Department of Defense Fuel Spending,
Supply, Acquisition, and Policy
Anthony Andrews
Specialist in Energy and Energy Infrastructure Policy
March 20, 2009
Congressional Research Service
7-5700
www.crs.gov
R40459
CRS Report for Congress
P
repared for Members and Committees of Congress

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Department of Defense Fuel Spending, Supply, Acquisition, and Policy

Summary
The Department of Defense (DOD) consumes up to 1% of the petroleum products refined in the
United States annually. Foreign purchased petroleum products may increase DOD’s consumption
by a third or more. In FY1997 fuel represented 1.2% of the total DOD budget authority, and by
FY2007 fuel represented 1.9%. While the total defense budget authority increased 233% over the
period of FY1997-FY2007 (in current dollars), fuel costs increased 373%. DOD’s fuel
consumption varies from year to year in response to changes in mission and the tempo of
operations. The majority of DOD’s bulk fuel purchases are for JP-8 jet fuel, which has ranged
from 60 to 74 million barrels annually over the past decade (the equivalent of 165,000 to 200,000
barrels per day). Continental U.S. jet fuel purchases make up from 60% to 76% of DOD’s total
petroleum product purchases. Generally, the price that DOD has paid for JP-8 and JP-5 jet fuels
has tracked the price of commercial equivalent Jet A-1 jet fuel.
A typical petroleum refinery yields a limited supply of jet and diesel fuel depending on the type
of crude oil processed. Gulf Coast (Texas and Louisiana) refineries yield up to 8% jet fuel.
Generally, refineries are set up to run specific grades of crude oil, for example light sweet crude
or heavy sour crude. Light sweet crude is particularly desirable as a feedstock for gasoline
refining because its lighter-weight hydrocarbons make it easier to refine. Heavier crude oils
require more complex processing than light crudes, and sour crudes require a desulfurization. As
a consequence of changes in crude oil supplies, refineries have had to upgrade their processes
(increasing their complexity) to handle heavier sour crude oils. At the same time the
Environmental Protection Agency (EPA) has taken action to require lower sulfur content of diesel
fuel. Currently, 142 refineries operate in the United States. The top four suppliers of DOD’s fuel
operate a combined 31 refineries in the United States, representing nearly 6 million barrels per
day of crude oil distillation capacity.
In general, DOD’s authority to procure fuel stems from power originally granted to the Navy,
which has been interpreted as authorizing the Armed Services Petroleum Purchasing Agency to
negotiate contracts for the purchase of fuel, not only when acting as a procuring activity for the
Navy, but also when filling the consolidated fuel requirements of the armed forces. Within the
Defense Logistics Agency (DLA), the Defense Energy Support Center (DESC) has the mission of
purchasing fuel for all of DOD’s services and agencies. In practice, DESC has typically awarded
fuel contracts for lengths of one year. DESC uses fixed-price contracts with economic price
adjustment which provide for upward and downward revision of the stated contract price upon the
occurrence of specified contingencies. DESC has determined that supplies and related services
are eligible for the multi-year contracting provisions under the Federal Acquisition Regulation,
and has adopted contracting instructions for entering into multiyear contracts. DESC’s contract
delivery price is based on lowest cost to the government FOB (free-on-board), and has not
included the logistical cost of delivering fuel to the area of operations. New requirements have
been established for taking fuel logistics into consideration in the acquisition processes for new
military capabilities.

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Department of Defense Fuel Spending, Supply, Acquisition, and Policy

Contents
Background ................................................................................................................................ 1
Fuel Purchases ............................................................................................................................ 2
CONUS vs. OCONUS Fuel Purchases .................................................................................. 4
DOD Fuel Cost vs. Commercial Fuel Price ........................................................................... 4
DOD Fuel Purchase vs. Budget Authority ............................................................................. 5
Refining, Suppliers, and the Crude Oil Supply ............................................................................ 7
Crude Oil Supply .................................................................................................................. 7
Refining................................................................................................................................ 8
Sulfur Regulations .............................................................................................................. 10
U.S. Refiners Supplying DOD Fuel..................................................................................... 11
Refinery Jet Fuel Yield........................................................................................................ 13
Fuel Acquisition........................................................................................................................ 13
Acquisition Regulations ...................................................................................................... 14
Multiyear Contracting Authority ......................................................................................... 14
Acquisition of Alternative Fuels .......................................................................................... 15
Fully Burdened Cost of Fuel ............................................................................................... 16
Policy Considerations ............................................................................................................... 16

Figures
Figure 1. Purchase Costs ............................................................................................................. 3
Figure 2. Purchased Volumes....................................................................................................... 3
Figure 3. Average Cost of All Petroleum Products Purchased....................................................... 4
Figure 4. DOD Fuel Costs vs. Commercial and Crude Oil Price .................................................. 5
Figure 5. Crude Oil Supply 2007................................................................................................. 7
Figure 6. Petroleum Products Boiling Range ............................................................................... 8
Figure 7. Yields of Typical Gulf Coast Refineries ...................................................................... 10

Tables
Table 1. Fuel Product Purchased by Category .............................................................................. 2
Table 2. DOD CONUS vs. OCONUS Fuel Purchase ................................................................... 4
Table 3. DOD Fuels Costs vs. Crude Oil Costs ............................................................................ 5
Table 4. Total Fuel Purchase vs. Budget Authority....................................................................... 6
Table 5. Crude Oil Assays ........................................................................................................... 8
Table 6. Top U.S. Fuel Suppliers to DOD FY2003-FY2007....................................................... 11
Table 7. Refineries Operated by Top Suppliers .......................................................................... 12
Table 8. Military Use vs. Commercial Use Jet Fuel, and Total U.S. Refined Products ................ 13
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Table 9. DOD Jet Fuel Purchases as a Percent of Net U.S. Jet Fuel and Overall U.S.
Production ............................................................................................................................. 13

Appendixes
Appendix. Terms....................................................................................................................... 19

Contacts
Author Contact Information ...................................................................................................... 20

