Seeking Answers

Biodiesel producers and industry stakeholders attending the 2010 National Biodiesel Conference & Expo sought answers to the status of the expired biodiesel tax credit as well as to many confusing elements in the RFS2 final rule. While some producers found clarification, others left the event puzzled, concerned and even discouraged by the enormous amount of red tape required to participate in the program. Despite this, the conference provided a healthy mix of biodiesel information and announcements.
By Nicholas Zeman and Ron Kotrba | February 23, 2010
Just days before the 2010 National Biodiesel Conference & Expo was held Feb. 7-10 in Grapevine, Texas, the U.S. EPA announced the release of its final rule for implementation of the revised renewable fuels standard (RFS2). This led to great anticipation as biodiesel producers and industry stakeholders sought information on specific requirements necessary to participate in the first biomass-based diesel standard in U.S. history. As the conference went on and as more information on RFS2 was released, anticipation was replaced largely with anxiety and confusion.

News from the initial EPA announcement was positive for soy biodiesel as its life-cycle analysis was found to reduce greenhouse gas emissions by 57 percent compared to petroleum diesel-effectively crowning biodiesel as the first advanced biofuel available in commercial production. At the conference, good news for soy biodiesel producers kept coming. The nightmare of tracking virgin feedstock such as domestic soy oil back through the crusher and beyond to the field, which the proposed rule suggested, seems to be over for now. It will be revisited though, if EPA finds that the 2007 crop acreage baseline of 402 million acres has been exceeded. Imported feedstock is required to be tracked. Life-cycle analyses of canola and palm oils have not been conducted by EPA yet, so producers using those oils were encouraged to petition the agency to move forward in doing so. Producers using animal fats or used cooking oils, however, were unpleasantly surprised to learn that EPA is requiring them to track their feedstock.

Waste-based biodiesel producers will have to keep feedstock supplier records and produce quarterly reports for EPA beginning July 1 if they wish to produce renewable identification number (RIN) credits, but Larry Schafer, owner of the Washington-based consulting firm Diamond Group LLC, said the requirements are "not onerous." Paul Argyropoulos from EPA's Office of Transportation and Air Quality said producers using animal fats "would have to say, 'Yeah, this is the feedstock I use, and this is where I got it,'" but they would not have to track it beyond their supplier. One producer commented to the panel during a breakout session on RFS2, saying, "So, it seems like my life would be a lot easier if I were using soybean oil as feedstock."

"There are a lot of things producers have to do before July 1," said Sandra Franco, an attorney with Bingham Law Firm. July 1 is the effective date for RFS2 implementation. First, all biodiesel facilities expected to participate in the RFS2 program will have to be registered with EPA. Also, an onsite engineering review must be completed, reviewed and confirmed with EPA by July 1. It was said that engineering reviews should be scheduled by April 1 so adequate time is given for the review itself, and for EPA sign-off. Both registration and engineering reviews must be renewed every three years, Franco said.

EPA's Scott Christian said if producers change their process, they must notify the agency 60 days prior to commencement of process changes. Also, if producers switch feedstocks, they must notify EPA seven days in advance. If a biodiesel plant's headquarters or facility changes addresses, or if shakeup in management occurs, the agency must be given notice.

Cofounder of Gen-X Energy, Ramon Benavides, distilled the imminent requirements for producers to help reduce confusion. To facilitate quick and seamless facility registration, Benavides said producers need to obtain copies of permits, and produce a list of all feedstocks the plant is capable of producing without any process changes. "The burden of proof lies on you," he told the audience. He stressed the need for getting the complete registration packet done right the first time to avoid delays from having to resubmit material to EPA. For the engineering review, Benavides said get it scheduled as soon as possible. If there is a delay, notify EPA right away. The engineer who does the review cannot be a shareholder or be affiliated with the biodiesel plant in any way. The process flow and piping instrumentation diagrams are necessary for the engineering review. Producers are also required to maintain records for five years, so Benavides said make sure the engineer who is conducting the review knows this.

Pipeline Readiness?

A question that arose during a general session panel was whether investments should be made for terminal blending of biodiesel now, or if waiting for pipeline readiness was a safer bet. Jim Lelio with Kinder Morgan Pipeline Group said his company, which has been on the forefront of efforts to move biodiesel through the pipeline infrastructure, can already handle 100,000 barrels (4.2 million gallons) of B5 per day-a volume greater than three of the state mandates in place today. Kinder Morgan's total daily fuel throughput is 1.1 million barrels (46.2 million gallons).

If biodiesel wants to achieve status as a pipeline fuel, it will be allowed to contribute only trace amounts of methyl esters in pipelines where different fuels, mainly jet fuel, cross. "I'm confident that we can get biodiesel in the pipeline system and that we can be successful," said Steve Anderson, Air BP fuels advisor.

