Below is the transcript for the BioFuels and National Security media call held on March 28, 2012

ASP’s Board Member LtGen John Castellaw USMC (Ret.), CEO BGen Stephen A. Cheney USMC (Ret.) and Senior Fellow for Energy and Climate Security Andrew Holland all took part.

You can also find ASP’s fact sheet on the subject here.

Moderator:    Brent Erickson

March 28, 2012

1:00 p.m. ET

Operator:              Good afternoon.  My name is (Olivia) and I will be your conference operator today.  At this time, I’d like to welcome everyone to the Biofuels for Military Use and National Security conference call.

All lines have been placed on mute to prevent any background noise.  After the speakers’ remarks, there will be a question and answers session.  If you would like to ask a question during this time, simply press star then the number one on your telephone keypad.  If you would like to withdraw your question, press the pound key.  Thank you.

I would now turn the call over to Mr. Jim Greenwood.

Brent Erickson:     Hello, this is Brent Erickson, BIO’s executive vice president for industrial and environmental biotechnology.  I’d like to welcome our reporters and our speakers to this call on Biofuels for Military Use and National Security, which has be co-hosted by the Biotechnology Industry Organization and the American Security Project.

We have a number of speakers today including former military generals and executives from BIO member companies that are researching, developing and commercializing advanced biofuels to meet military specifications and needs.  I was the house on services committee, both committee and readiness prepares to discuss the Department of Defense operational and installation energy priorities.

BIO and its member companies would like to emphasize that the American advanced biofuels industry must play a key role in improving national security by reducing the militaries operational cost overruns.  While BIO represents and broad cross section of biotechnology interest, our number of companies working on industrial and environmental biotechnologies have a particular interest in bolstering American energy security by producing conventional and advanced biofuel from domestic feedstock.

This is an exciting time for the advanced biofuels industry because private sector investment, funding preservation and existing stable government policy has accelerated the commercialization of technology so the commitment that Congress and the DOD to advanced drop in biofuels were military jet ships and vehicles will further private investment.  And that is really key for both the DOD and our member companies and the nation as a whole.

Adopting drop in biofuels will help DOD and the nation achieve even broader national security objectives.  The U.S. holds 2 percent of the worlds know oil reserves and it consumes about 22 percent of the world oil much of which comes from volatile regions of the world.  So protecting the worldwide fuel supply logs and shipping move is costly in a number of ways to this country.  And according to the Navy, there is one marine casualty for every 50 fuel convoys in theater.

And the U.S. access to the world’s oil suppliers certainly not guaranteed going forward.  Continued reliance on oil puts the U.S. troops at risk of supply disruptions during military or humanitarian missions.

The oil market is unpredictable and the price for barrel is often seen dramatic fluctuations.  In F.Y. 2011 and 2012, the department came up with $5.6 billion short in its budget for military operations and maintenance because it spent more on fuel than anticipated.

While Pentagon has started to decrease its reliance on foreign oil and increased the use of energy, renewable energy for a simple reason, energy security is national security.

Further our reliance on oil is a liability that our enemies can exploit by blocking access to fuel supplies during military or humanitarian missions as I said before.  That’s why each branch of the military has set goals for using renewable energy.  And while the cost of renewable energy is high now it is declining rapidly because of the ongoing research and development and support of federal policies that are in place today.

Make sense for the military to prepare for the day when advanced biofuels will be a significant part of the U.S. energy mix and the defense energy mix.  It also makes sense for them to lead technology and market development for a product that is vital for national security.

There are many examples of consumer products and industry where the military or federal government led commercial development.  During World War II, the military drove research and development of synthetic rubber as the U.S. have been cut off from bio war supplies and natural rubber.  And more recently the federal government defense advisory research project, I’m sorry, Defense Advanced Research Project Agency led development of the semiconductors for the computer industry.

And the aluminum industry and the titanium industry were actually helps to get started by the Defense Production Act.  And so there had been a number of precedents where DOD has helped industry get started.  And that’s one of the reasons we wanted to have this call today talk about the need for a DOD involvement.

So with that I’ll turn it over to Jim Greenwood, BIO’s president and CEO.

Jim Greenwood:    Well, good afternoon everyone.  I’m a little late here actually, so I was supposed to start a little early, but so briefly development of an advanced biofuel industry is really an energy security and a national security necessity on the same magnitude of these previous examples that Brent just covered.

