Making Magic Happen

Overcoming the loss of its original European investors and dealing gracefully with the reality of having one of the world's largest biodiesel plants in it's backyard, Dakota Skies Biodiesel continues to defy the odds and work towards financial close.
By Holly Jessen | June 01, 2006
"Live Green, Go Yellow."

That's the ubiquitous catchphrase of General Motor's (GM) hip advertising campaign for its flexible fuel vehicles-cars, trucks and SUVs capable of burning E85-and it's got absolutely nothing to do with biodiesel. Had GM not claimed first dibs on the saying, though, it would have been a great slogan for Dakota Skies Biodiesel LLC, a company that intends to build a 30 MMgy biodiesel plant in Minot, N.D., that would use canola oil as a production feedstock.

Like mustard, the canola plant produces vibrant yellow flowers as it matures. During the growing season on the northern prairies-North Dakota and Manitoba in particular-rich farmland truly does "go yellow" as far as the eye can see and to Dakota Skies COO Skip Hauth, those endless fields of flowers represent something that's as good as gold.
The plan is to break ground on the facility this summer and reach start-up 12 to 14 months later. In one way or another, Hauth's been associated with the project for three years. Needless to say, it's a goal he's ready to attain. "I'm very [eager] to take what has been a shared vision among us as stakeholders to fruition," he tells Biodiesel Magazine.
The facility itself will be called Magic City Biodiesel LLC, a wholly owned subsidiary of Dakota Skies. An on-site oilseed crushing facility, which will assume the name Magic City Oilseed Products LLC, is also slated for construction. Plans call for the crush plant to take in 250,000 metric tons of canola annually, resulting in 100,000 metric tons of canola oil. Hauth says that will yield 30 MMgy of biodiesel and 150,000 metric tons of canola meal per year. "We are particularly excited about being involved in the crushing and oil management side because it gives us both the security of supply as well as the management of the quality of our feedstock," he says.

Flower Power
In Europe, rapeseed-the crop canola was bred from-is a valuable and widely used biodiesel production feedstock. In North America, however, the use of canola for biodiesel production has been virtually nonexistent. Dakota Skies is by no means alone in its ambitions, though. In early May, agri-giant Archer Daniels Midland Co. (ADM) broke ground on an 85 MMgy biodiesel plant adjacent to its oil-crushing facility in Velva, N.D., just 22 miles southeast of Minot.

Rather than running from ADM's shadow, Dakota Skies' Jeremy Dockter says he sees the construction of a nearby mega-plant as confirmation that Dakota Skies is on the right path-and in the right place. "That validates that they see the opportunity here just as we have," he says, suggesting that Dakota Skies subscribes to what is sometimes described as an "abundance-theory" view of competition. In other words, Hauth and his partners understand that while feedstock quantity is indeed finite, opportunities to succeed in the market are not. "The more people that have access to [biodiesel], the more early adopters we are going to generate, and the more biodiesel we are going to be able to deliver to the market."

Even with 115 MMgy of proposed and under-construction canola oil-based biodiesel production capacity in North Dakota, utilization of the feedstock remains somewhat of an anomaly on a national level. Among current U.S. biodiesel producers, 60 percent utilize soy oil exclusively, and 27.2 percent utilize multiple feedstocks or consider their plant to be multi-feedstock ready, according Biodiesel Magazine's most recent figures. That picture appears to be changing. Taking into consideration plants under construction or expansion, soybean-oil-only plants represent precisely the same amount of production capacity as multi-feedstock plants which is 37 percent each.

In contrast, canola represented none of the large-scale commercial biodiesel produced in North America last year, Hauth tells Biodiesel Magazine. Some work has been done in the Northwest, attempting to broaden the amount of canola grown. A few small plants making canola-derived biodiesel have popped up but none with any significant commercial operations.

From a feedstock perspective, North Dakota is an ideal location for a biodiesel operation focusing solely on canola, according to Barry Coleman, executive director of the Northern Canola Growers Association, which is headquartered in Bismarck, N.D., 110 miles south of Minot. Remarkably, North Dakota produces a whopping 93 percent of the canola grown in the United States, Coleman says.

'Gold Standard' Product
Being a niche feedstock in North America doesn't mean Dakota Skies is stepping out on an untested limb. The use of rapeseed in Europe, especially western Europe, naturally pairs canola-based plants with access to companies with established process technology on the other side of the Atlantic. Dakota Skies is working with a German company, Uhde GmbH, that will serve as the project's general contractor and help the group choose a European process technology provider.