While NBB technical director Steve Howell said jet engine makers have finally approved 5 parts per million methyl ester contamination in aviation fuel, he said there is a large program underway to approve a 100-ppm limit, which the biodiesel industry needs badly to move its product in the pipe. "This is a big deal," said Rob Woodford, member of the ASTM Board who works for the Explorer Pipeline Co. "Pipelines offer up to a 20-cent-per-gallon advantage over trucks, and would save $50 million for biodiesel producers if 1 billion gallons is transported on pipelines."

The testing project involving biodiesel in jet engines (needed to precede the 100 ppm approval), however, has been a complicated, complex, multi-year episode involving millions of dollars, and a wide of variety of companies and organizations, including Boeing, Rolls-Royce, Green Earth Fuels, Exxon and the Kansas City Soybean Commission.

One of the big questions that this monolithic investigation poses is, "Does fatty acid methyl ester (FAME) cause engine deposits to form?" Deposit formation leads to increased maintenance and downtime and can be very destructive to engine components. "Many OEMS lease the engines to the airlines," Woodford said. "If an engine comes off the wing for maintenance, then the OEM is losing out. So they want to keep the engine on the wing for as long as possible."

Woodford said that various fuels are often "interfaced" in pipeline transport following certain cycles. Jet fuel is often the first in the cycle, followed by diesel and fuel oil and then "cleaned up" by gasoline. This process ensures that jet fuel receives the least amount of cross-contamination "I'd like to have a dedicated system for jet fuel, unfortunately that's never going to happen," Woodford said.

Biodiesel would be interfaced in a similar way to diesel fuel, and the perfect combination of instruments and procedures are being developed to properly stage FAME in pipelines. One of the problems, however, with controlling cross-contamination is the lack of suitable and widely available test methods to measure low-level FAME content. "I need a quick test method so I can test FAME, then we can develop procedures and test methods to stage that material in the pipeline," Woodford said. "We know FAME trails back, it likes to stick to the pipe, so I need bench-top equipment that can tell me how much FAME I have in a distillate sample."

In continuing efforts to complete the approval of 100 ppm FAME in jet fuel, Anderson advised conference attendees, "If you want to see biodiesel take a foothold, you need to contact the OEMS and tell them that we need approval of 100 ppm FAME in jet fuel."

Big Oil Talks Biodiesel

A panel of oil and pipeline company representatives discussing biodiesel took center stage during one of the general sessions. The topic of discussion was how oil and distribution companies will carry out RFS2's biomass-based diesel mandate, and what the physical challenges will be.

Even though NBBs CEO Joe Jobe referred to state mandates as a "hedge," the consensus from this panel was that state mandates are much less preferred by oil and distribution companies than a federal standard such as RFS2. Dave Blatnik with Marathon Petroleum Co. LLC said state-by-state mandates hurt because companies have to invest millions of dollars in infrastructure for a relatively small volume of boutique fuel whose only market is that particular state's. Also, fuel distribution systems are not set up to respect state lines. Bruce Heine with Magellan Midstream Partners said companies that have to make big investments to satisfy state mandates expect those states to uphold whatever mandates they pass. He said it can be a financial hit when millions of dollars are spent to prepare for a blend requirement and then, due to unforeseen circumstances, the laws are changed or waivers are granted. Heine cited the recent Minnesota waiver for No. 1 B5 as an example.
With a standard such as RFS2 that requires obligated parties to blend certain amounts of fuel and does not dictate where or how, there is flexibility to strategically invest in their infrastructure as they see fit. Heine said it doesn't make sense to make the infrastructure investments in terminals that have little diesel throughput, but rather companies should target investments where the demand is.

"By 2011, we have to have the infrastructure in place," Blatnik said, adding that five of Marathon's 67 terminals already have biodiesel blending capabilities. Magellan has 12 terminals set up for biodiesel.

It takes a minimum of nine to 12 months to ready a terminal for biodiesel blending, Heine said, and that's if the effort begins at the right time of year. Lelio said he hopes it does not take that long to prepare a terminal for biodiesel. The investment cost to prepare a terminal for biodiesel is about $2.5 million to $3 million, Heine said, which includes biodiesel storage capacity of 5,000 to 10,000 barrels (210,000 to 420,000 gallons).

The panel was asked whether obligated parties would be more interested in purchasing renewable identification number (RIN) credits rather than buying "wet gallons" of biodiesel. Mike Reed with Northville Product Services said, "It's better to break even or make a few cents with wet barrels" as opposed to purchasing RINs alone. Lelio made the point that the physical product will have to be used somewhere, and obligated parties shouldn't solely bank on buying RINs. Blatnik said Marathon will meet its obligations with wet gallons.