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Background
The Department of Defense (DOD) consumes up to 1% of the petroleum products refined in the
United States annually. Foreign purchased petroleum products may increase DOD’s consumption
an additional third or more. Within the Defense Logistics Agency (DLA), the Defense Energy
Support Center (DESC) has the mission of purchasing fuel for all of DOD’s services and
agencies, both in the continental United States (CONUS) and outside (OCONUS). DESC’s
origins date back to World War II when it was designated as the Army-Navy Petroleum Board
under the Department of the Interior. Its mission was transferred to the War Department in 1945
when it became the Joint Army-Navy Purchasing Agency. In 1962, the agency became a part of
the former Defense Supply Agency, now known as the Defense Logistics Agency (DLA).
Designated the Defense Fuel Supply Center (DFSC) in 1964, it served as a single entity to
purchase and manage the DOD’s petroleum products and coal. In 1998, it was re-designated the
Defense Energy Support Center with an expanded new mission to manage a comprehensive
portfolio of energy products.1
In practice, DESC has typically awarded fuel contracts for lengths of one year on the basis of
lowest cost to the point of delivery. DESC’s fuel procurement categories include bulk petroleum
products (JP-8, JP-5, and diesel fuel), ships’ bunker fuel, into-plane (refueling at commercial
airports), and post-camp-and-station (PC&S).2 Although DOD may represent the single largest
consumer of petroleum products, its consumption primarily of JP-8, JP-5, and diesel fuel aligns
more closely with the narrower market for middle-distillate fuel.3
This report summarizes DOD’s annual fuel purchases over the past decade (1997 to 2007); its
spending on fuel, and the portion of the DOD budget authority for operations and maintenance
represented by the spending. The prices that DOD pays are compared to commercially equivalent
fuel, and the quantities of DOD fuel purchases are compared to the net production of U.S. refined
petroleum products. To place DOD’s fuel requirement in a larger perspective, refineries producing
jet fuel and producers supplying DOD’s jet fuel are reviewed. DESC’s procurement practices are
discussed within the context of the Federal Acquisition Regulation and the limitations imposed,
and recent legislation affecting fuel procurement. Finally, a policy perspective is offered.
In the past, when crude oil and refined petroleum prices were high, Congress has looked at
DOD’s fuel demand as a means of stimulating private sector interest in producing alternative
fuels. Legislation has been enacted directing DOD to consider using alternative fuels to meet its
needs, and to stimulate commercial interest in supplying the needs. Recent high fuel prices did
stimulate DOD and private interest in producing alternative fuels from coal and oil shale, though
no project has yet reached commercial operation. Legislation ensuring that federal agencies do
not spend taxpayer dollars on new fuel sources that will exacerbate global warming now counters
earlier policy objectives. For more background on alternative fuel sources, see CRS Report
RL34133, Fischer-Tropsch Fuels from Coal, Natural Gas, and Biomass: Background and Policy
and CRS Report RL33359, Oil Shale: History, Incentives, and Policy.

1 See http://www.desc.dla.mil/DCM/DCMPage.asp? LinkID=DESCHISTORY.
2 See Appendix for definition of terms and description of fuels.
3 The complete product categories include avgas, distillates & diesel, gasohol, JP-4, JAB, JAA, JA1, JP-5, JP-8, lube
oils, mogas, and bunker fuel.
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Congress may be equally concerned with the refining sector’s lack of responsiveness to DOD’s
procurement announcements during periods of high petroleum prices, when more profitable
opportunities lie in meeting the commercial demands.
Fuel Purchases
DOD’s fuel consumption varies from year to year in response to changes in mission and the
tempo of operations. The majority of DOD’s bulk fuel purchases are for JP-8 jet fuel, which has
ranged from 60 to 74 million barrels annually over the past decade (the equivalent of 165,000 to
200,000 barrels per day). JP-8 is consumed primarily by the Air Force and the Army. JP-5 jet fuel
(Navy) and diesel fuel (Army) represent the next highest categories. DOD’s total fuel purchases
peaked in FY2003 at 145.1 million barrels in conjunction with the invasion of Iraq.
Overall DOD fuel expenditures grew from slightly over $3 billion in FY1997 to $11.4 billion in
FY2006 and FY2007—a 373% increase in current dollars. Purchases increased from 107.8
million barrels in FY1997 to 136 million barrels in FY2007—a 26% increase due in large part to
military operations in Iraq and Afghanistan. The volume of all DOD petroleum products
purchased and their cost is summarized in Table 1.
Table 1. Fuel Product Purchased by Category
Million Barrels per Year

FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007
JP-8 60.0 61.2 68.6 61.7 63.4 73.5 72.2 74.7 71.4 71.3 68.2
JP-5 17.9 15.9 16.7 15.4 18.6 20.6 17.9 16.1 12.8 14.4 13.6
Diesel 16.9 16.5 16.1 15.5 20.8 21.6 25.2 21.0 21.2 22.1 22.8
Other 13.0 11.9 11.4 11.5 8.2 18.9 29.8 33.0 25.3 28.1 31.5
Total 107.8 105.5 112.8 104.1 111.0 134.6 145.1 144.8 130.7 135.9 136.1












$ Mil.
3,068
2,280 2,384 3,604 4,178 4,143 5,563 5,751 8,843 11,504 11,465
Source: DESC Fact Book (2000 -2007), http://www.desc.dla.mil/DCM/DCMPage.asp?PageID=721;
Notes: DOD purchases include CONUS and OCONUS. Total petroleum purchases include the fuel categories:
bulk (avgas, distillate and diesel, gasohol, JP-4, JP-5, JP-8, lube oils, mogas and residuals), into-plane, post-camp-
and-station, and ship’s bunker.
At peak, in FY1997, JP-8 represented 56% of DOD-related fuel purchases. By FY2007, when
DOD fuel costs showed a dramatic increase, JP-8 purchases actually declined to 50% of total
petroleum product purchases.
Purchases, however, do not necessarily correspond with actual consumption. Fuel may be drawn
from storage to supplement demand and purchases may be used to replenish fuel stores. DOD
also maintains a fuel “war reserve” that it may draw down in contingencies.4 To provide a sense
of the proportion, JP-8/JP-5/diesel fuel costs and volumes are compared to overall DOD

4 War reserve stocks are classified information.
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consumption in Figures 1 and 2 respectively. The average cost of all petroleum products
purchased (in dollars per barrel) rose nearly 300% between 1997 and 2007, as illustrated in
Figure 3.
Figure 1. Purchase Costs
15,000
n
10,000
io
ill
5,000
M
$
0
All
JP-8
JP-5
Diesel
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
Diesel
448.7
332.5
314.1
483.4
744.8
613.6
901.7
919.8
1,393.9
1,821.9
1,916.5
JP-5
491.2
327.1
347.0
529.8
686.1
599.3
653.8
722.7
863.9
1,240.1
1,146.3
JP-8
1,678.3
1,282.5
1,419.1
2,193.3
2,336.4
2,147.6
2,659.4
3,425.7
4,965.4
6,162.3
5,869.8
All
3,067.5
2,279.8
2,383.8
3,603.9
4,177.8
4,142.5
5,563.3
6,750.8
8,843.0
11,504.1
11,464.8

Source: Defense Energy Support Service, Fact Book (2000 – 2007).
Notes: “All” represent the some of JP-8, JP-5, diesel, and other fuel categories.
Figure 2. Purchased Volumes
150
n
o
100
illi
m
ls
50
b
B
0
All
JP-8
JP-5
Diesel
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
Diesel
16.9
16.5
16.1
15.5
20.8
21.6
25.2
21.0
21.2
22.1
22.8
JP-5
17.9
16.0
16.7
15.4
18.6
20.6
17.9
16.1
12.8
14.4
13.6
JP-8
60.1
61.2
68.6
61.7
62.4
73.5
72.2
74.7
71.3
71.3
68.2
All
107.8
105.5
112.8
104.1
111.0
134.6
145.1
144.8
130.7
135.9
136.1

