The market for biodiesel-blended heating oil is growing swiftly as oilheat dealers look for ways to green their offerings and supply a product that offers comparable economic benefits to natural gas. The lack of proper storage and blending infrastructure in some Northeast markets, however, may make local oilheat dealers less willing and able to offer the product to customers. Fortunately, several companies in the region are taking initiative and investing in infrastructure that promises not only to serve today’s demand, but provide valuable transportation, blending and storage services once biodiesel mandates in the region ramp up, creating additional demand for the product.

Paul Nazzaro, petroleum liaison for the National Biodiesel Board, notes there are several different ways that an organization can approach biodiesel blending. “Any petroleum terminal can take control of biodiesel and either blend it directly into a diesel fuel or heating oil tank and make up a blend onsite,” Nazzaro says. “Or they can go to electronic injection and handling systems to bring it in, store it in a fuel vessel, and on-demand bring a specific blend—B2 to B99.9—to the rack. That’s where we want to go as an industry. We want the electric rack blending facilities, because they, without a shadow of a doubt, will ensure the industry the most competitive, operationally sound blend.”

Nazzaro points out that electronic blending equipment is expensive, though. In fact, adding that type of infrastructure to a facility to handle biodiesel can cost anywhere from $750,000 to several million dollars. A company or organization needs to have a strong business case for making that type of investment. “The spread runs a parallel track with how much volume is going to go through the terminal,” Nazzaro says.

It is much easier to build a business case for making the investment in areas where biodiesel mandates and incentives have already gone into effect. According to Nazzaro, the NBB estimates there are between 87 and 90 electronic blending facilities nationwide for biodiesel today, which is a small minority of the roughly 1,200 core terminal locations that are estimated to be located across the U.S. The vast majority of the locations that do blend biodiesel electronically are located in and around states and municipalities with biodiesel mandates in force, such as Minnesota. “Every key pipeline terminal [in Minnesota] without a doubt has to have biodiesel configured in their terminal,” adds Nazzaro.

The Northeast oilheat market offers some distribution challenges not typical to the fuel transportation market. Specifically, a large percentage of heating oil dealers in the region is relatively small, family owned operations. “In the Northeast, we obviously have infrastructure issues with getting good product into a series of small dealers,” says John Huber, president of the National Oilheat Research Alliance.

Huber points out that proper infrastructure isn’t just important from a handling point of view, but it also plays a role in ensuring fuel quality. “We have to make sure we have a quality biodiesel product that is ASTM qualified coming in, and that it’s blended uniformly,” Huber says. “That, to an extent, requires significant infrastructure improvements at the significant terminals on the East Coast. I think we all understand that, for the size of the market we are talking about, having infrastructure improvements made at the terminal level are critical just because they a have the ability to do quality control on the fuel coming in, know who the supplier is and have the correct type of equipment to keep the biodiesel at the right temperature, and then have it blended uniformly into the heating oil.”

One area where biodiesel infrastructure development is taking place is the New York City metro region. Several organizations have identified the business opportunity the city’s pending biodiesel mandate will create and have made investments to serve the growing Bioheat market. Infrastructure development, however, is not limited to inline blending. One company in particular has invested in rail-to-truck transloading infrastructure to more economically bring biodiesel to the region.

Rail-to-Truck Transloading

In May, Ultra Green Energy Services LLC celebrated the grand opening of a new biodiesel transload facility, located on a site owned by the Morristown and Erie Railway, in Whippany, N.J. The facility features rail-to-truck transloading, red dye capabilities and is designed to handle and store up to 50 railcars at a time.

According to Michael Cooper, UGES’s vice president and director of sales and marketing, profit margins in the fuel industry are directly related to transportation costs. The new transloading facility developed by UGES has been specifically designed to enable affordable biodiesel handling and delivery. This economic benefit is due, in part, to UGES now being in the position to manage its overhead costs for biodiesel. “In Whippany, in our facility, we have a fixed cost of doing business,” Coopers says. “We have the transload costs. We have the facility that we own, and the equipment that we own. We can store our railcars there as long as we need. We’ve established those costs and we know those costs, and we can sell forward using those costs whereas at many other locations in the region, there would be a higher cost to transload, a higher cost to transport and a higher overhead.”

UGES has added several pieces of equipment to the site that make it uniquely equipped to handle biodiesel. “Ultra Green has built a self-contained heating and pumping apparatus,” Cooper says. “We are able to heat two railcars at a time and then those get moved to the pumping area, where trucks come in and load from the railcar.” The pump, which can itself be fueled with biodiesel, can move 600 gallons of biodiesel per minute.

