Infrastructure to Market

Development of dedicated biodiesel infrastructure can lower costs while increasing fuel quality and market opportunities.
By Erin Voegele | September 20, 2010
Many alternative transportation fuels such as electricity and compressed natural gas are likely to require huge infrastructure developments to reach commercial deployment, but the infrastructure requirements of biodiesel, however, are relatively minor. Even so, investment in proper infrastructure and equipment upgrades at fuel terminals can have overwhelmingly positive impacts on the industry. "It helps decrease costs, increases quality, maintains quality, and makes it more available to bigger parts of the market," says Tom Verry, the National Biodiesel Board's director of outreach and development. To date, a majority of biodiesel infrastructure has been centered in regions where state or local governments have established mandates. "As the market develops, infrastructure will develop to support it," Verry says. "Right now it is really being driven by markets, which, in turn, are being driven by state incentives."

This pattern of development occurred in Washington State after its mandate was established. "Now, with Pennsylvania developing its mandate, we'll probably see more biodiesel blending at the terminal there, which is wonderful," Verry says, noting that terminals offering biodiesel can handle large volumes of the fuel, reducing costs.

Biodiesel infrastructure can also lead to fuel quality benefits. If biodiesel is blended at the rack with a computerized system, Verry says, it helps maintain fuel quality. In addition, offering the fuel becomes more convenient for trucking companies. When biodiesel is not offered at the rack, fuel distributors that want to offer it have to splash blend it themselves and maintain their own storage equipment. "It takes a significant effort on a fuel distributor's part to carry biodiesel" when it is not offered at the terminal, Verry says. "If it's at the terminal, it's just as easy to get as any other product pulled from that terminal. It just makes it a lot easier for distributors to make the decision whether they want to offer biodiesel to their customers."

Federal Funding

While rack blending of biodiesel offers significant benefits to fuel distributors and potential consumers, increased prices-largely a result of the $1 per gallon federal tax credit expiration-have depressed market demand for the fuel. Although reinstatement of the credit or higher renewable identification number (RIN) credit prices would likely bring prices back down, thereby increasing demand, many terminal operators have a difficult time justifying the cost of adding biodiesel infrastructure in the current market environment. State and federal incentives are helping terminals overcome this obstacle, however.

One federal program that can help support biodiesel infrastructure development is the U.S. DOE's Clean Cities program. According the Verry, biodiesel terminal infrastructure is eligible for funding under the Clean Cities Petroleum Reduction Grant program. "In the past, the program has funded biodiesel terminal infrastructure," he says, noting more than half a dozen terminals have received grants for this purpose.

Verry says the NBB worked with DOE to make sure biodiesel would qualify for these programs. When the program was formed five years ago, biodiesel was a relatively new fuel and the DOE wasn't yet familiar with its infrastructure requirements. "We worked to educate them that, yes, biodiesel could be a very important way to help meet their goals of petroleum displacement."

According to Verry, the DOE is expected to solicit applications for a new funding round late this year or early 2011. "They are going to have $15 million available to support alternative fuel infrastructure, and biodiesel qualifies for that," he says. "They will support a biodiesel terminal project, but they want to see that matched up with a very strong B20 marketing program that is directed at the retail level." The department also wants to see the applicant form a strong relationship with the Clean Cities coordinator in their region, as well as see a strong match on the proposal from an industry partner. "Of course," Verry says, "the more gallons of petroleum you displace, the better your proposal will look."

California Development

While the DOE's Clean Cities program offers funding nationwide, several state programs are also available to assist in the development of biodiesel infrastructure. California is one state that has been active in this area. The California Energy Commission recently recommended that three biodiesel terminal projects receive grant funding under its Alternative and Renewable Fuel and Vehicle Technology Program. Although the awards are contingent upon a final approval vote during an energy commission business meeting, the planned recipients are prepared to begin construction soon after the grants are awarded.

According to a Notice of Proposed Awards issued by the CEC, three companies-Community Fuels, Pearson Fuels Inc. and Western States Oil Co.-have been selected to receive a combined $3.9 million in funding. Nearly $2 million awarded to Community Fuels will support a terminal development project adjacent to the company's 10 MMgy biodiesel plant in the Port of Stockton. An additional $1.8 million is slated to go to Pearson Fuels for the development of biodiesel infrastructure at two existing fuel terminals within the state-one near Sacramento, the other near San Diego. A smaller award of approximately $70,000 will be awarded to Western States Oil for the development of a biodiesel terminal located just outside the gate of Kinder Morgan's pipeline terminal in San Jose.