Source: Defense Energy Support Service, Fact Book (2000 – 2007).
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Figure 3. Average Cost of All Petroleum Products Purchased
$100.00
$80.00
$60.00
$40.00
$20.00
$0.00
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
$/bbl
$28.46
$21.61
$21.14
$34.62
$37.64
$30.78
$38.34
$46.61
$67.63
$84.65
$84.26

Source: Defense Energy Support Service, Fact Book (2000 – 2007).
CONUS vs. OCONUS Fuel Purchases
CONUS purchased jet fuel makes up from 60% to 76% of total petroleum product purchases
(Table 2). Fuel purchases had peaked in FY2002 at 94.1 million barrels, but buying began
shifting more toward OCONUS suppliers in FY2004 following the invasion of Iraq.5
Table 2. DOD CONUS vs. OCONUS Fuel Purchase
Percent (%)

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
CONUS 67.4 66.4 61.1 71.6 76.5 66.6 64.5 58.0 66.3 56.9 60.0
OCONUS 32.6 33.6 38.9 28.4 23.5 33.4 35.5 42.0 33.7 43.1 40.0
Source: DESC Fact Book (2000 - 2007).
Notes: CONUS – Continental U.S.; OCONUS – Outside Continental U.S.
DOD Fuel Cost vs. Commercial Fuel Price
Generally, the price that DOD has paid for JP-8 and JP-5 jet fuels has been comparable to the
price of commercial equivalent Jet A-1 jet fuel. A comparison of jet and diesel fuel versus crude
oil prices is graphed in Figure 4 and summarized in Table 3; crude oil represents the average
annual cost of acquisition by the U.S. refiner. For the purpose of this analysis, crude oil cost is
graphed in terms of $/gallon. Also note that during the time period of FY2006-FY2007, when fuel
prices increased dramatically, the margin between refiners’ crude oil cost and refined product
prices (also referred to as the crack spread) increased to 39¢/gallon as compared to 23¢/gallon in
FY1997.

5 See CRS Report RS22923, Department of Defense Fuel Costs in Iraq, by Anthony Andrews and Moshe Schwartz.
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Figure 4. DOD Fuel Costs vs. Commercial and Crude Oil Price
($ per gallon)
$2.50
$2.00
JP-8
$1.50
JP-5
Diesel
$1.00
Jet A-1
Crude Oil
$0.50
$0.00
FY97 FY98 FY99 FY00 FY01
FY02
FY03
FY04 FY05 FY06 FY07

Source: DESC Fact Book and U.S. EIA U.S. Crude Oil Composite Acquisition Cost by Refiners ($/Bbl),
http://tonto.eia.doe.gov/dnav/pet/hist/r0000_3a.htm.
Notes: JP-8, JP-5, and diesel represent DOD costs; JA-1 represents commercial aviation costs; and crude oil
represents the average annual cost of acquisition by the U.S. refiner. See Table 3 for cost break-out.

Table 3. DOD Fuels Costs vs. Crude Oil Costs
($ per gallon)


1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Al
$/gal 0.68
0.51 0.5 0.82
0.9
0.73
0.91
1.11
1.61 2.02 2.01
JP-8 $/gal 0.67
0.50 0.49 0.85
0.89
0.70
0.88
1.09
1.66 2.06 2.05
JP-5 $/gal 0.65
0.49 0.5 0.82
0.88
0.69
0.87
1.07
1.60 2.05 2.00
Dies $/gal 0.63
0.48 0.47 0.74
0.85
0.68
0.85
1.04
1.57 1.96 2.00
JA-1 $/gal 0.61
0.45 0.54 0.90
0.78
0.72
0.87
1.21
1.74 2.00 2.17






Refiner
$/gal 0.45
0.3 0.42 0.67
0.55
0.57
0.68
0.88
1.2 1.43 1.62
Crude
Oil Cost $/bbl 19.04
12.52 17.51 28.26
22.95
24.1
28.53
36.98
50.24 60.24 67.93
Source: Defense Energy Support Service, Fact Book (2000 – 2007). Energy Information Administration—
Petroleum Navigator, Refiner Acquisition Cost of Crude Oil, and Refiner Petroleum Product Prices by Sale Type.
Notes: Refiner Crude Oil Costs represent the refiners cost for acquiring crude oil. Crude oil costs are typically
reported in terms of $/barrel, but for the purpose of this table, the cost has been converted to $/gal on. One
barrel (bbl) is equivalent to 42 gal ons (gal).
DOD Fuel Purchase vs. Budget Authority
While the total defense budget authority increased 233% over the period of FY1997-FY2007 (in
current dollars), fuel costs increased 373%. In FY1997 fuel represented 1.2% of the total budget
authority versus 1.9% in FY2007. This does not reflect the significant rise in oil prices during the
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first eight months of FY2008. Total fuel expenditures as a percent of the DOD total budget
authority and O&M budget are summarized in Table 4.
Table 4. Total Fuel Purchase vs. Budget Authority
($ million)

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
TBA $ 258,006 258,583 278,595 290,534 309,948 345,632 437,801 471,011 483,913 536,462 602,246
O&M $ 92,353 97,215 104,992 108,776 115,758 133,851 178,316 189,763 179,215 213,532 240,252





Fuel

$ 3,068 2,280
2,384 3,604
4,178
4,143
5,563
6,751
8,843 11,504 11,465





%
BA 1.2 0.9
0.9 1.2
1.3
1.2
1.3
1.4
1.8 2.1 1.9
%
O&M 3.3 2.3
2.3 3.3
3.6
3.1
3.1
3.6
4.8 5.4 4.8
Source: Office of the Under Secretary of Defense (Comptrol er), National Defense Budget Estimates for
FY2009, Table 6-8. Defense Energy Support Service, Fact Book (2000 – 2007).
Notes: TBA – Total Budget Authority in Current Dollars. O&M – Operation & Maintenance Budget Authority.











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Refining, Suppliers, and the Crude Oil Supply
Crude Oil Supply
The U.S. produces roughly one-third of the crude oil it consumes annually with the balance
supplied by Canada, Saudi Arabia, Mexico, Venezuela, Nigeria, and other smaller producers
(Figure 5). The range of crude oils assays are summarized in Table 5. In the past, when U.S.
crude oil production was higher than today, refineries could depend on steady supplies of light
sweet (low sulfur) crude oil. The benchmark for this crude oil grade, West Texas Intermediate
(WTI), is used as the reference for pricing of U.S. domestic crudes, as well as oil imports into the
United States. With the diminishing supply of sweet crudes, refineries have increasingly turned to
heavier sour crudes.
Figure 5. Crude Oil Supply 2007
Imported and U.S. Produced Crude Oil
Canada, 12.51%
United States,
Saudi Arabia,
33.55%
9.59%
Mexico, 9.33%
Venezuela,
7.61%
Nigeria, 7.18%
Other, 20.25%

Source: Energy Information Administration, U.S. Crude Oil Imports. http://tonto.eia.doe.gov/
dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbbl_a.htm.