OEMs, Fleets Support B20

Two major announcements in support of B20 were made during the conference. The first was General Motor Corp.'s unveiling that all of its 2011 heavy-duty models equipped with the 6.6-liter Duramax engine will be approved for B20 use. Coleman Jones, GM's director of biofuels implementation, said this includes the new Chevrolet Silverado and GMC Sierra pickups, as well as Chevrolet Express and GMC Savanna full-size vans.

"This is the result of a lot of work," Jones told Biodiesel Magazine. "But we've got our suppliers on board, and these models will be on sale later this year." GM usually outsources the seals, gaskets and other components that need to accommodate certain unique characteristics of biodiesel. "We've wanted to approve higher blends of biodiesel before, but we don't build the whole vehicle," Jones said. "Our vendors said, 'You want biodiesel, it's going to cost you 20 more bucks.' Well, when it was time to do a major upgrade, we decided to do this and told our vendors, 'If you want this business, you're going to provide us with biodiesel-compatible parts [at a competitive price].'"

To make the Duramax 6.6L compatible with B20, GM upgraded seals and gasket materials to withstand the ester content of biodiesel, and included an upgraded fuel filter that includes a coalescing element. "It improves the separation of water that may be present in the fuel, because biodiesel can attract and absorb water," the company stated. Also, additional heating of the fuel circuit was added to reduce the chance of fuel gelling or waxing that could plug filters.

The diesel particulate regeneration system features a downstream injector that supplies fuel for the regeneration process. This greatly reduces potential oil dilution, important with using biodiesel. Downstream injection saves fuel and works better with B20 than in-cylinder post injection.

"B20 capability in our new heavy-duty trucks is the latest addition to a growing number of alternate fuel options offered by General Motors," said Mike Robinson, vice president, Environment, Energy and Safety Policy. "We are seeking different paths to fuel solutions in order to maximize efficiency, reduce emissions and minimize the dependence on petroleum."

Ford Motor Co.'s Brien Fulton, a mechanical engineer and diesel powertrain technology specialist, gave a presentation on the great lengths Ford went through to approve B20 for its Super Duty F350, powered by the 6.7L Powerstroke engine. Fulton said Ford took a systems approach, identifying all aspects of the vehicle that would come into contact with the fuel, no small task, to approve B20. Fulton said the company eliminated copper and nickel components and replaced them with Teleflex and stainless steel. He also said Ford eliminated the integrated gear fuel pump, what he deemed the most suspect piece of equipment for corrosion when using B20. In addition, Ford staged a fuel system return, which will help keep the fuel warm and prevent gelling. Also added was a low-fuel pressure sensing system to alert drivers if fuel pressure drops-an indication that the fuel filter is getting clogged. A series of strategically placed filters that get finer as the fuel approaches the injector system, including a coalescing element to separate out the water, were also part of the upgrade. And while Ford does use late-post injection, Fulton said its system has been calibrated and tested to manage fuel dilution. Other additions to the new B20-capable Ford Super duty include a message center that explicitly tells the driver to change the oil, drain the water reservoir, change the filter, and more. Ford tested 80 vehicles as part of its B20-upgrade process.

While many OEMs are moving toward enhancing their systems for B20 approval, Detroit Diesel, with its monster-sized 14.8L power plant designed for over-the-road applications, is not there yet. Brent Calcut with Detroit Diesel said his company is undertaking a significant evaluation of B20 right now, and its No. 1 concern is biodiesel fuel quality, with oxidative stability issues taking a close second place. Using biodiesel in modern injection systems, due to the extremely high pressures, is also of great concern. "None of the fuel injection equipment providers support more than B5," he said. So far, Detroit Diesel has 20,000 hours and 600,000 miles of B20 testing completed, and after a full validation study the engine maker will release an official statement on its findings and position.

The second major announcement made in support of B20 came from the world's largest fleet holder, Enterprise Holdings, owner of the Alamo Rent-A-Car, Enterprise Rent-A-Car and National Car Rental brand names. The company announced its commitment to move its entire fleet of more than 600 airport shuttle buses to B20 within the next 5 years, beginning with incorporating at least B5 in all its buses this year. Nine Enterprise Holdings markets will convert to using B20 in its shuttle buses immediately, said Lee Broughton, director of corporate identity and sustainability for Enterprise Holdings, and by the end of next year, 50 percent of Enterprise Holdings' shuttle buses will be running on B20. Broughton said the company will have reduced its petroleum consumption by 420,000 gallons in the first year alone.