Pearson Fuels plans to add three 80,000-gallon biodiesel storage tanks to the Sacramento terminal. "We are actually going to have two different feedstocks of biodiesel, likely soy and waste cooking oil," says Mike Lewis, Pearson Fuels' general manager. In addition to inline blending of diesel and biodiesel, the facility will also include inline blending of red dye diesel. "So, you have literally hundreds of different combinations that will be available," he continues. The terminal near San Diego will have a similar set-up, but will be slightly smaller and only offer one feedstock of biodiesel.

The terminal Community Fuels intends to construct will have five main components, says Lisa Mortenson, the company's CEO and founder. This includes 500,000 gallons of new biodiesel storage, product purification equipment, enhanced truck and railcar loading capabilities, red dye capabilities and a full quality assurance program. "With storage, special attention has been paid to proper storage techniques to ensure that there is no fuel degradation," Mortenson says. Since the terminal will offer biodiesel produced by Community Fuels as well as biodiesel produced by third parties, quality analysis and purification capabilities will be a part of the facility. Fuel supplied by other parties will be subject to a thorough quality analysis, Mortenson says. A product purification step will also be included to ensure that any contamination that occurred during transit is properly remedied.

Benefits and Market Potential

Offering biodiesel at, or near, an existing fuel terminal significantly increases convenience while reducing costs. According to Bob Brown, Western State Oil's special project manager, the company's new location will better serve the regional market. The company currently offers biodiesel at another location in San Jose, he says, but that location is far from the Kinder Morgan terminal. "Anybody needing biodiesel basically has to come here first, and then drive all the way over to the pipeline to get their diesel, and then go make their deliveries," Brown says. "We're just going to make biodiesel available right outside the gate of that terminal," making it less costly and more convenient for fuel marketers to supply to their customers.

Lewis notes that Pearson Fuels' terminals will lead to similar market benefits. Inline blending capabilities will save money and time because trucking companies will no longer have to go to two fuel racks to supply biodiesel blends, he says. The inline blending capabilities of the new infrastructure will also allow more complete blending of the two fuels.

"There is very little biodiesel infrastructure in California-period," Lewis says. "There are very, very few retail facilities, and there are very few places you can go to get blended biodiesel, or different mixtures of the fuel. We think that is a critical piece that has been missing out of the biodiesel infrastructure in California. When you cripple a product by having to go to two different places, where trucks have to wait in two different lines, you have hindered biodiesel right away in competing with diesel." The extra transportation and time costs can easily price the fuel out of the retail market.

Unlike many other states, California does not have a biodiesel-specific mandate. Rather, the state is developing a Low Carbon Fuel Standard, which requires regulated parties to reduce the overall carbon value of their fuels, but does not mandate use of a specific alternative fuel. While biodiesel can, and likely will, play a role in achieving the requirements of the LCFS, Mortenson notes that maintaining the fuel's quality will be necessary for this to occur. "Biodiesel has special handling, storage and end-use requirements," she says. "In order for biodiesel to have a substantial role under the LCFS, special attention is needed to ensure the fuel meets appropriate quality standards. Increasing the volume of biodiesel supplied to the California market is an important first step, but we do believe an equally important step is ensuring biodiesel fuel quality will be reliable."

Although the expiration of the biodiesel tax credit has decreased short-term demand for biodiesel, reinstatement of the incentive, higher RIN prices and enforcement of the second stage of the renewable fuels standard (RFS2) are all expected to increase demand in the long term. "The RFS2 is now being implemented, and we expect it to be a market driver in 2011, leading to more terminals offering biodiesel service," Verry says. "The home heating oil industry is also planning to start using more biodiesel, especially in the Northeast and mid-Atlantic. We expect to see more terminals develop in those regions to support Bioheat demand."
Brown says that biodiesel demand in his region was up significantly until the first of the year. The expiration of the biodiesel tax credit and California's regulations for underground storage tanks have negated most of that market growth. "When the blending credit went away, it started to turn right around and come back down," he says. "Now it's kind of leveled off. The cities and counties are still using it, a few utilities are still using it, as are biodiesel enthusiasts, but those two developments have really made it tough. Biodiesel usage is starting to go back up, but it's real slow. One of the reasons we are developing this terminal now is we believe biodiesel is a growth product, and we are going to see more of it. We're not afraid to invest in it."

The petroleum industry has been developing infrastructure for more than 100 years, Lewis says, while alternative fuels like biodiesel have only been commercially available for a decade. "The things that you take for granted with petroleum fuel, you can't necessarily take for granted with biodiesel-like how do you blend it?" he says. "To someone just entering the industry, it might not seem like a big deal. Well, it is a big deal. It's one of the missing links, so to speak. Kudos to the state of California for jump-starting some of these sorts of things, because eventually you'll get to the point where these biofuels can complete on an even footing with some of the petroleum-based fuels that have had a 90-year head start."

Erin Voegele is a Biodiesel Magazine associate editor. Reach her at (701) 850-2551 or [email protected].
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