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Table 5. Crude Oil Assays
Crude Oil
° API
%Sulfur
PPM Sulfur
West Texas Intermediate Crude Oil (a)
40
0.30
3,000
Alaska North Slope Crude Oil (a)
29.5 – 29
1.10
11,000
Strategic Petroleum Reserve sweet/sour (b)
40 – 30
0.5 – 2.0
5,000 – 20,000
NYMEX Deliverable Grade Sweet Crude Oil (c)
42 – 37
<0.42
4,200
Canadian Sweet/Sour (d)
37.7 – 37.5
0.42 – 0.56
4,200 – 5,600
Canadian Alberta Syncrude (d)
38.7
0.19
1,900
Saudi Arabia Arab Extra Light/ Heavy (d)
37.2 – 27.4
1.15 – 2.80
11,500 – 28,000
Mexico Maya/Olmeca (d)
39.8 – 22.2
0.80 – 3.30
8,000 – 33,000
Venezuela Tia Juana Light/Heavy (d)
31.8 – 18.2
1.16 – 2.24
11,600 – 22,400
Nigeria Bonny Light (c)
33.8
0.30
3,000
Source: (a) Platt’s Oil Guide to Specifications, 1999. (b) Strategic Petroleum Reserve Crude Oil Assays
http://www.spr.doe.gov/reports/Crude_Oil_Assays.htm (c) NYMEX, Exchange Rulebook, Light “Sweet” Crude Oil
Futures Contract. http://www.nymex.com/rule_main.aspx?pg=63 (d) HPI Consultants
http://www.hpiconsultants.com/index.html.
Notes: API – the American Petroleum Institute inverted gravity scale is used to express the 'lightness' or
'heaviness' of crude oils: light - greater than 30º; medium - 22º to 30º; heavy - less than 22º; and extra heavy -
below 10º. Formula: (141.5 ÷ relative density of the crude [at 15.5°C or 60°F]) - 131.5.
Refining
Crude oil contains natural components in the
Figure 6. Petroleum Products Boiling
boiling range of gasoline, kerosene/jet fuel
Range
and diesel fuel as shown in Figure 6. These
products are first separated in a refinery’s
atmospheric distillation tower. The term
“straight-run” is applied to the product
streams that condense during this initial
refining process. The residuum that remains
after atmospheric distillation can be further
processed into gasoline and middle distillate
range products using heat and pressure,
hydrogen, and catalysts (hydrocracking and
catalytic cracking in refining terms).

Depending on their complexity, refineries
Source: CRS
may also produce kerosene/jet fuel and diesel
fuel in this manner. As would be expected, specifications for jet fuel, particularly military grade,
are more rigorous than for kerosene.6

6 ASTM test method MIL-DTL-83133 is applied JP-8.
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Generally, refineries are set up to run specific grades of crude oil, for example light sweet or
heavy sour. Light sweet crude is particularly desirable as a feedstock for gasoline refining
because its lighter-weight hydrocarbons make it easier to refine. Heavier crude oils require more
complex processing than light crudes, and sour crudes require a desulfurization.
Refineries may be set up as:
• Topping refineries separate crude oil into its constituent petroleum products
simply by distillation, also referred to as atmospheric distillation. A topping
refinery produces naphtha but no gasoline.
• Hydroskimming refineries are equipped with atmospheric distillation, naphtha
reforming and necessary processes to treat for sulfur. More complex than a
topping refinery, hydroskimmers run light sweet crude and produce gasoline.
• Cracking refineries add vacuum distillation and catalytic cracking to run light
sour crude to produce light and middle distillates;
• Coking refineries are high conversion refineries that add coking/resid destruction
(delayed coking process) to run medium/sour crude oil.
Catalytic cracking, coking, and other conversion units are referred to as secondary processing
units that add to the complexity of a refinery. Refinery size is usually measured in terms of
distillation capacity (barrels per day). Relative size, however, can be measured using refinery
complexity—a concept developed by W.L. Nelson in the 1960s. The Nelson Complexity Index
rates the proportion of secondary processes to primary distillation (topping) capacity.7 The index
varies from about 2 for hydroskimming refineries to about 5 for cracking refineries, and over 9
for coking refineries.8 While the average index for U.S. refineries is 10, only 59 have coking
capacity.
A typical refinery yields a limited supply of jet and diesel fuel yield depending on the type of
crude oil processed. Gulf Coast (Texas and Louisiana) refineries with an average complexity of
12 to 13 may yield up to 8% jet fuel, and over 30% diesel as shown in Figure 7.9

7 The index was developed by Wilbur L. Nelson in 1960 to originally quantify the relative costs of the components that
constitute the refinery. Nelson assigned a factor of one to the primary distillation unit. All other units are rated in terms
of their costs relative to the primary distillation unit also known as the atmospheric distillation unit.
8 Reliance Industries Limited, Types of Refinery & Nelson's Complexity Index, http://www.ril.com/html/business/
types_refinery.html.
9 Complexity calculated by CRS based on NCI data published by the Oil and Gas Journal.
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Figure 7. Yields of Typical Gulf Coast Refineries
Percent (%)
100
90
80
39.9
36.8
48.1
44.9
70
Gasoline
t
60
en
8.2
6.7
Kerosene/Jet
rc
50
9.7
7.8
8.1
Diesel
Pe
40
24.7
Fuel Oil
30
30.9
39.6
20
41.6
23.7
10
9.8
4.5
0
West Texas
Arab Light
Arab Heavy
Nigerian Bonny
Intermediate
Light

Source: Data used from Energy Intelligence, The International Crude Oil Refining Handbook, 2007
http://www.energyintel.com
Notes: Winter yields shown.
Sulfur Regulations
As a consequence of changes in crude oil supplies, refineries have had to upgrade their processes
(increasing their complexity) to handle heavier sour crude oils. At the same time the
Environmental Protection Agency (EPA) has taken action to reduce the sulfur content of diesel
fuel. By the end of 2010, the sulfur content of all highway-use diesel fuel imported or produced in
the United States will be limited to 15 parts per million (0.0015%); now termed “ultra-low sulfur
diesel” (ULSD).10 The sulfur content must be measured at the retail outlet and not the refinery.
Petroleum product pipelines transport a variety of fuels; a slug of gasoline, for example, may be
followed by a slug of diesel fuel. To limit the additional sulfur picked up during pipeline transit,
refiners are faced with producing even lower sulfur diesel fuel, or disposing of contaminated
“transmix”—the interface between the slug of diesel and a higher sulfur-content product that
preceded the diesel in the pipeline—by reprocessing.
In the late 1980s, DOD adopted the “single battlefield fuel” concept that envisioned using the
same fuel for aircraft and ground equipment operating within a theater.11 DOD has steadily
substituted JP-8 for diesel fuel in operating land-based equipment tactical vehicles and
equipment. (This concept did not apply to naval operations or include carrier-based aircraft.) The
quality of diesel fuel, particularly the sulfur content, varies significantly in other parts of the
world. To minimize the length of the fuel supply chain to a theater of operation, the Army must
either rely on regionally supplied diesel fuel or JP-8, either of which exposes vehicles to fuel with
elevated sulfur levels. The U.S Army has adopted the American Society of Testing and Materials
(ASTM) standard MIL-DTL-83133E for JP-8 which limits the maximum allowable sulfur content
to 3,000 parts-per-million (ppm), though a content of 140 ppm is typical. The sulfur content of

