F-16 Flies Over New York CityThe US Department of Defense recently announced its latest round of annual jet fuel contracts and the bill came to almost $4 billion. That’s down about 20 percent from the last time the DOD awarded similar contracts and the military can thank cheaper crude oil for the discount.

The US Air Force conversion from military-specific grade jet fuel to a civilian grade – Jet A with additives – may have also played a role in the fuel cost reduction. The Defense Logistics Agency can now source fuel from a wider pool of suppliers.

Eighteen different companies – ranging from the world’s largest international oil companies including supermajors ExxonMobil and BP to firms DOD considers small businesses – won the fuel contracts on the basis of competitive bids. Equilon Enterprises won the lion’s share of the awards totaling over $1.2 billion.

The fact that the Pentagon plans to spend billions on jet fuel next year is not, in and of itself important, but indicates the strategic value energy plays in US military operations. And this is just aviation fuel, the military also requires billions of dollars’ worth of diesel, gasoline, electricity, etc.

DOD Jet Fuel Contracts 2-15

The contracts also highlight the military’s urgent desire to obtain renewable fuel sources like algae-based biofuels, that once cost competitive at scale, can save money – and perhaps more importantly – lessen dependence on the volatile and unpredictable global oil market.

DOD may be getting jet fuel at a discount from what it paid last time, but if crude oil prices were up 50 percent instead of down, the military’s jet fuel costs would be considerably higher.

The fuel supply agreements were granted on an “indefinite-delivery/indefinite-quantity” basis, meaning DOD agrees to purchase jet fuel from each company for up to the individually settled totals, which collectively add up to $3.9 billion.

The contracts are valid through April 30th 2016 and the money will come from fiscal 2015 defense working capital funds.