Transportation | Energy | Ecotrope

Why is aviation biofuel six times the price?

Ecotrope | Nov. 9, 2011 8:23 a.m. | Updated: Feb. 19, 2013 1:34 p.m.

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Jim Gilbert wrote into OPB with some excellent questions about the radio version of my Alaska Airlines biofuel story. And I have some answers I figured I might as well share with the group. Here’s what Jim wrote:

“Last night and today you reported on Alaska Airlines use of vegetable oil to power their planes. I was struck by the information regarding the cost of this fuel. According to the report, the fuel costs 6 times the amount of regular fuel. We use bio-diesel in our tractors, delivery van and car. Right now, bio-diesel made from recycled vegetable oil costs about $4.00 gal, including road tax. The report also stated that the fuel is in short supply. Our source of fuel is Sequential Bio-fuels in Salem and they seem to have a good supply.

At that price, according to your report, regular jet fuel would cost about $.65 gal. It seems to me that there is something fishy here. Could Alaska Airlines be saying this so folks wouldn’t expect them to continue using this more sustainable fuel? Or could this be a simple mistake? I suggest you dig a little deeper to determine the accuracy of these statements. Bio-diesel is an important alternative to fossil fuel-based diesel and it is not good for people to think that it unrealistically expensive.”

My source on the details of the story was Keith Loveless, who’s the vice president of corporate and legal affairs for Alaska Airlines and leader of the company’s Green Initiative.

The reason aviation biofuel is so much more expensive, he said, is that it has to be refined. And there aren’t any refineries on the West Coast. Without refineries, there’s no incentive to produce feedstock. Without feedstock, there’s very little supply to justify a refinery. It’s another kind of a chicken and egg scenario.

“We need producers,” Loveless said. “We found this fuel through a broker in – believe it or not – the Netherlands. And they had a relationship with a firm in Louisiana and Texas.

There are a lot of people looking at and talking about this on the West Coast and Hawaii, but no one has invested money in a refining operation, and farmers are not yet growing crops for feedstock.”

So, as aviation biofuel supply ramps up – possibly in response to gestures from the industry to buy some of the fuel for a limited number of flights – I asked Loveless whether the company would be willing to pay a little more (maybe not six times more) for biofuel.

“That would come down to our customers and whether our customers would pay more for biofuels,” he said. “That’s part of what remains to be seen. At some point you’d like to see biofuels provide a hedge against petroleum. It’s a huge problem for airlines. I could see a day when biofuels could be a natural hedge against the fluctuation of the traditional petroleum product.

We essentially buy insurance against big price spikes in petroleum. It’s just a way of hedging that risk. That’s way out in the future. Now, we’re just saying lets create an industry around biofuels.”

Hm … I’ll keep digging on this, but in the meantime I think the next question is: Would you be willing to pay more to fly on vegetable oil? How much more?

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