10 40 C.F.R. § 80.510.
11 Office of the Secretary of Defense, Directive 4140.43 Fuel Standardization, 1988; supercede by Directive 4140.25,
DOD Management Policy for Energy Commodities and Related Services, 2004.
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most kerosene is currently 400 ppm. EPA’s “Guidelines for National Security Exemptions of
Motor Vehicle Engines – Guidelines for Tactical Vehicle Engines” recognizes that tactical
vehicles may need to be operated on JP-8 or JP-5 fuel while in the United States to facilitate their
readiness. EPA has not indicated that it will act on reducing the sulfur content of jet fuel.
U.S. Refiners Supplying DOD Fuel
Currently, 142 refineries operate in the U.S. The Energy Information Administration (EIA)
reports their aggregate kerosene and jet fuel production (due to their overlapping boiling ranges)
but does not break out production statistics by refinery.12 DESC does report refiners and suppliers
responding to its fuel solicitations (though not the individual refinery producing the fuel).
Between FY2003 and FY2007, DESC reported that its 4 top suppliers included Shell, Valero
Marketing and Supply Company, ExxonMobil, and BP Corporation (Table 6).
Table 6. Top U.S. Fuel Suppliers to DOD FY2003-FY2007
FY Supplier
$
million
%
FY2007 Shel
2,108
17.2

Valero Marketing & Supply Co
1,027
8.4

Exxon Mobil


1,019
8.3
BP
Corporation


961 7.8

5,115 41.7




FY2006 BP

1,190
9.2
Exxon
Mobil


1,178 9.1
Shel

1,151 8.9

Valero Marketing & Supply Co
661
5.1

Refinery Associates of Texas, Inc.
576
4.4


4,756 36.7




FY2005 BP

1,604
14.9
Exxon
Mobil


1,024 9.5
Shel

1,004 9.3
Valero


564 5.2

4,196 38.9




FY2004 Shel
1,068
17.2
BP
602 10.0

Valero Marketing & Supply Co.
334
5.5
Exxon
Mobil
275 4.5

2,279 37.2




FY2003 Exxon
Mobil
729
13.6
Shel
538 10.0
BP
442 8.2

Valero Marketing & Supply Co.
314 5.8

2,023 37.6
Source: DESC Fact Book (2003 – 2007).
Notes: U.S Suppliers shown.

12 The EIA website can be accessed at http://www.doe.eia.gov.
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Combined, the companies in Table 6 operate 31 refineries in the United States (shown in Table
7), and represent nearly 6 million barrels per day of crude capacity. Not all may supply jet fuel to
DOD, however. This suite of refineries averages 10 as rated by the Nelson Complexity Index.
Two-thirds have the coking capacity needed to refine medium sour crude.
Table 7. Refineries Operated by Top Suppliers
Crude
Nelson
Capacity Complexity
Company Location
State
(bpd)
Index
Valero Energy Corp.
Krotz Springs
Louisiana
83,100
2
BP PLC
Kuparuk
Alaska
14,500
3
Valero Energy Corp.
Denver
Colorado
28,000
6
Valero Energy Corp.
Corpus Christi Texas
205,000
7
Valero Energy Corp.
Norco
Louisiana
186,000
7
Shel Chemical Co.
St. Rose
Louisiana
55,000
7
BP PLC
Prudhoe Bay
Alaska
15,000
7
BP PLC
Toledo
Ohio
147,250
8
Shel Oil Products U.S.
Anacortes
Washington
148,600
8
Valero Energy Corp.
Paulsboro
New Jersey
166,000
8
ExxonMobil Refining & Supply Co. Baton Rouge
Louisiana
501,000
9
Shel Deer Park Refining Co.
Deer Park
Texas
333,700
9
ExxonMobil Refining & Supply Co. Joliet
Illinois
238,000
9
BP PLC
Carson
California
247,000
9
BP PLC
Texas City
Texas
446,500
9
Valero Energy Corp.
Texas City
Texas
225,000
9
BP PLC
Ferndale
Washington
220,400
10
Valero Energy Corp.
Three Rivers
Texas
96,000
10
Valero Energy Corp.
Ardmore
Oklahoma
87,877
10
BP PLC
Whiting
Indiana
399,000
11
ExxonMobil Refining & Supply Co. Torrance
California
149,500
11
ExxonMobil Refining & Supply Co. Baytown
Texas
563,000
12
ExxonMobil Refining & Supply Co. Chalmette
Louisiana
188,000
12
ExxonMobil Refining & Supply Co. Billings
Montana 60,000
12
Valero Energy Corp.
Sunray
Texas
166,660
13
ExxonMobil Refining & Supply Co. Beaumont
Texas
348,500
13
Valero Energy Corp.
Benicia
California
139,500
14
Valero Energy Corp.
Wilmington
California
80,000
14
Shel Oil Products U.S.
Martinez
California
157,600
14
Shel Oil Products U.S.
Wilmington
California
100,000
15
Valero Energy Corp.
Houston
Texas
90,000
17
Source: Oil & Gas Journal. December 19, 2005.

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Refinery Jet Fuel Yield
DOD’s jet fuel purchases represent about 10% of the overall net production of jet fuel refined and
blended by U.S. refineries – over 500 million barrels annually. A typical refinery yields a limited
supply of jet and diesel fuel depending on the type of crude oil processed. Gulf Coast refineries
may yield up to 8% jet fuel, and over 30% diesel (Figure 7). Roughly ten times more commercial
jet fuel is refined in U.S. refineries than military grade jet fuel (Table 8). DOD jet fuel purchased
in CONUS has ranged from 10% to 13% of the U.S. net production of jet fuel, and up to 1% of all
the refined petroleum products produced by U.S. refineries (Table 9). This percentage does not
include jet fuel purchased overseas and supplied to OCONUS military operations.
Table 8. Military Use vs. Commercial Use Jet Fuel, and Total U.S. Refined Products
Million Barrels per Year
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Mil. 52.5 51.2 52.1 55.2 62.7 62.7 58.1 52.7 55.8 48.8 49.1
Com. 514.6 505.5 519.0 532.7 495.5 489.8 485.2 513.5 508.4 491.8 479.4
Total 6,116.9 6,216.0 6,201.1 6,310.9 6,309.0 6,304.6 6,382.8 6,510.8 6,497.0 6,560.9 6,567.9
Source: U.S. Department of Energy EIA Petroleum Navigator - U.S. Refinery & Blender Net Production,
http://tonto.eia.doe.gov/dnav/pet/pet_pnp_refp_dc_nus_mbbl_a.htm.
Notes: Mil – Military kerosene Jet fuel; Com – commercial jet fuel; Total – total net refined petroleum products.