BIO continues to advocate for the stable long term agriculture, energy, tax and defense policies that will accelerate the necessary commercial development of advanced biofuels.

And with that I’d like to turn to Andrew Holland, who is a senior fellow for Energy and Climate at the American Security Project for an introduction to his organization.

Andrew Holland:  Great.  Thank you, Jim, for the introduction.  I’m going to briefly introduce us here and turn it quickly over to our star speakers.  The American Security Project is a non-partisan think-tank devoted to taking a long term perspective on America’s 21st century national security needs.  I am ASP’s senior fellow for energy and climate policy.  We host a robust program looking at the choices America needs to make on energy in the short term to meet our energy needs over the long term.

One of our most pressing concerns that we’ve identified is American vulnerability to oil.  This goes for American consumers and it goes even more for the American military.  We believe that the country needs to make a strategic choice in the short term that can over the long term provide a competitor to oil.  The military is particularly vulnerable to oil dependence.  And for that reason we believe that it is appropriate for our military to lead this strategic transition away from web.

To speak more about this is my pleasure to introduce two of ASP’s greatest assets, Brigadier General Steve Cheney, U.S. Marine Corps retired and John Castellaw, U.S. Marine Corps retried.

General Cheney is ASP’s CEO and my boss.  General Castellaw is the president of Crockett Policy Institute and a member of ASP’s ford.

I will turn it over first to General Cheney then we’ll go to General Castellaw.  General Cheney?

Steve Cheney:       Andrew thanks for those comments and, Brent and Jim, your comments were both spot on as well.  I don’t think this will come as any surprise to anybody on the call, but the Department of Defense is the world’s largest single consumer of petroleum based fuels burning some 325,000 barrels of fuel per day.  And just from personal experience from my time as an artillery officer, when I was in the artillery battalion for many years, we had 325 pieces of rolling stock in that battalion, but our Achilles heel no doubt were petroleum products.

There is no currently alternative to oil whether you are flying your jets, you are driving your tanks, your ships; the military has to burn petroleum fuels in order to get around today.  And in quite frankly this is a huge national security risk both in terms of access to our supply and of course the immense cost that’s associated with it.  The dependences of our forces and our economy on oil, harms our national security and it puts us at the mercy of the world’s fluctuations in prices and puts us at the whims of hostile regimes.

We all know what’s going on in Iran in the Strait of Hormuz, any little tickle in the market the price goes off the map and the budget goes right up along with it.

For the military and those of us who have served in it, we all recognize that this oil dependence were literally is a single point of (inaudible) and if oil is not available or it becomes too costly we really have no other choice.  I mean we are done we are stuck.

Now there are those who say well we can just drill our way through it and you know, we’ll produce enough oil to supply our forces.  Well drilling is not the answer, and it’s not going to provide that amount of oil that we are going to need.

Right now the U.S. only has about 10 percent of the world’s oil production.  We cannot produce enough oil to meet the demands of just both the consumers and the military in this country along.

Everybody recognizes the United States military is a preeminent force.  We are all over the world, this global presence requires us to move about freely and we have today – we have to do that depending purely on oil and we’ve got to get off that dependence.  I believe and I know ASP believes the new technological developments of biofuels will give us a huge opportunity to break that dependence.

And I think it’s one way out of this corner that we are stuck in.  So I think you can see what we feel here at ASP about it.  We think biofuels are way to the future to get of this oil dependant.

With that I’d like to turn it over to my esteemed Lieutenant General Castellaw.

John Castellaw:     Thank you, Steve.  As General Cheney just explained our dependence on the oil is a long term strategic risk.  In spite of claims to the contrary increased and less (inaudible) and building pipelines that carry crudes south to the Gulf will not result in energy independence or low fuel prices.  Even in the short or long terms, these actions in fact will tap Northern American produced oil closer to global prices by growing world demand and having the availability of oil affected by advance such as those things that occur in Nigeria, Sudan and Middle East.

And oil reserves are all finite as indicated they’ll eventually run short, become physically more difficult to acquire at any price driving strategic challenges and potentially impacting our military’s ability to conduct operations.  We need alternative energy sources to reduce the strategic challenge and mitigate the operational risk that sold them in some petroleum based fuels entail even as we strengthen our national economy with home grown solutions.