Cooper also notes the importance of a truck scale his company has added to the location. “Biodiesel has a different characteristic than diesel fuel” regarding expansion and contraction related to temperature, he says. “In New York, all product is adjusted to 60 degrees for volume, and biodiesel is a different volume at 60 degrees than diesel fuel. So by using a scale, we can absolutely be sure how many gallons of product [are loaded into a truck] because the weight of the product can be calculated by the specific gravity.”

According to Cooper, the vast majority of the fuel that flows through the station will be transported to biodiesel storage tanks at regional fuel terminals for blending. It is possible some customers may splash blend on site, he notes, adding that UGES has two more biodiesel rail-to-truck transloading facilities in the works and is looking for more possible infrastructure development opportunities in the Northeast region as well.

Inline Blending

Whether biodiesel enters the Northeast via rail, barge, pipeline or truck, the fuel needs to be stored and blended. In June, Sprague Energy announced the opening of a new biodiesel and Bioheat handling location at the Sonoco Logistics Newark Terminal in New Jersey.
“This will be the largest biodiesel blending terminal in New Jersey for all types of rack loading,” says Steven Levy, managing director of Sprague. The facility has the ability to provide multiple biodiesel and Bioheat blends for ultra-low sulfur No. 2 diesel and heating oil. In the future, the terminal will also handle ultra-low sulfur kerosene No. 1 diesel fuel. The location offers B2, B5, B10, and B20 blends. It features 132,000 gallons of bulk storage and utilizes state-of-the-art rack injection. According to Levy, injecting biodiesel with the automated rack blending system saves time and money while ensuring a homogeneous blend.

Biodiesel blended at the location will be sourced from a variety of producers, including those manufacturing product using vegetable oil, recycled cooking oils or animal fats. According to Levy, Sprague expects government and private fleets to initially make up a significant portion of the demand for biodiesel-blended fuel from the terminal. However, he also notes the location will likely be a big player in the residential heating oil market.

“This particular facility is a key strategic point because it allows distribution of all types of distillate fuels to central and northern New Jersey,” Levy says.  “We were already selling regular distillate product out of this terminal. Now it gives us the opportunity not only to have the biodiesel readily available, but it also reduces our trucking costs as well as our customers’ trucking costs so they don’t have to go long distances to obtain a specific blend that they might require. Newark and central New Jersey are very high-demand areas, so you will find wholesalers who will buy from Sprague. We deliver to end users but we also have our wholesale customer base. It just opens up a whole new world for them.” Like UGES, Sprague is looking to expand its biodiesel infrastructure. “We are looking at many other terminals,” Levy says.

The New York metro area and its surrounding regions are not, however, the only markets in the Northeast where biodiesel infrastructure is being developed. At least one company in Vermont recently made an infrastructure investment.

Bourne Energy was recently awarded a $40,000 grant through the Vermont Sustainable Jobs Fund to support the development of injection blending infrastructure for biodiesel that will allow the company to supply B5, B10, B20 and B99.9 blends of fuel.

In an effort to utilize locally sourced products, the company’s president Peter Bourne noted the facility will blend biodiesel manufactured in New Hampshire using recycled cooking oil. “We try to get our supplies as local as we can to support the local economy, and also for the carbon footprint, so long as it is financially practical,” Bourne says.

Prior to the addition of the blending infrastructure, Bourne says biodiesel was splash blended by his company’s wholesaler. “We were having to buy it preblended at a B2 or B5,” Bourne says. “Now we’ll be able to blend it to whatever the customer wants or whatever we want to put out there to the consumer.”

Matt Cota, executive director of the Vermont Fuel Dealers Association, also notes that the Vermont Sustainable Jobs Fund has been working with farmers who are growing oilseed crops to help them establish small-scale, on-farm biodiesel production. “Vermont fuel dealers envision a time in the future were we can produce much of this product on the farm locally,” Cota says. “Vermont is a rural state and the idea that farmers are diversifying, and the family run fuel dealers are also diversifying, and that at some point in the future the fuel dealers could pick up their fuel on the farm and deliver it throughout their town, is a wonderful vision for sustainability.”
 
Author: Erin Voegele
Associate Editor, Biodiesel Magazine
(701) 540-6986
evoegele@bbiinternational.com