Table 9. DOD Jet Fuel Purchases as a Percent of Net U.S. Jet Fuel and Overall U.S.
Production
Percent (%)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Net
Jet 10.2 10.1 10.1 10.4 12.7 12.8 12.0 10.3 11.0 9.9 10.2
U.S. 0.9 0.8 0.8 0.9 1.0 1.0 0.9 0.8 0.9 0.7 0.7
Source: Complied from Table 1 and Table 8.
Notes: U.S. - represents al refined products; Net Jet – U.S. net jet fuel production.
Fuel Acquisition
In general, DOD’s authority to procure fuel extends from power originally granted to the Navy.
Under 10 U.S.C. § 7229 (Purchase of Fuel), “... the Secretary of the Navy may, in any manner he
considers proper, buy the kind of fuel that is best adapted to the purpose for which it is to be
used.”13

13 Title 10—Armed Forces, Subtitle C—Navy And Marine Corps, Part IV—General Administration; Chapter 631—
Secretary of the Navy: Miscellaneous Powers and Duties.
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Section 7229 superseded 34 U.S.C. 580 “which has been interpreted as authorizing the Armed
Services Petroleum Purchasing Agency to negotiate contracts for the purchase of fuel, not only
when acting as a procuring activity for the Navy, but also when filling the consolidated fuel
requirements of the armed forces.” 14
DOD purchases refined fuel in a two-step process. DESC, operating under the Defense Working
Capital Fund (DWCF), purchases the fuel and subsequently sells it primarily to DOD customers.
This operation permits the Department to take advantage of price breaks for large quantity
purchases, and in most years provides the DOD customer a stabilized price for all products during
that fiscal year.
Acquisition Regulations
The term “acquisition” is defined by Title 41 (Public Contracts) U.S.C Section 403 to mean the
process of acquiring, with appropriated funds, by contract for purchase or lease, property or
services that support the missions and goals of an executive agency. The term “procurement” is
defined to include all stages of the process of acquiring property or services, beginning with the
process for determining a need for property or services and ending with contract completion and
closeout. Acquisition by the Armed Forces is generally codified in Title 10 U.S.C. Chapter 137 –
Procurement.
The primary document for federal agency acquisition regulations consists of the Federal
Acquisition Regulation (FAR), as promulgated in Title 48 Code of Federal Regulations (CFR). –
The Federal Acquisition Regulations System.15 The FAR System does not include internal agency
guidance, however. DOD guidance is found in the Defense Acquisition Regulation System
(DFARS) promulgated in 48 CFR Parts 201 through 299.
Multiyear Contracting Authority
In practice, DESC has typically awarded fuel contracts for lengths of one year. DESC uses fixed-
price contracts with economic price adjustment which provide for upward and downward revision
of the stated contract price upon the occurrence of specified contingencies.16 Generally, these
types of contracts use the clauses at FAR 52.216–2, Economic Price Adjustment—Standard
Supplies.17 Economic price adjustment (EPA) provisions are used in contracts when general
economic factors make the estimation of future costs too unpredictable, as is typically the case for
refined petroleum products.18

14 Title 34 – Navy was repealed generally by an act of August 10, 1956, which revised and codified the statutory
provisions that related to the Army, Navy, Air Force, and Marine Corps, and enacted those provisions into law as Title
10, Armed Forces. 70 Stat. 1126. Public Law 1028 Chapter 1041, 70A Stat. 1.
15 P.L. 93-400 Office of Federal Procurement Policy Act of 1974 as amended by P.L. 96-83 Office of Federal
Procurement Policy Act Amendments of 1979. Federal Acquisition Regulations are available at http://farsite.hill.af.mil/
VFDFARA.HTM.
16 See 48 C.F.R. § 16.203—Fixed-price contracts with economic price adjustment, and 48 C.F.R. § 216.203-4—
Contract Clauses.
17 http://www.acqnet.gov/far/current/html/52_216.html#wp1114622
18 See DFARS PGI 216_2 – Fixed Price Contracts. http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/dfars/
PGI%20216_2.htm#TopOfPage
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DESC has determined supplies and related services are eligible for the multi-year contracting
provisions under FAR17.105-1(b) and DFARS 217.170(a) and 217.172(b). DESC adopted
contracting instructions for entering into multiyear contracts for bulk petroleum, ships’ bunker,
into-plane, and post-camp-and-station for the interim period of October 1, 2008, through
September 30, 2009.19 DOD and the military departments are authorized to contract for storage,
handling, or distribution of liquid fuels or natural gas under 10 U.S.C §2922. This authority
includes a direct multi-year authority. Such contracts are subject to the five-year limitation, but
may contain options for five-year renewals, but not for more than a total of twenty years.
“Multiyear contract” means a contract for the purchase of supplies or services for more than one,
but not more than five, program years. A multiyear contract may provide that performance under
the contract during the second and subsequent years of the contract is contingent upon the
appropriation of funds, and (if it does so provide) may provide for a cancellation payment to be
made to the contractor if appropriations are not made. The key distinguishing difference between
multiyear contracts and multiple year contracts is that multiyear contracts buy more than one
year’s requirement (of a product or service) without establishing and having to exercise an option
for each program year after the first, whereas multiple year contracts have a term of more than
one year regardless of fiscal year funding, as defined in FAR Subpart 22.10—Service Contract
Act of 1965, as Amended.
Multiyear contract authority for supplies is derived from the general procurement statutes for
acquisition of property (10 U.S.C. 2306b. Multiyear contracts: acquisition of property). DOD
agencies, as regulated under 48 CFR 17.172 (Multiyear Contract for Supplies), may enter
multiyear contracts for supplies if the use of such contracts will promote national security.
DOD may enter into a multiyear contract for supplies if the contract will result in substantial
savings of the total estimated costs of carrying out the program through annual contracts (48 CFR
17.105-Uses). If funds are not appropriated to support the succeeding years’ requirements, the
agency must cancel the contract. Multiyear contracting is encouraged in order to take advantage
of lower costs, among other objectives under 48 CFR 17.105-2 (Objectives).
A multiyear contract for supplies, in addition to the conditions listed in FAR 17.105-1(b), can be
entered into if the contract will promote the national security of the United States (10 U.S.C. §
2306b (a) (6)) and promulgated in 48 CFR 217.172 - Multiyear contracts for supplies). The
multiyear contract can not exceed $500 million (when entered into or when extended) until the
Secretary of Defense identifies the contract and any extension in a report submitted to the
congressional defense committees.
Acquisition of Alternative Fuels
DOD is authorized to procure fuel derived from coal, oil shale, and tar sands under 10 U.S.C. §
2922d. This also includes a direct authority for multi-year contracts. Contracts for procurement of
these fuels “may be for one or more years at the election of the Secretary of Defense.”
The Secretary of Defense has broad waiver authority for the acquisition of alternative fuels. If the
Secretary determines that market conditions for a certain fuel source have adversely affected (or