Today, they are rapidly developing new technologies that could provide real alternatives with petroleum based fuel.  Next generation biofuels that can take us beyond corn-based ethanol will provide a drop in replacement for fuels to meet our military’s operational needs while reducing the strategic challenges.  The military is already certifying these types of fuels in jets, helicopters, vehicles and ships.  These new technologies can create refined fuel from feedstock ranging from corn and sugarcane to (waste tools), mustard seeds, algae and (inaudible).

These biofuels are designed to be chemically identical to the jet fuel they are replacing.

Just as in the past and the speaker talked about it, the military can lead in biofuel development.  They’ve been groundbreakers, the military in computers and it special mobiles and other technologies driving the economy to date.  And it can do the same in developing an alternative to oil because of the national security imperative that we embrace.

Studies indicate that biofuels will be cost competitive early in the next decade.  But this timetable could as we learn doing our recent ASP’s sponsored panel of military officials.  We move forward if the government (inaudible) industry to speed up commercialization.

The Navy has proposed to use the Defense Production Act in conjunction with the Department of Energy and with Department of Agriculture to directly invest $510 million in commercial development of domestic biofuels industry.  Investment to be matched equally by private sector funders, some of them are going to be on this call today.

As a military professional and as a lifelong farmer, it is exciting to me to think about a bio-based fuel production industry where renewable agricultural feedstocks are converted to higher valued product including biofuels and renewable chemicals.  A growing BIO based community will not only strengthen economic security, but also enhance our overall national security.  Thank you and I look forward to questions later on.

Jim Greenwood:    This is Jim Greenwood again.  Thank you, Generals.  I’d now like to turn it over to Jack Huttner.  He’s the executive vice president of Commercial and Public Affairs with Gevo, which is headquartered in Colorado.  Jack was instrumental in the formation of our industrial and environmental section and he served very long time on its governing board.  Jack?

Jack Huttner:        Thanks, Jim.  And welcome everybody, good afternoon.  Gevo is a company that makes and is developing isobutanol.  We convert and retrofit existing ethanol plants to be able to make isobutanol, which is an energy dense four-carbon alcohol that can be converted into jet fuel kerosene frankly with known chemical chemistry steps and known chemical processes.  We have our first 18 million gallons of commercial capacity coming online sometime in June of this year with another 38 million gallons scheduled to come on in South Dakota in 2013.

We’ve also opened up a conversion facility down in the Houston area to take the isobutanol and convert it into paraffinic kerosene or jet fuel.  And we have announced in September contract with the U.S. Air Force to supply them with bio jet for engine testing and certification on their A-10 platform.

We are also supplying the commercial aviation industry or hoping to.  We have a non-binding letter of intent to supply United Airlines in the Chicago O’Hare hub and are pursuing fuel certification through the ASGM organization and expect to have full certification by the end of 2013.

The military has a separate and distinct certification process and it is quite important that the military is able to finish the certification of all the available biofuels in a timely fashion, so that when we wrap up for commercial production we will be able to supply them with alternate sources, renewable sources of jet fuel.

Just to summarize Gevo is in the process and will be wrapping up to 80 million gallons a year of isobutanol production starting in June of 2012.  We have online already a demonstration unit that has the capacity of 120,000 gallons a year to convert that isobutanol into jet and we have advanced commercial discussions with other partners to bring on commercial refineries for the production of alcohol to jet as we ramp up production and we are eager to supply the military.  Thank you.

Jim Greenwood:    Thanks, Jack.  Jonathan Wolfson is the CEO and co-founder of Solazyme were scheduled to be with us today, but unfortunately he was called away.

So I would like to introduce Lee Edwards, who is the president and CEO of Virent, which is located in Madison, Wisconsin.  Prior to joining Virent Lee had 25 years global energy experience at BP, including in its renewable sector.

Lee Edwards:        Thanks very much.  And it’s a pleasure to be on the call and I really appreciated the opportunity to talk about Virent and some of the opportunities we see and give all the support we can for what the Navy and the Department of Defense in general was trying to do in providing the leadership to get this industry to full scale and to compete and to replace crude oil.