Enterprise Holdings also revealed the appointment of Richard Sayre as director of the Enterprise Rent-A-Car Institute for Renewable Fuels at the Donald Danforth Plant Science Center in St. Louis. Sayre, former cellular plant and molecular biology professor at Ohio State University, and his team of 10 researchers will work to develop algae for biofuels, and will focus efforts in ways such as utilizing CO2 from coal-fired power plants to help grow algae, which would act as a carbon sink. Sayre said nutrients could be provided to the algae with water from sewage treatment facilities.

"We can use the contaminants as fertilizer," he said. "Algae doubles its biomass in 24 hours, and it can be harvested daily," he added-which captured the attention of the Defense Department. Sayre said algae's energy balance today is only about 2:1, but theoretically this can increase four to six times with research and development.

Future Changes to D6751

NBB Technical Director Steve Howell spoke about potential future adjustments to the ASTM quality specification for biodiesel, D6751. Since the specification is supposed to be process and feedstock neutral, Howell said emerging biodiesel conversion techniques may force an adjustment to the specification. The example he gave was LS9 Inc.'s process that uses microorganisms to convert sugars-not fats and oils-to methyl esters. D6751 specifies fats or oils as feedstocks to produce alkyl esters. "We may have to change the scope of the definition of biodiesel," Howell said. He also raised the question of whether minor components found in a sugar-derived biodiesel would be covered in the current ASTM specification.

The biodiesel industry may also see the addition of separate specifications for winter-grade and summer-grade methyl esters, much like petroleum diesel has No. 1 and No. 2 grades. "It's one option being discussed by the filter clogging group," Howell said. "If I were a betting man, I'd say it will be balloted this spring."

Finally, ASTM will ballot a measure this spring to include the Cognis Quality Trait Analysis system, Ck2-09, which can analyze several parameters in only minutes with one drop of fuel. The American Oil Chemists' Society has already passed the new test method. According to Howell, "The wet chemistry tests will be maintained as the referee methods. Once this makes it through the complete balloting process and is an official option in D6751, the National Biodiesel Accreditation Commission will accept Congnis QTA system results for BQ-9000 compliance."

Feedstock Outlook

Prices paid for soy oil in the U.S. can be influenced by factors as diverse as Malaysian palm oil yield cycles, sea surface temperatures off the coast of Peru and China's decision to build dry stocks, said Anne Frick, a senior oilseed analyst for Prudential Bache Commodities LLC. "The largest domestic oil-soy bean oil-is probably the most influenced by the international situation," she said.

Factors that include a short-term soy price rally are EPA's characterization of soy methyl esters as an advanced biofuel, likely increase use of soy for biodiesel because of its ready availability. Add to that the fact that this is the second year consumption has outpaced production-largely because of population growth, increased income, increasing usage for industrial practices and falling vegetable oil stocks-and prices could firm.

Although there are record soy supplies in South America this spring, Brazil contains a huge land mass that presents a logistical nightmare. There's a two lane dirt road to the northern port and trucks are often lined up for miles waiting to load ships at the southern port, Frick said. "Just because those soybeans are there doesn't mean they'll get to market. [Also], China is taking many more beans from the U.S. this year, and it's depleted our supply. Supplies will be at their lowest in several years."
International forces that could push the market into a prolonged bearish cycle involve the fact that because soybeans are a meal-seed-60 percent of the value and 80 percent of the content comes from meal-demand derives mostly from the poultry and hog industries. Poultry output will be up this calendar year, but pork and cattle slaughters are likely to decline corresponding with slowed feed demand. In addition, meals eaten in restaurants are down, along with lard's usage as a baking and frying oil after continued efforts to eliminate transfats from diets.

Heavy competition from other oils could also put downward pressure on soybean prices. "Palm oil dominates world trade," Frick said. Malaysia has its land pretty much planted and depends on yield increases to expand production volume. Indonesia, however, continues to expand its palm business on new acres. Volumes will continue to grow but at a modest rate. An interesting aside-Malaysia and the U.S. have continued to negotiate a "nagging" free-trade agreement that began in 2006 under the Bush administration. While it looks stalled, if this agreement were finalized, Malaysia would obviously increase imports of its palm oil to the U.S., enjoying duty-free entry.

The most recent bull market for soy culminated with a 71-cent-per-pound surge in 2008, and then experienced a crash. About every 30 years soybeans reach a record high, after which they trade in a new and permanently higher price range. "I think that's probably going to be the case this time around as well," Frick said. For now, prices have stagnated but the market may experience another rally before entering the bearish phase of the cycle.

Nicholas Zeman is associate editor of Biodiesel Magazine. Reach him at (701) 738-4972 or [email protected]. Ron Kotrba is editor of Biodiesel Magazine. Reach him at (701) 738-4942 or [email protected].
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