19 Contracting Instruction (CI): 08-12 Multiyear Determination and Findings. http://www/desc/dla/mil.
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will in the near future adversely affect) the acquisition of that fuel source by DOD, and the waiver
will expedite or facilitate the acquisition of that fuel source for government needs, the Secretary
of Defense may, for any purchase of a defined fuel source, waive the application of any provision
of law prescribing procedures to be followed in the formation of contracts, prescribing terms and
conditions to be included in contracts, or regulating the performance of contracts. In this section,
the term “defined fuel source” means any of the following: petroleum (which includes natural or
synthetic crude, blends of natural or synthetic crude, and products refined or derived from natural
or synthetic crude or from such blends), natural gas, coal, and coke. The five-year limit on multi-
year contracts would be a “term and condition” which could be waived upon the requisite finding
of the Secretary.
Fully Burdened Cost of Fuel
DESC’s contract delivery price is based on lowest cost to the government FOB (free-on-board). A
typical delivery point, a Defense Fuel Supply Point (government owned or leased tank farms),
redistributes fuel to bases and installations. DESC levels the price of fuel for all DOD’s
“customers” and includes a surcharge for its operating costs. The price does not include the
logistical cost of delivery forward to the area of operation by, for example, air-to-air refueling,
underway replenishment, or ground transport. In the past, these hidden logistical costs had not
been factored into DOD’s fuel costs.
The Duncan Hunter National Defense Authorization Act for FY2009 (P.L. 110-417) now requires
that analyses and force planning processes consider the requirements for, and vulnerability of,
fuel logistics.20 By making fuel logistics part of the acquisition processes, new military
capabilities must take into account the life-cycle cost analysis that includes the fully burdened
cost of fuel. The act also directs the appointment of a director responsible for the oversight of
energy required for training, moving, and sustaining military forces and weapons platforms for
military operations.21
Policy Considerations
Over a decade that saw an unprecedented spike in crude oil prices, DOD experienced a 373%
increase in the cost of fuel cost (dollars per barrel). Rising fuel costs also had been preceded for
several years by the concern over declining worldwide crude oil production. In 2006, due to
increasing fuel costs, the Bush Administration’s war on terrorism, and military operations in Iraq
and Afghanistan, the Air Force had to reduce funding available for flying hours used to train Air
Combat Command aircrews.22
Fuel costs have represented at most 2% of DOD’s Operation and Maintenance (O&M) budget,
and even smaller percentage of DOD’s overall annual budget over the past decade. In
comparison, the airline industry’s major operating costs are fuel. However, the airline industry

20 Section 332. Consideration of Fuel Logistics Support Requirements in Planning, Requirements Development, And
Acquisition Processes.
21 Section 902. Director of Operational Energy Plans and Programs.
22 Tech. Sgt. Russel Wicke, "Rising Fuel costs tighten Air Force belt," Air Force Link, September 9, 2006,
http://www.af.mil/news/story.asp?id=123026679.
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has the option during periods of high fuel cost of passing the costs on to customers, adjusting
flight schedules, withholding stock dividends, or even declaring insolvency. Unlike the airlines,
DOD’s only recourse has been to request supplemental appropriations to pay for the increased
costs and supplies. For example, DOD identified $0.5 billion in the FY2007 Emergency
Supplemental Request for increases in baseline fuel costs resulting from higher market costs in
the first half of FY2007.23 DOD has looked at several options to limit its vulnerability to fuel
price swings and supply shortages. These include “fuel hedging,” multi-year contracting, and
alternative fuels.
DESC’s “business model” provides the flexibility needed to meet changing operational
requirements from year-to-year. As noted above, DESC uses fixed-price contracts that include
economic price adjustments which provide for upward and downward price revisions. This
contract provision is designed to take advantage of swings in fuel prices, which ultimately reflect
crude oil prices. If prices decline, DESC’s costs decline. If prices rise, DESC has the option of
cancelling the contract, and advertising for a new supplier. This limits DESC’s risk in holding
contracts for fuel priced above the going market rate, but does not hold down costs during rapidly
escalating prices. (DESC will pay higher prices, but look for the best offer.)
A practice used in the airline industry makes use of various “hedging” strategies to minimize the
risk of future jet fuel price increases. A simple hedge involves buying “futures” contracts to lock
in prices. For example, when crude oil prices peaked neared $147/barrel in the summer of 2008,
Southwest Airlines reportedly had managed earlier to hedge its fuel at $51/barrel.24 In 2004, the
Defense Business Board convened the Fuel Hedging Task Group to examine potential ways of
reducing DOD’s exposure to fuel price volatility by hedging in commercial markets.25 Although
the Board Task Group concluded that DOD could feasibly hedge its fuel purchases, broader
support was given to engaging in “no-market” hedging through the Department of the Interior’s
Mineral Management Service. During crude oil price spikes, additional Interior Department oil
lease revenues could be applied to offset increasing DOD fuel costs.26 The Group concluded that
DOD could request that the Office of Management and Budget (OMB) seek legislative authority
to transfer funds from Interior to Defense, or vice versa, depending on which Department benefits
from unanticipated price changes. However, Interior derives the bulk of its revenues from Outer
Continental Shelf (OCS) leases, and those revenues are already statutorily allocated among
various government accounts, including coastal states. Furthermore, OCS royalties-in-kind, in the
form of oil, are delivered to the Strategic Petroleum Reserve (SPR).27
The SPR was created in response to the 1970s Arab oil embargo to prevent a reoccurrence of
supply disruptions. When filled to its 727 million barrel capacity, the SPR represents roughly 70
days of imported supply. A drawdown of the SPR under the Energy Conservation Policy Act
(EPCA – P.L. 94-163) can take the form of a sale to the highest bidder (42 U.S.C. § 6241), or an

