This may end up being expensive per gallon, but it does work in the lab. I believe the US military has committed to purchase a minimum volume of product to ensure adequate data is collected to see what the actual costs and results would be if plants like this were scaled up. A few years back, the US military issued a spec so the major oil companies would be on the same page to supply them with a 50% bio-fuel mix.
Small ships now use jet engines (a turboshaft like a helicopter, that drives a propellor), fighter jets, cargo jets, the turbine-engined M1 tank, and the wide array of diesel-piston vehicles (6X6 trucks, Hummvees) can all run on JP-5, which is slightly thinner than diesel fuel (similar to kerosene). I believe this project will be well-funded for at least the next couple years.
There is no single silver bullet to solve future fuel issues, but I am a fan of bio-diesel. The majority of bio-diesel made currently comes from soybean oil (simply because its convenient at current volumes), but the latest crop to show the promise of being much better is Camelina seed oil.
Rather than displacing existing food crops (corn, soybean, etc) camelina can be grown in fairly marginal soil with very little water. Modern non-flying big-breasted chickens are descended from the scrawny Guinea fowl, and the same type of genetic engineering is being tweaked on Camelina. The US has plenty of unused land, the main issue is dwindling water supplies.