for the office to grow in power
  54. 54. 45 Lyle Hopkins and capability. The first director for this new office, Sharon Burke, was only sworn in over the summer of 2010, but this is definitely a step in the right direction (Daniel 1). Another smaller theme is the cultural resistance to change within the DoD as well as the difficulty in overcoming organizational inertia in an institution as vast as the DoD (Defense Science Board 35-36). Several reports examined or called for the use and development of synthetic fuels to supplement the DoD’s petroleum-only systems. The DSB report took a cautious stance on synthetic fuels and noted that they would not solve the core problems the DoD is facing in regards to mobility systems and fuel use (50-51). Likewise Anthony Andrews reported that the DoD now has direct authority to initiate multi-year contracts for fuel sources stemming from coal, tar sands, and oil shale (Andrews 16). The DoD energy security task force devoted close to 20% of its total semi-annual report length in describing various alternative fuel means the DoD is either considering or actively using (DoD Energy Security Task Force 11-14). In addition to literature that explored the core problems associated with DoD fuel use there was also a significant amount of publicly released data on various fuel, operational, and administrative costs attributed to the DoD. This project relied heavily on reports from the Congressional Research Service as they provided much of the raw data needed for the cost projections in the next section. Amy Belasco, Anthony Andrews, and Moshe Schwartz all produced reports which gave DoD fuel and operation cost numbers in exacting detail. Aside from the government and think-tank sources noted above there was also a wealth of academic articles and papers that explored these topics. However the vast majority of them did not add new or original data beyond
  55. 55. 46 Lyle Hopkins what has already been covered from the government sources listed above and are not discussed in the rest of this project. Data This section will show all of the data that will be used in the results section to create future-year DoD oil price projections to 2035.  EIA oil cost projection data using their three scenarios as the template for future oil costs  DESC actual oil use data for the military  Refinery mark up values based on the increase in total commodity price after the oil refining process (using historical data) EIA oil cost projections The DoD’s current energy use is prohibitively expensive with a total cost in 2008 of close to 18 billion dollars, or roughly 1/3 of the entire budget for the Department of Education for that same year (Andrews 2) (Department of Education 1). These costs will likely get worse in time as most oil cost projections show a likely increase in price over time. To demonstrate this I will use oil cost projections from the US Energy information Administration’s 2010 International Energy Outlook. EIA used three scenarios for their projections on oil cost to 2035, which are presented below:
  56. 56. 47 Lyle Hopkins Table 2: Projected World Oil Prices (U.S. Energy Information Administration 26) Note that on the far right is the 2009 reference case numbers, which are included for comparison purposes but will not be used in the projections below. When put in a chart the data for the 2010 projections looks like the following: Figure 11: Projected World Oil Prices to 2035 (U.S. Energy Information Administration 26) The model built in the results section will use data from all three EIA scenarios to build a picture for oil prices in each case. (The reference case will be referred to as the mid- price scenario for the rest of this project.) The mid-case case numbers will be