A couple of data points on the company, Virent have been in existence for 10 years.  We have 120 employees.  We are privately held and pre-revenues, so we have a demonstration plant here in Madison and we’ve got a number of ongoing Department of Energy and FIA grants to continue to develop the technology for scale.  We have a very unique catalytic chemistry approach to converting soluble plant filters from a wide range of feedstock types into direct replacement drop-in molecules.

We are one of the few companies that is actually successfully demonstrated and certified or validated all three transportation fuels.  So we are making gasoline, jet fuel and diesel, all from renewable feedstocks.  Lower carbon intensity and domestically produced.

We have amongst our investors Royal Dutch Shell, Cargo and Honda.  And to give you an example of the platform we also just signed a strategic relationship with Coca-Cola who wants to use some of our material in the chemical space for a renewable recyclable plant file at a 100 renewable content.

So I think we are in this position now where in the past there was a great deal of frustration with my experience in the oil industry there was no choice.  We did not have the technologies to actually make the molecules that are identical to those that come from refining a barrel of crude oil.  Today there are many companies that have the opportunity to prioritize this leadership.  And my goal at Virent is to make sure that we maintain and establish competitive advantage.

And that competitive advantage is going to come from compelling technology with private sector partners who are willing to make the large capital investments required to build the scales, so that we can have the lowest possible cost to customer.  Building a small is not going to pick compete on a global basis with refining we need to build bigger plants.  We need to have compelling economics, so that those investors can get a return and we need to demonstrate that we are providing products that customers actually want to buy.

And I just wanted to provide some support that when you look at the inherent interests that the Department of Defense has in domestically produced renewable fuels.  I think we should be expecting with that leadership there’ll be many others that will follow and want to participate in uptake in these plans.  The BPA program is a great start and it’s not putting the U.S. tax payer at risk in that it’s going to be matched with private sector funding and we should expect that there’ll be private sector customers that will participate in those programs.

But somebody’s got to start, you know, somebody has got to make the first step and if you believe crude oil can continue to go up and if you believe continued productivity in a true advantage in the United States of agriculture will reduce volatility and increase the opportunity for rural development.  I think now is a perfect time to start building scale, so that in 10 years time or in five years time, we won’t be looking back saying I wish we had started sooner.  And so I applaud, you know the activities that are being provided right now.

I think they’re in a way being emulated the companies like Coco-Cola who are also providing the leadership with customer off take so that we can actually attract private investment to get these plants funded.  And by the way it’s not just building one plant.  We need to build 10, 20, 50 plants to actually get the scale and deliver the full potential of replacing crude oil on an imported basis.  So thanks for the opportunity and happy to take any questions as part of the group.

Jim Greenwood:    OK, Lee.  Thank you, we appreciate your comments.  So I would now like to open this up to questions from the media.  And if you would identify yourself when you are ready to post a question and your organization and if you would like to address the – your question to a specific one of our participant staff, please let us know that.

Operator:              Ladies and gentlemen, if you would like to ask a question, please press star then the number one on your telephone keypad.  Again star one to ask a question.

Your first question comes from the line of (Eric Linemen).  (Eric), your line is open, please proceed with your question.  That question has been withdrawn.

Your next question comes from the line of (Robert Brookes).

(Robert Brookes): This is (Bob Brookes), do you hear me?

Jim Greenwood:    Yes, we do.

(Robert Brookes): OK.  Jack with Gevo, you are setting up to convert isobutanol to a jet A in the south somewhere, I need two things one is the quantity that you are talking about was it 120,000 or 20 million gallons per year?

Jack Huttner:        The U.S. Air Force contract for the jet certification is 11,000 gallons.  The demonstration unit Silsbee, Texas, which is outside Houston is a 10,000 gallons a month capacity, it’s a demonstration unit.  We have purpose built for this supply contract and other uses.  And our plant in Luverne, Minnesota, which is coming on in sometime in June of 2012 is an 80 million gallon isobutanol plant.

(Robert Brookes): OK, now what is your expected cost per gallon at scale for the jet A derived from your product when it’s running?  What is your expected cost per gallon at scale for jet A?

Jack Huttner:        We are looking to a price competitive with petroleum including the net tax for the RIN value and the carbon tax flying into Europe.  So on a basis of commercial jet into Europe and the cost of compliance and the RIN value; we are talking about a competitive price with petroleum jet.

