DEFENSE

Fuel costs in spotlight as military faces steep budget cuts

With the congressional supercommittee's failure to reach a deficit deal likely triggering roughly $1 trillion in defense spending cuts over the next decade, the battle is beginning over what exactly to put on the chopping block.

While no one knows yet which projects will take the hardest hits, the military's energy programs promise to be a place budgeteers will turn to both for savings and for cuts.

The military's fuel bill -- which punched in at $15 billion last year -- is real money, even for the Pentagon. But it's not just the line item's size that draws financial analysts' attention; it's also its volatility.

When oil prices spiked in 2008, the military spent $18 billion on energy. This summer, the price the Defense Department's fuel purchasing agency charges the services for military-grade fuel jumped from $131 a barrel to $166 a barrel, throwing budgets a curveball. Service leaders have already told Congress that the elevated price will stress balance sheets and, if it persists over the year, will create billion-dollar budget gaps.

That leaves the military eager to find ways of using less fuel.

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"The Air Force is the No. 1 user of fuel in the United States," Gen. Philip Breedlove, the branch's No. 2 officer, told a House panel last month during a hearing on budget cuts. "Every little bit that we can cut saves money to roll back into things that are really needed in our force."

For nearly a year now, the military has been counting in its budget calculations the amount of fuel -- and money -- it could save with tweaks to how it flies people and equipment around the world. In January, then-Secretary of Defense Robert Gates announced $500 million in such fuel savings as part of a departmentwide effort to shrink overhead costs.

"I wouldn't call that a drop in the bucket, considering this is something you can do with hardly any operational impact," said Todd Harrison, a senior fellow at the Center for Strategic and Budgetary Assessments, a nonpartisan military policy think tank. "No one loses their job; there's no angry constituency out there telling Congress not to do this. This is a win-win for everyone."

Not all of the department's energy programs are such easy hits.

Arguing that fossil fuel dependence is an issue of national security, the Air Force has been testing its fleets on alternative fuels and the Navy is planning to invest $150 million as part of a multi-agency effort to spark commercial-scale biofuel refineries (Greenwire, Aug. 16). But prices for biofuel remain significantly higher than for traditional petroleum, and with financial markets in turmoil, it's not yet clear whether the necessary private investments will follow.

Such projects, with steep upfront costs and uncertain longer-term paybacks, already face an uphill battle at the Pentagon, officials say, and making the case for them only stands to get harder.

Now, as the department's financial analysts scrape for ways of saving money without tearing "a seam in the nation's defense," as Secretary of Defense Leon Panetta warned that the deeper cuts would, lawmakers and defense analysts say fuel costs are likely to get an even closer look.

Quick and cheap win the day

Projects where small savings can result in swift paybacks have already proved to be winners with the military, where energy efficiency is still a relatively new concept.

In Afghanistan, the Army is spending $108 million on improvements at its camps that it estimates could result in as much as 60 percent fuel savings at some locations (Greenwire, Sept. 30). The fixes are mostly simple -- in some cases nothing more than networking generators together -- but because many battlefield energy systems are wildly inefficient, they can result in big savings.

Projects like this hit the military's sweet spot, paying for themselves well within the Pentagon's five-year budgeting cycle and bringing a battlefield benefit, since using less fuel takes target-rich convoys off the road.

The Air Force's efforts to fly more efficiently -- using more aerodynamic flight formations and taking unnecessary equipment off aircraft before they're flown -- are another low-impact, budget-friendly tack.

But these projects have a limited effect on the military's overall fuel costs -- simply shaving a little off what it otherwise would have paid. That's because the military can't just decide to fly less or to limit how far it drives its tanks when oil prices go up.

Instances when the military is considering such changes carry real operational consequences. For example, cutting flight training time for pilots is a cost-saving option that is frequently raised. Flying an F-22, the nation's foremost air-defense fighter aircraft, costs about $18,000 an hour, mostly because of fuel costs. The services are developing more effective flight simulators, but in the past, the military has found that pilots' skills deteriorate rapidly when their training hours are cut back.

Pitting energy projects against weapons systems

Military brass and civilian officials alike have emphasized that they want commanders to think about energy needs when they make decisions, but the mission will always come first.

Indeed, the Air Force's top energy official said he thinks metrics that track fuel efficiency may be more appropriate than looking just at overall consumption.

"For mobility, it might be how many tons per gallon have you moved?" Deputy Assistant Secretary of the Air Force for Energy Kevin Geiss said at a briefing with reporters earlier this fall. Last year, he noted, the Air Mobility Command moved 25 percent more cargo than it had the year before, but increased its fuel consumption by only 3 percent.

It's a timely point as the Air Force faces enormous demands for transporting troops and equipment. The service is in the midst of bringing home the 40,000 troops left in Iraq when Obama announced the drawdown last month, and will also be responsible for bringing about 10,000 troops back from Afghanistan before the end of the year.

Meanwhile, the military may have to rely more heavily on air transport to get supplies into Afghanistan after Pakistan closed two key NATO supply routes on Sunday following a NATO attack on two of Pakistan's outposts that killed at least two dozen Pakistani soldiers.

But with limited ability to cut the activities that drive its fuel use, the Pentagon will be on the hook for major fuel costs unless it can fundamentally change the way it uses energy.

The military has notable efforts under way to do just that -- attempting to switch to alternative fuels in vehicles and renewable energy at bases, and re-engineering equipment to drastically reduce fuel use.

Key leaders within the Pentagon have fought to bring some of these projects forward, but with deeper budget cuts putting prize weapons programs in danger, a far stiffer battle looms.

"There are things that you can do that save a lot of money in the long-term that don't impact your operations, but to do that takes an investment," said defense budget analyst Harrison. "The big decision we face in the next year or two is, are we going to take more pain now in order to get more efficient over the long term, or are we going to focus on short-term savings that end up costing us more over the long term?"

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