  57. 57. 48 Lyle Hopkins compelling enough on their own for the DoD to institute energy efficiency as a requirement for new mobility systems. The high price scenario provides an even more compelling need for change. As described in the background section, the low price scenario assumes oil prices remain static at $51-52 per barrel for the next 25 years. Aside from the unusual expectation that a commodity will remain the same price for a quarter century the last time oil cost this little was in the 2004-2005 timeframe. During that year the DoD’s total oil outlays went from 6.6 to 8.8 billion dollars; a figure comparable to the entire budget expenditure for Wyoming in 2008 (Andrews 5) (Sunshine Review.Org 1). Even under the low price scenario there would be sufficient justification for the DoD to reduce its energy use and cost practices. DESC Oil Cost and Consumption Data This section will demonstrate the actual oil amounts used by the DoD in recent years as well as the amount spent to obtain it by DESC. This section also discusses the difference in price mark-ups generated by refineries at different levels of market cost. This is important as the refinery mark-up increases the effective oil price to DESC. All three items will be used in the results section for modeling purposes. The following data sets show the actual amounts and costs of the fuel purchased by DESC for resale to the DoD. The first chart shows use in millions of barrels from 2000 to 2008 and was compiled by Anthony Andrews using DESC’s 1997-2007 factbooks:
  58. 58. 49 Lyle Hopkins Table 3: DESC Fuel Products and Costs (Andrews 2)(DESC Factbooks 1997-2007) The data shows that at no point since 2000 has the DoD used less than 100 million barrels of oil in a year and that the total price per year escalated to a high of 17.9 billion in 2008. This chart will be combined with other data and used later to determine yearly usage estimates for low, medium, and high tempo years for the DoD. What the previous data set does not show is the refining mark-up that increases the cost of oil to the DoD. The following chart by Andrews was built from multiple DESC and EIA sources and shows the mark-up amount for various market fuel prices above the pure commodity costs:
  59. 59. 50 Lyle Hopkins Table 4: DoD Refining Margin Costs (Andrews 4)(DESC factbooks 2000-2008)(EIA) Notice that the refining margin is not linear and that price moves near and above $100 a barrel led to a steep increase in refining margins. The reasons for this are beyond the scope of this project. However, any modeling of future oil costs to the DoD that did not attempt to capture the refining margin effect would not show the true cost to the DoD budget. Results This section will show the results of the future oil price projections for the DoD. I will use the cost estimation methodology created by Anita Dancs which was discussed in the methodology section of this project. Using the data from the previous section I can build a picture of DoD oil costs on a per barrel basis and demonstrate the need to reduce energy demand for mobility systems. I will create three projections that show the
  60. 60. 51 Lyle Hopkins potential DoD costs for energy in a high, medium, and low DoD use scenarios. Each of the three DoD energy costs scenarios will then be applied against each of the three EIA fuel cost scenarios for comparison purposes. Components of the Cost Projections The cost projections are intended as a rough estimate of potential future DoD costs. Using the assumptions developed in the methodology section and drawing data from table 3 above I created the following annual DoD fuel use rates to use in the projection. Millions of Barrels of Oil Peacetime Use 104.1 Mid-range Use 134.4 High Tempo Use 145.1 Table 5: Estimated DoD fuel use in three scenarios' The peacetime and high-tempo values are the actual per year values from Table 3 and relied on data from 2001 and 2003 respectively as noted in the methodology section. The mid-range value is the average of the four years 2005-2008 and were found with the following formula from the methodology section; (A + B + C + D)/4 = Avg or 130.7 + 135.9 + 136.1 + 134.9 = 537.6/4 = 134.4. Using the refinery assumptions laid out in the methodology section I established the following refinement mark-up costs for oil in the EIA mid-range, high, and low cost scenarios: Additional Cost per Barrel EIA Low Price Scenario $0.41 EIA Reference Case $0.91 EIA High Price Scenario $0.91 Table 6: Refinement Mark-up Estimates