(Robert Brookes): You are getting me confused, you are mixing things together.  Can you get me down to the commercial cost per gallon at scale for jet A?

Jack Huttner:        The commercial cost I believe is about (350) a gallon and we expect to be competitive with that once the net value of the advanced biofuel RIN value and carbon tax into Europe are accounted for.

(Robert Brookes): OK, I got it now.  Thank you.

Jack Huttner:        You’re welcome.

Operator:              Your next question comes from the line of (Eric Linemen).

(Eric Linemen):     I’m sorry I had my – trouble getting my phone off of mute before.  Can you hear me now?

Jim Greenwood:    Yes, (Eric) is from (James Spence) Weekly is that right?

(Eric Linemen):     Yes, that’s right.  Thank you.  I’d like to go along a little bit beyond what’s going on right now and go to what needs to be done to get where everybody wants to go.

There was a hearing in aboard ship I guess about 10 days ago and (inaudible) hearing of the Energy and Natural Resources Committee of the Senate.  And one of the issues that was brought up is contracting.  The Defense Department is constrained, I believe, by its contracting rules, which are quite different from those of the commercial sector.

So I am – would love to hear anything concrete from anyone there about what needs to be done how long – I think right now fuel contracts can only go out five years.  What does the commercial industry need, what would the Defense Department like and what effect if would have on budgeting?  What changes have to be made in CBO budgeting process for DOD to move forward?

Jim Greenwood:    OK.  Would either both of the generals like to start off in response to that question?

John Castellaw:     This is General Castellaw, I’ll start off on it.  That has been an issue.  I think though you get the investors to speak about it, I think the investors would like to see a capability going out as long as 15 years and being able to have some kind of commitment.  This is recognized that people such Senator Cantwell from Washington and others in the House are looking at this and to see how that we might be – or they might be able to provide relief and support for doing this.

There is also a thought that there is another way of doing it without having to full legislative action and I think that’s been discussed.  But this is something that I think people understand it’s a big issues, it’s got to be dealt with and that the right people are looking at it right now.

Jim Greenwood:    Does anyone else want to comment on that (Mr. Linemen’s) question.

Lee Edwards:        Yes, Lee Edwards from Virent, Madison.  I do think there is an opportunity here to help provide customer stability over a long enough period of time that those that invest in manufacturing capacity know they’ve got a customer to help provide the product sales and the cash flow in return on the investment.  We shouldn’t be kidding ourselves that we are asking and seeking for hundreds of millions of dollars of capital.  And those investors you know only will invest if they expect to get a return.

And if there are opportunities to secure longer term contracting as part of that mix, I think the ability to raise additional private sector funds to get more capacity faster with domestically secure manufacturing jobs will be greatly enabled.

And it’s not to put anyone into disadvantage position it’s to allow for security of supply, so that we know we can build manufacturing capacity with a customer in mind that would appropriately indexed to whatever the feedstock being used as opposed to necessarily being indexed to crude oil.

Jack Huttner:        Yes, this is …

Lee Edwards:        And unfortunately the oil industry typically doesn’t work that way today because it’s so driven by commodity prices and oil price volatility on the input.  But I do think with more stability in agriculture base feedstock the opportunity to do this in a way that there is a win-win and we get more private investment and capacity will be the result.

Jack Huttner:        This is Jack Huttner at Gevo just to put a slightly finer point on Lee’s remarks, which I totally agree with and that is to get project financing a critical element for the debt not equity financing, but debt financing for a particular project having a minimum 10 year off take agreement with the U.S. government is a critical factor for being able to secure debt financing for a particular project.

And if you have that in hand the likelihood of success of getting the funding to do the financing of the project becomes significantly substantially greater than without it.  In fact without it probably cannot get project financing.

Jim Greenwood:    So it’s not a hypothetical program, it’s a very real problem standing in the way of finance, project financing.

(Eric Linemen):     Could I just expand that on that a little bit further.  I’m still curious about the budgeting process, as I understand it now DOD if it enters into a long term contract it’s paying for the whole (inaudible) budgeted for the whole project upfront in the first year, how does that effect DOD?

John Castellaw:     So Castellaw again, I’m sorry I didn’t understand completely what you’re saying, can you try one more time?

