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TBD – The Budget Dilemma

TBD – The Budget Dilemma. BJ WHITE-OLSON Director, Budget Management & Execution 20 August 2008. The Budget Dilemma -- Fuel Price Volatility. Background – Demand and Price Growth The Budget Dilemma The Current Solution A New Approach Other Actions We’re Taking

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TBD – The Budget Dilemma

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  1. TBD – The Budget Dilemma BJ WHITE-OLSON Director, Budget Management & Execution 20 August 2008

  2. The Budget Dilemma -- Fuel Price Volatility • Background – Demand and Price Growth • The Budget Dilemma • The Current Solution • A New Approach • Other Actions We’re Taking • A Final Thought in Closing

  3. Demand Sources: U.S. DoE, Energy Efficiency and Renewable Energy, Federal Energy Management Program Preliminary Data; Defense Energy Support Center FY2007 Cost Data; AFTOC Data; Fuels Enterprise System; Federal Automotive Statistical Tool (FAST) Data; and the Defense Utility Reporting System 4% Vehicles & Ground Equip 9.2% Other Govt 17% Army 15% Facilities 19% Navy/Marines 90.8% DoD 64% Air Force 81% Aviation FY2007 Federal Government Consumption (% of total petroleum consumption) FY2007 U.S. Armed Forces Fuel Utilization (% of total fuel cost) FY2007 U.S. Air Force Energy Utilization (% of total energy costs) • Aviation fuel (AVFUEL) consumption in AF aircraft • In FY06, 61.0 million barrels consumed • In FY07, 59.9 million barrels consumed • FY08 projected fuel consumption is about 48.8 million barrels AF (as a single entity) is the largest consumer of AVFUEL in US

  4. Price Growth --Crude Oil Price per Barrel Monthly Average Price – As of 6 Aug 08 West Texas Intermediate Daily Price $118.58 Every $10/Barrel Increase Drives Up AF Fuels Costs Approx $600M/Yr

  5. Price Growth --Jet Fuel Price per Barrel Daily Price Monthly Average Price – As of 5 Aug 08 U.S. Gulf Coast $141.83

  6. The Budget Dilemma • Services obtain fuel from Defense Energy Support Center (DESC) • DESC establishes a standard fuel price to recover the costs of the product, transportation, overhead and recovery of losses • Based on the DESC standard price projected, the services develop budget estimates for fuel • The Budget Dilemma • Budgeted vs. Execution Year price • For FY08 DoD budgeted $91.14 -- actual price $97.02 in Oct 07, then went to $127.68 in Dec 07, and then to $170.94 in Jul 08 • Looking ahead to FY09, budgeted price was $115.50 for FY09 President’s Budget submitted to Hill on 4 Feb 08 • Crude is currently around $118.58 so price increases are expected for FY09 execution Fuel Price Volatility creates turbulence in DoD budget execution

  7. Budgeted vs. Standard Price There are 42 gallons per barrel, therefore $170.94 per barrel = $4.07 per gallon

  8. The Current Solution • Supplementals have funded the majority of execution year increases: ($ in billions)SupplementalInternalTotal FY06 1.0 .5 1.5 FY07 .4 .4 .8 FY08 1.5.41.9 TOTAL 2.9 1.3 4.2 • Internal reprioritization reduces funds for BOS and FSRM projects • Supplementals reduce execution year bill … but does not reduce the impact of fuel increases on the budget year • What happens if Supplementals are not supported? Fuel inflation has stressed DoD supplementals and execution since FY05

  9. A New Approach • DoD has proposed an Indefinite Appropriation to cover the difference between the price budgeted for fuel and the actual purchase price • Covers the dollar difference between the Budgeted price for a specified quantity of fuel and the Actual price • During budget formulation, DoD would still fund projected fuel price increases • During execution, funds come from Treasury when prices increase, returns to Treasury excess funding budgeted for fuel when prices drop • Legislative language submitted to Congress for FY09 • Supported by authorizers, however, have not been able to gain support of appropriators Protects DoD fuel budget from price inflation during execution

  10. Other Actions We’re Taking • Demand Side Efficiencies in Aviation Operations • Optimized aerodynamics • Advancements in materials engineering • Advancements in propulsion and engine technology • Improvements in mission capabilities • Innovative use of flight simulators • Supply Side Programs Lead to Continued Research • Alternative Fuels – Synthetic Fuel Fleet Certification • 50/50 Blend Certification All USAF Systems by FY11 • B-52 certified in FY07, B-1 and C-17 flight tests complete • Culture – Make Energy a Consideration in All We Do AF Energy Strategy: Reduce Demand - Increase Supply - Culture Change

  11. A Final Thought in Closing Think a $4 gallon of gas is expensive? Consider the prices of other fluids people buy every day without complaint! • Gatorade, 20 oz @ $1.59 = $10.17 per gallon • Evian water, 9 oz @ $1.49 = $21.19 per gallon • Brake fluid, 12 oz @ $3.15 = $33.60 per gallon • Scope, 1.5 oz @ $0.99 = $84.48 per gallon • Vicks NyQuil, 6 oz @ $8.35 = $178.13 per gallon But here’s the kicker: • HP 02 Black Ink Cartridge, 16 ml $18 online = $4,294.58 per gallon! AVFUEL, 1 bbl @ $170.94 = $4.07 per gallon Source: Pogue’sPosts, 27 May 08, by David Pogue for NYTimes.com and CNBC All in favor of conserving fuel, please raise your right foot!

  12. For more information on the AF Energy Program visit:http://www.safie.hq.af.mil/

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