  61. 61. 52 Lyle Hopkins The next component of the cost projections is the creation of a table combining the EIA cost projections to 2035 along with the additional refinement mark-up per barrel. This was done by adding the fuel costs in table 2 to their corresponding mark-up amount in table 6. (The only caveat is for 2008 as the actual fuel price to the DoD of 17.944 billion is used in all three projections.) This created the following table using the formula per barrel cost + mark up per barrel = total price to the DoD: Year Low price Scenario Reference Case High Price Scenario 2008 N/A N/A N/A 2015 $52.41 $95.91 $145.91 2020 $52.41 $108.91 $186.91 2025 $52.41 $115.91 $196.91 2030 $52.41 $124.91 $204.91 2035 $51.41 $133.91 $210.91 Table 7: EIA Price Estimates Plus Estimated Refinery Mark-up Costs Now that I have all of the components to make the DoD fuel price projections to 2035 I can create the results for DoD’s low, medium, and high oil use scenarios. Cost projections in the Low EIA Price Scenario Using the data in built in the preceding sections I developed the cost estimates for future DoD oil costs starting with the low price scenario. Multiplying the data in tables 5 and 7 according the formula in the methods section created the following table: Year DoD Peacetime Oil Cost DoD Mid-range use Cost DoD High Use Cost 2008 Actual 17.944 17.944 17.944 2015 5.46 7.04 7.60 2020 5.46 7.04 7.60 2025 5.46 7.04 7.60 2030 5.46 7.04 7.60
  62. 62. 53 Lyle Hopkins 2035 5.35 6.91 7.46 Table 8: DoD Projected Oil Costs in the EIA low use scenario to 2035 (in Billions of Dollars) This table was then converted to the following chart to ease visualization of the costs over time: Figure 12: DoD Fuel Use Cost Projections Using EIA Low Price Scenario As stated previously the EIA low price scenario assumes static fuel costs at $51-$52 per barrel for the next quarter century and reflect a modest mark-up of .41 cents for refinery costs. The DoD projections remain flat as a result during the same time period and range from 5.35 to 7.6 billion dollars, excluding 2008 actual costs at close to 18 billion dollars. The implications of this scenario will be discussed in the conclusions section. Cost Projection in the EIA mid-price scenario I will now examine the potential DoD fuel costs resulting from the mid-price case developed by EIA to 2035. The chart below was created using the EIA mid-price
  63. 63. 54 Lyle Hopkins numbers and refinery mark-ups multiplied by the DoD use scenarios using the formula in the methods section: Table 9: DoD Projected Fuel Costs In the Reference Scenario to 2035 (in billions of dollars) The visualization of the EIA reference case is below: Figure 13: DoD fuel cost projections in the EIA reference scenario to 2035 The DoD fuel cost projections in the mid-price scenario range from a low of 9.98 billion dollars during peace-time to 19.43 billion dollars during high tempo military operations. This is based on the EIA “reference” case fuel costs and the refinery mark-up, which Year DoD Peacetime Oil Cost DoD Mid-range use DoD High Use 2008 Actual 17.944 17.944 17.944 2015 9.98 12.89 13.92 2020 11.34 14.64 15.8 2025 12.07 15.58 16.82 2030 13 16.79 18.12 2035 13.94 18 19.43
  64. 64. 55 Lyle Hopkins ranged from roughly $96 to $134 dollars a barrel. The implications of this scenario will be discussed in the conclusions section. Cost Projection in the EIA High Oil Price Scenario I will now examine the potential DoD fuel costs resulting from the high oil price scenario developed by EIA to 2035. The chart below was created using the EIA reference case numbers and refinery mark-ups multiplied by the DoD use scenarios using the formula in the methods section: Year DoD Peacetime Oil Cost DoD Mid-range use DoD High Use 2008 Actual 17.944 17.944 17.944 2015 15.2 19.61 21.17 2020 19.46 25.12 27.12 2025 20.5 26.46 28.57 2030 21.33 27.54 29.73 2035 21.96 28.35 30.6 Table 10: DoD Projected Fuel Costs in the High Use Scenario to 2035 (in billions of dollars)
  65. 65. 56 Lyle Hopkins The visualization of the EIA high use scenario is below Figure 14: DoD Fuel cost projections in the EIA high use scenario to 2035 The DoD fuel projections in the high price scenario range from a low of 15.2 billion dollars during peace-time to 30.6 billion dollars during high tempo military operations. This is based on the EIA high-price fuel costs and the refinery mark-up, which ranged from roughly $101 to $211 dollars a barrel. The implications of this scenario will be discussed in the conclusions section. Having created cost estimations for DoD fuel use to 2035 from the EIA scenarios I will now discuss the implications of each in the following section. After discussing the implications of each scenario I will examine specific recommendations for how the DoD can reduce its mobility fuel-use and review the findings of this project.