(Eric Linemen):     Yes, if DOD enters into a long term contract under current CBO rules, it gets stuck with having to account for the life of the contract in the first year.  How does – does that need to be changed too?

John Castellaw:     Yes, I think that how they are looking at this is in light of what the two gentlemen just talked about.  This is sort of a different situation from what we had to deal with the four in terms of energy contracting and so they are trying to work their way through to figure out how not to own this on the frontend but exactly how they are going to do it, I think it’s still being worked out.  But as I said before most people recognize, it’s an issue and understand what needs to be done, it’s just the hard part of working through the details on it.

Jim Greenwood:    Matt Carr from our staff here at BIO, will also have some comments on the subject.

Matt Carr:             Thanks.  This is Matt Carr with BIO, managing director in the Industrial Environmental section.  Not much more to add there though.  I know there are a number of congressional offices as well as the Pentagon looking at that scoring issue.  And we are confident that we can find a way to do long term contracting without a big hit to the budget, we know are under a lot of pressure right now.

Jim Greenwood:    Another question?

Operator:              Your next question comes from the line of John Siciliano.

John Siciliano:       Hi.  Yes John Siciliano with Clean Energy Report.  I just had a question I believe the General pointed out that there were something else beyond long term contracting authority being discussed, but he didn’t say what that was that would go outside of the need of for passing new legislation.  I was curious when he said that, but that my initial my real question was basically how does the RFS factor into doing a lot of this.  Some of the advanced biofuel companies have talked about increasing the advance biofuel target under the RFS.  But I was wondering if you can take up both those questions?

Jim Greenwood:    Jack or Lee?

Jack Huttner:        I thought the question was to the general to start.

John Siciliano:       Yes.

John Castellaw:     I’ll go ahead and start.  As with anything in the military, there are options that say in certain cases the particular regulations and restrictions can be weighed.  So in this particular case, there is some exploration of whether not that that debt authority is inherent in the guiding legislations over contract and so.  I think that’s been explored, I’d rather not go that way.  I’d rather have legislation that weigh it up, clearer, but that is a possibility.

John Siciliano:       OK.

Jack Huttner:        Hey, Matt can you address the RFS question?

Matt Carr:             Yes, sure, Jack, there is a couple of thoughts there.  I thought you illustrated in your earlier comments the importance of the RFS in terms of generating additional value above and beyond the petroleum value of a gallon of event biofuel in the renewal identification numbers, the RIN that you mentioned associated with the RFS.  The RFS is really a kind of the fundamental federal policy driving investment in advanced biofuels.  And it’s got a monetary value to each gallon that Jack alluded to.

The second piece there is that we need to see approval of fuel pathways for military use, currently existing pathway that proved under the renewable fuel standards are primarily for surface transportation private vehicle use.  EPA is working to finalize rules to approve jet fuel and other defense biofuel pathways.  We need to make sure EPA get that done in a timely with fashion.  Jack, anything you want to add to that?

Jack Huttner:        No, good that covers it.  Thanks, Matt.

Operator:              Your next question comes from the line of Annie Snider.

Annie Snider:        It’s Annie Snider from Greenwire.  So when the military talks about its interest in biofuels and the kind of security argument.  It talks a lot about price volatility and you know impact on budget, the inability to budget.  My question is initially for the folks from ASP how you weigh kind of the pros and cons of a move to biofuels.  I mean you are taking out some risks, but presumably adding some other.

And I’m also wondering whether there is a concern about the possibility of this turning into a global market where our prices are something that the U.S. no longer has control over?

Steve Cheney:       Annie, it’s Steve Cheney of ASP.  When you look at global competition and demand outside the United States of petroleum products that’s just driving the price these days.  We don’t have control over.  And today in the press, you know, people are accusing the President of the one who is responsible for the gas price being so high, it almost borders on the ludicrous.  So at least with our own production of biofuels, we’ll have a little bit of advantage at least control over a little portion of our own fuel supply here.

And that’s the way I view it at least as another source of security for the country that biofuels is an options that gets us of this oil pipeline that is so volatile and so affected by events that we have absolutely no control over.

Andrew Holland:  And Annie, I would add to, this is Andrew at ASP.  I would add to exactly what General Cheney said, but also as well that it’s just price it’s also about assured access to supply.  You cannot guarantee in the future that you’ll always be able to access all the oil you need.  So biofuels provides a competitive addition to that.  It’s a way to ensure you have access at even at whatever price.