23 Office of the Secretary of Defense, Operation and Maintenance Overview Fiscal year (FY) 2008 Budget Estimates,
February 2007, p. 196, http://www.defenselink.mil/comptroller/Docs/fy2008_OandM_overview.pdf.
24 Dan Reed, "Can fuel hedges keep Southwest in the money?," USA Today, July 7, 2008. http://www.usatoday.com/
money/industries/travel/2008-07-23-southwest-jet-fuel_N.htm.
25 Fuel Hedging Task Group, Recommendations related to the practical use of fuel hedging for the Department of
Defense, Defense Business Board, March 1, 2004, http://www.defenselink.mil/dbb/pdf/FuelHedging-03-2004.pdf.
26 CRS Report RL33493, Outer Continental Shelf: Debate Over Oil and Gas Leasing and Revenue Sharing, by Marc
Humphries.
27 See CRS Report RL33341, The Strategic Petroleum Reserve: History, Perspectives, and Issues, by Robert
Bamberger.
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exchange (the company receiving the oil must later replace it a comparably valued volume).
During the opening days of the 1991 Persian Gulf War, President George H.W. Bush’s drawdown
authorization precipitated a rapid crude oil price decline.
The Government Accountability Office (GAO) recently reported that in 2006, 40% of the crude
oil refined in U.S. refineries was heavier than that stored in the SPR.28 Refineries that process
heavy oil cannot operate at normal capacity if they run lighter oils. The types of oil currently
stored in the SPR would not be fully compatible with 36 of the 74 refineries considered
vulnerable to supply disruptions. GAO cited a DOE estimate that U.S. refining throughput would
decrease by 735,000 barrels per day (or 5%) if the 36 refineries had to use SPR oil—a substantial
reduction in the SPR’s effectiveness during an oil disruption, especially if the disruption involved
heavy oil.
The SPR does not have a defined role in mitigating a DOD fuel supply disruption.29 Presumably,
a refinery under contract to supply DOD would have the option of bidding on a drawdown sale.
However, for every gallon of jet fuel to be refined, roughly 38 gallons of other petroleum
products (gasoline, diesel) would have to be produced, as a typical refinery yields only 8% jet
fuel on average—reducing the SPR’s effectiveness in such a contingency.
As a final recourse, DOD may look to an alternative or replacement for crude oil, as provided in
the 2005 Energy Policy Act. However, the Energy Independence and Security Act of 2007 (P.L.
110-140) prohibits federal agencies from procuring alternative or synthetic fuels, unless contract
provisions stipulate that life-cycle greenhouse gas emissions do not exceed equivalent
conventional fuel emissions produced from conventional petroleum sources.30 The provision was
included to ensure that federal agencies are not spending taxpayer dollars on new fuel sources
that will exacerbate global warming—a response to proposals under Air Force consideration to
develop coal-to-liquid (CTL) fuels.31 The Air Force has since abandoned plans to attract private
investment in a CTL fuel plant to supply Malmstrom Air Force Base, Montana, but DESC is
interested in pursuing a pilot program for synthetic fuels to support DOD JP-8 fuel requirements
in Alaska.32
Although crude oil prices have precipitously declined, as of late, the reoccurrence of crude oil
supply shortages and price spikes may be inevitable. Both policy and economics keep fossil-
based alternatives out-of-reach for now. Confronted with the same realities facing all energy
consumers, DOD is finding that it is forced to shift its thinking toward efficiency. Taking the fully
burdened cost of fuel into account for new military capabilities as well as extending such an
analysis to new military operations may be prudent approaches to managing fuel costs, as might
projecting the anticipated cost of fuel in budget requests.


28 U.S. Government Accountability Office, Strategic Petroleum Reserve - Options to Improve the Cost-Effectiveness of
Filling the Reserve, GAO-08-512T, February 26, 2008, p. 5, http://www.gao.gov/new.items/d08521t.pdf.
29 Under 42 U.S.C. § 6241 (g) Directive to carry out test drawdown and sale, the Secretary of Defense must determine
that a test drawdown would not impair national security.
30 Section 526 - Procurement and Acquisition of Alternative Fuels.
31 See Letter of March 17, 2008, from Chairman, House Committee on Oversight and Government Reform to
Chairman, Senate Committee on Energy and Natural Resources.
32 DESC News Release, February 2, 2009. https://www.desc.dla.mil/DCM/Files/
Registration%20Release_2009022009.pdf
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Appendix. Terms
Avgas (aviation gasoline) is a high octane fuel used in light aircraft powered by reciprocating
spark-ignition engines.
Crude Oil Classification


────────────
Sulfur
────────────
API
Sweet
Medium Sour
Sour
Gravity
0.0% - 0.5%
0.5% - 1.5%
1.5% -3.0+%
40º Light West
Texas
Interm.


33º
Medium
Bonny Medium
Mexico Olmeca
Arab Light
22º Heavy


Venezuela
Heavy

DFM (diesel fuel marine) has been used in all shipboard propulsion plants (diesel, gas turbine,
and steam-boiler) since 1975. Its NATO equivalent is F-76.
DF2 (No. 2 diesel fuel) is the primary fuel for ground mobility vehicles.
FOB (free on board) is a trade term requiring the seller to deliver goods on board a vessel
designated by the buyer.33 The seller fulfills its obligations to deliver when the goods have passed
over the ship's rail. When used in trade terms, the word “free” means the seller has an obligation
to deliver goods to a named place for transfer to a carrier. Contracts involving international
transportation often contain abbreviated trade terms that describe matters such as the time and
place of delivery and payment, when the risk of loss shifts from the seller to the buyer, as well as
who pays the costs of freight and insurance.
Jet A-1 is a kerosene-based turbine fuel adopted by international commercial aviation. Its ASTM
specification is D16555 (Jet A-1), and identified by NATO as F-35. Jet A, normally available in
the United States has the same flash point (100 ºF) as JET A-1 but a higher freeze point.
JP-5 (JP for “jet propellant”) is a fuel developed for use in aircraft stationed aboard aircraft
carriers where the risk of fire is a great concern, particularly in the confined spaces of the hanger
deck. It is kerosene-based, and has a relatively higher flash-point (140 ºF) than other aviation
turbine fuels (Jet A-1 and JP-8). Its specification is MIL-DTL-5624 U, and it is also identified by
NATO as F-44. JP-5 is also suitable for use as ship turbine fuel.
JP-8 is the military equivalent of Jet A-1 but with corrosion inhibitors and icing inhibitors. The
Air Force switched to JP-8 in 1996 out of concerns for safety and combat survivability. It is a less
flammable and a less hazardous fuel than the previously used naphtha-based JP-4. (The Alaska
Air Guard still relies on JP-4 for its cold-climate properties.) Though JP-8 contains less benzene
(a carcinogen) and less n-hexane (a neurotoxin) than JP-4, it has as stronger smell and is oily to
the touch, whereas JP-4 is more solvent-like. Its ASTM specification is MIL-DTL-83133, and is

33 Forbes Investopedia, http://www.investopedia.com/terms/f/fob.asp.
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Department of Defense Fuel Spending, Supply, Acquisition, and Policy

identified by NATIO as F-34. JP-8+100 includes an additive that increases thermal stability. JP-8
has also been adopted for use in diesel-powered tactical ground vehicles.
Middle Distillate range fuels include kerosene, jet fuel, and diesel fuel.
Military installation means a base, camp, post, station, yard, center, or other activity under the
jurisdiction of the Secretary of a military department or, in the case of an activity in a foreign
country, under the operational control of the Secretary of a military department or the Secretary of
Defense (10 U.S.C. 2801(c)(2)).
Mogas (motor gasoline) is the primary fuel for non-tactical ground vehicles.
Multiyear contracting is a special contracting method to acquire known requirements in quantities
and total cost not over planned requirements for up to five years unless otherwise authorized by
statute, even though the total funds ultimately to be obligated may not be available at the time of
contract award (48 CFR 17.104 General) . This method may be used in sealed bidding or
contracting by negotiation. Agency funding of multiyear contracts must conform to OMB
Circulars A-11 (Preparation and Submission of Budget Estimates) and A-34 (Instructions on
Budget Execution).
Naphtha is a petroleum distillate with a boiling range between gasoline and heavier benzene. It is
used as a feedstock in gasoline production where it is catalytically reformed from a lower to a
higher octane product termed reformate.

Author Contact Information

Anthony Andrews

Specialist in Energy and Energy Infrastructure
Policy
aandrews@crs.loc.gov, 7-6843




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