  66. 66. 57 Lyle Hopkins Conclusions, Discussion, and Recommendations My conclusions are drawn from two different areas. The first is from the cost projections created in the last section. They provide a powerful justification for the DoD to reduce their mobility fuel consumption based on the future costs of buying petroleum for inefficient systems. The DoD is still wasting funding that could be better tasked for a variety of other domestic or defense activities even in the EIA low cost scenario and at peace-time consumption. The second set of conclusions will be gleaned from the literature review; this will provide the context needed to give specific policy recommendations based on the current state of play of discussions within the government and think tank communities for reducing DoD fuel dependency. Both sets of conclusions are needed to craft realistic policy recommendations. Conclusions and Discussion of the Models’ Cost Projections The cost projections built in the previous section took the three oil cost scenarios from the EIA 2010 International Energy Outlook, added refining margin costs to them, and then applied them to DoD peace-time, mid-level, and high-use projections. Across the three cost projections I found the following broad themes: There is a broad spectrum of annual DoD fuel costs ranging from a low of 5.35 billion dollars to a high of 30.6 billion dollars per year through 2035. The roughly 25 billion dollar difference between the lowest and highest fuel costs stem more from the disparity between the EIA low and high cost scenarios than from any other source. The EIA low cost scenario resulted in DoD fuel costs ranging from 5.35 to 7.6 billion dollars per year through 2035. The EIA mid-range scenario resulted in DoD fuel costs ranging from 9.98 to 19.43 billion dollars
  67. 67. 58 Lyle Hopkins per year through 2035. The EIA high cost scenario resulted in DoD fuel costs ranging from 15.2 to 30.6 billion dollars per year through 2035. DoD fuel use in the model ranged from roughly 100 to 145 million barrels of oil and was based on actual historical use rates. It showed that increases in operations tempo can lead to a near 50% increase in annual fuel use during war-time. The 25 billion dollar range from the low and high DoD fuel use estimates are a result of the extreme price ranges found within the EIA scenarios. It is undisputable that DoD fuel costs are highly dependent on fuel commodity prices, and that future oil costs to the DoD have a great deal of variability based on changes in the global oil market. Given that pre-9/11 peacetime use was around 100 million barrels of oil, and wartime use nearly 50% more, there exists a great deal of potential for reducing oil consumption from a variety of means. Now that I have reviewed broad conclusions from the cost model projections I will look at each specific cost scenario starting with the low-cost model. Under the low cost scenario DoD costs stay at 5.35 to 7.6 billion dollars for the next 25 years. This is based on the EIA model projecting static oil costs due to increased global production and optimal financial and regulatory regimes enacted on a global basis (U.S. Energy Information Administration 26). Rarely do optimal conditions play out on a global level. If anything the global reaction to stressors is to fracture and enact policy defined along narrow self-interest. The recent global finance crises as well as the Oslo Climate Summit are perfect examples of this in action. In both cases The U.S., Europe, Russia, China, and other major powers were unable to reach any meaningful consensus beyond
  68. 68. 59 Lyle Hopkins carefully crafted diplomatic statements. Aside from the assumptions that global political and market makers will act both rationally and optimally, there is also the question of how much the commodity price of oil fluctuated over time. Though past costs are not indicative of future costs, there is a marked difference between commodities with a history of semi-stable cost increases and those with tendencies for large movements. The fluctuations in actual oil prices over the last 27 years in the chart below serves as an excellent example: Figure 15: World Oil Prices from 1980 to 2007 (U.S. Energy Information Administration 26) It would be truly remarkable for a commodity that experienced such extreme volatility over the last quarter century to suddenly flat line at the 50 dollar a barrel mark for the next 25 years. Though the low price scenario is feasible in theory, there seems to be little real-world evidence to support how realistic it is in practice based on the last three decades. However, if it is assumed that this scenario does indeed play out, what does that mean to the DoD based on the cost projections I developed? The low cost scenario costs between 5.35 to 7.6 billion dollars per year for DoD oil costs. This still represents a huge dollar amount. By comparison the entire 2010 budget submission for the Veteran’s Administration to provide mental health services to veteran’s suffering from Post Traumatic Stress Disorder (PTSD) and other psychological impacts was 4.6 billion
  69. 69. 60 Lyle Hopkins dollars (Veteran's Administration 2A-1). Or to put it another way, the DoD would spend more on fuel for its tanks than it would treating the mental scars of its wounded soldiers. In a dark twist of fate, many of the vets experiencing PTSD symptoms may be a result of the wounds suffered while guarding fuel convoys going into Iraq and Afghanistan. The following chart by the Center for Army Lessons Learned shows the total casualties suffered on convoys from 2003-2007: Figure 16: Resupply Convoy Casualties 2003-2007 (Eady, Siegel and Steven 3) (Center for Army Lessons Learned) The Army Environmental Policy Institute estimates that 50% of all convoy deaths and injuries occurred while shipping fuel into Iraq and Afghanistan (Eady, Siegel and Steven 3). The chart above lists 3,046 wounded and killed on resupply convoys from 2003 to 2007. That means roughly 1,500 soldiers died or were wounded guarding fuel needed for DoD mobility systems. Major General Richard Zilmer, who previously served as the highest-ranking Marine Corp flag officer in Anbar Province in Iraq, went on the record to say:

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