Annie Snider:        And so then the risk of you know, drought and kind of impacts on the feedstock supply you would see as less than the risk associated with like confrontation in the Straits of Hormuz or some sort of global issue like that.

Steve Cheney:       There’s never going to be any risk free energy source, unfortunately.  You know, the problem is that you know you are always going to have risk, so we should if you have more options that’s a way to mitigate risk across the entire system.

Annie Snider:        Thank you.

Lee Edwards:        It’s Lee Edwards from Virent, just maybe to add to that.  I also believe this notion that the lower volatility will increasingly become important particularly as the industry starts to access cellulosic and agricultural residue sources of feedstock.  They are more plentiful – they will be more plentiful, they will be domestic and they will be in the end a greater source of this, if you will, supply chain buffer if you will.  So we have a variety of different feedstocks that have the ability to be converted into these drop-in fuels.

So I would vote again – I would vote for Mother Nature over OPEC any day in term of which risk we are willing to tolerate and which risks not willing to tolerate.

John Castellaw:     And this is Castellaw one remark, I’m an aviator in the (inaudible) too much fuel in aircraft is when I was on fire, but the military is very sensitive to price changes and fuel many times as we get the end of the year because fuel had gone up, we had to park the aircraft against the fence.  We didn’t have the money to pay for the fuel and over the last few years, cost there was supplying fuels to north areas had gone up from something over 10 billion to, I think last year was $17 billion.

It’s when you have price moves as much as that and lack of flexibility on being able to respond to it as a direct impact on operations.  And if you have the situation where you have more control through a more of a level production environment and ability of pricings and that has to be a much easier thing to deal with budgetary wise for the military.

Annie Snider:        And if can ask just a quick questions to the companies on the line.  I know that in the past there has been issues with the energy density and DOD obviously is very concerned about supply line of the amount that they have to truck in.  Can you tell me about where your products is in terms of the energy density compared to petroleum?

Jack Huttner:        Sure, this is Jack Huttner.  I’ll give it you compared to petroleum if you give me one second so I don’t misquote the number.  In terms of energy content, we are 82 percent of gasoline and that in gasoline.  In terms of kerosene when it’s converted to kerosene, I believe it is the same energy content as the petroleum.

So (median) isobutanol is 82 percent of gasoline and when it’s converted to (paraffin or kerosene) or JP-8 it is, if I am not mistaken equivalent – 100 percent equivalent.

Annie Snider:        Great.

Lee Edwards:        And it’s Lee Edwards from Virent, we would have the notion, we make a mixture of molecules that emulates those exactly that come from crude oil.  So starting with the most challenging is jet fuel.  You have to have a combination of energy density thermal stability and low freeze point.  And the jet fuel that we’ve made that’s been tested it right at air force base kind of meets those standards equal to if not better than those that come from petroleum based jet fuel that’s refined.

Gasoline, we are making a – I’ll say a super premium it’s being used by the Ferrari formula one race team it’s a very high octane.  It’s actually higher energy density than the average gallon of gasoline.  And the distillate would be in the same range of on par equal to what comes from a refinery.

And those things by the way are the biggest differences in between Gevo and Virent and some of the other companies.  There are now are technologies that can make those same characteristic that we’ve come to enjoy crude oil apart but from using renewable domestic resources instead of crude oil.

So I think that we should recognize these innovations took time, they are being heavily invested in their development.  But the cost to deploy is significantly higher than the cost of develop and that’s where bringing some of these stability features back in whether it’s regulatory stability or tax or having customer that are going to be there for the long term that will help attract the private capital to get this capacity built.

Operator:              Your next question comes from the line of (Andrew Harman).

(Andrew Harman):      Hi, everyone this (Andrew Harman) from Bloomberg.  This question is really for anyone who can address it.  Someone earlier alluded to the joint program between the Department of Energy, Department of Agriculture and the DOD to invest 510 million.  I’m just wondering if anyone’s heard anything lately in terms of the timelines for when a formal solicitation will go out for that.

I guess when companies like Virent or Gevo or Solazyme whoever would actually submit an application under that program.  And then as well I believe it was announced the agencies, three agencies said that you know, the amount that they would contribute was sort of already budgeted in.  I’m just wondering if any of you have heard anything different about that, do you foresee any problems with budgeting or that program is expected to sort of move forward smoothly?

Brent Erickson:     This is Brent Erickson at BIO.  The three agencies USDA, DOE, and DOD have put that money in their budgets, but the money for DOE and DOD has to be appropriated.  The USDA has access to money through their commodity credit corporation, so they are funded.  And DOD may have some money left over to partial fund that, but we’re still waiting for the appropriators to act to fully appropriate the amounts for DOE and DOD.

Matt Carr:             This is Matt Carr in terms of timing of funding opportunity announcements, the three agencies are hosting an industry day, Friday, where they’ll be – the conversations will begin between feedstock developers and product developers and we have an indication that we should – we can expect a funding opportunity announcement within weeks following those conversations.

(Andrew Harman):      And you are saying that’s this Friday?

Matt Carr:             Yes.

(Andrew Harman):      Somewhere in D.C., I assume.

Brent Erickson:     Yes, USDA has put out a press release on that so.

(Andrew Harman):      OK.

Brent Erickson:     So you should be able to find it.

(Andrew Harman):      OK, thanks.

Operator:              Your next question comes from the line of (Robert Brookes).

(Robert Brookes): Well, I might add to the conversation here than rather broad question of what is the expectations of your group that major energy companies will begin to take an interest in the high volume aspect of this thing and get that part growing.

Now there is a whole raft of wonderful companies like Gevo and Virent who have done phenomenal work getting the technology going.  But moving in into the kinds of volumes that are representative of petroleum is astronomical and it looks like we may need the astronomical people to do that, do you have any feel for when those kinds of interests would move into this picture.

Brent Erickson:     This is Brent Erickson at BIO.  We’re already starting to see that the Total, BP, Shell, Chevron and even Exxon looking at energy are starting to move into this space.  You know, BP is planning on building a facility in Florida.  INEOS Bio is putting (steel) in the ground and they are commission (inaudible) plant this year.  But I’d also think that Lee and Jack would have some interesting perspectives in that regard as well.

Jack Huttner:        Lee, you want to go first?

Lee Edwards:        Yes, sure I’ll go first.  I agree with what Brent just said and in particular I think to the extent that we get more opportunities with these direct replacement drop-in products you’ll see a greater interest with the incumbents to look for opportunities for investment and growth.

You know, Shell is one of the big investors in Virent, and I can tell you that in general the U.S. refining industry is on the decline returns or not with a expect.  And they are looking for opportunities to try to leverage that capital base, where there is new signs of growth and these fuels will be growing at a significantly greater rate than the crude oil alternative if you will.  And because they can leverage the storage, the pipelines and in some cases the refining capacity that already exists there is a natural advantage to look at opportunities to use what they’ve already invested in, apply their knowhow and their knowledge and their brands, and be able to have confidence in certainty over their cost of compliance to meet the volume obligation they have under the renewable fuel standard.

And I agree it will take companies like that to actually make the big investments that will bring this to full commercial scale.

Jack Huttner:        Yes.  And all I would add is that having long term off takers like the U.S. military whatever branch is obviously critical to demonstrating the commercial viability of our opportunities.

Jim Greenwood:    OK, this is Jim Greenwood.  I think we’re going to wrap this up.  Thank you for your engagement, let me just summarize a little bit.

If I mention just the DOD investments in advanced drop-in biofuels is a national security impetrative.  The Defense Production Act provides a framework for this investment.  We believe the Congress can hasten the development of these biotechnologies by providing the F.Y. 2013 DPA funding as requested by the Pentagon for defense biofuels production.  We, at BIO, have called on the House and Senate appropriators to approve this funding without delay because we can’t afford to wait speed up commercialization of advanced biofuels for the American consumers and for the military.

For those who thinks who will make the argument that this is about the government picking winners and losers, actually our view is that with biofuels everyone wins.

So thank you all for participating.  Thank you from the media for you interest, it’s been terrific.  And thank you all of our other participants, who are – for making this a success.

Operator:              Ladies and gentlemen, this does conclude today’s conference.  Thank you for participating.  You may now disconnect.

Jim Greenwood:    Thank you.

Brent Erickson:     Thanks, guys.

END

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