The decision to work with a German construction company was rooted in Dakota Skies' desire to tap into European experience. In fact, the plant will be based on technology developed, demonstrated and currently operating at the same capacity with rapeseed oil, Hauth says.

There are a number of reasons Dakota Skies choose the feedstock and location it did. Chief among them is the fact that biodiesel made from canola oil can be made to meet the biofuel's European specification-EN 14214-more viably than other feedstocks, according to Jeremy Dockter, Dakota Skies principal and the man in charge of the company's strategic planning and financing. "There are certain elements of the European standard that are somewhat more strict," he says. "It just shows that our product is going to be that much more exemptible on the standards basis."

Meeting EN 14214 also opens up the possibility of exporting the biofuel. "All we can say now is that [would be] certainly possible for us to export," Dockter says. "We wouldn't be looking at that as our primarily business plan. But the opportunities certainly are there."

In choosing its feedstock, Dakota Skies also looked at the fact that biodiesel produced from canola and rapeseed has relatively excellent cold weather properties. The original thought behind the project was to target a market segment in Canada and the northern tier of the United States. "We recognized that there was going to be this market application segment that was going to be driven by cold weather tolerance," Hauth tells Biodiesel Magazine. "As we were evaluating that, it became clear to us why the European market has grown up around rapeseed."

The most obvious quality factor of canola, Coleman says, is a lower saturated fat content-about 7 percent or lower-which equates to lower free fatty acids. "The one thing that makes it such a good food product also makes it a good biodiesel feedstock," he says.

Canola also has low iodine levels, which leads to better oxidative stability and less corrosive deposits, Hauth says. "You're going to have cleaner-burning biodiesel that's not going to cause as much engine wear as a higher iodine value might," he says. With a product with good oxidative stability, Dakota Skies' product may fit with a wider range of storage options, and it opens up the possibility of cashing in on markets for unblended biodiesel in agricultural, underground mining, forestry and marine applications. "I think [that's] going to prove, again, that canola-derived biodiesel is of premium quality in the market," Hauth says.

Not Easily Discouraged
As excited as Hauth and Dockter are that Dakota Skies is on the precipice of actually building the plant, reaching this stage wasn't easy, and there's still a challenging stretch of road ahead. Rumors and misconceptions about the fate of the project circulated after a multi-million-dollar deal dissolved last year. A group of investors backed out before making a hard commitment, explains Dockter, a North Dakota native who lives in New York. "Early on in the process, an investment group from Europe had been engaged, but later dropped out of the project for other investment priorities and commitments overseas," Dockter says. "At that point, my company, The Kinetic Group was brought into the project to serve as a codeveloper and arranger of the financing to get the project built."

Stakeholders in the project "retrenched" and made new connections with key players. One of these "new connections" is Dakota Skies CEO Everett Dobrinski, who had been previously aware of the project, but not invested in it. "He knows his way around North Dakota, he knows his way around farming, he knows his way around banking, and he's an excellent networking source," Hauth says.

Interestingly, Sen. Kent Conrad, D-N.D., a Dakota Skies champion from the start, helped bring Dockter and Dobrinski together. It was a good fit. The Kinetic Group, a New York City-based company, was already on the outlook for a biodiesel project in North Dakota. "That is what caused Sen. Conrad to say, 'You guys should team up and accelerate what you're doing and that is indeed what has happened," Dockter says.

Conrad says he is pleased to hear the Dakota Skies project is moving forward. The senator has been a very strong voice for renewable and domestic energy-ethanol, biodiesel, wind and coal-to-liquid fuels, in particular-and the value-added aspect of using canola as a production feedstock in his own state is gratifying. "We've got a lot of activity [with] biodiesel [production] in North Dakota and around the rest of the country," Conrad says, adding that biofuels are critically important to reducing the nation's dependence on foreign sources of energy.

In April, Conrad introduced the BOLD Energy Act. The acronym stands for Breaking Our Long-term Dependence, and it calls for a dramatic increase in domestic production of renewable fuels, incentives for production of more fuel-efficient vehicles and more, he tells Biodiesel Magazine. It would establish a combined biodiesel and coal-to-diesel fuels standard of 250 million gallons in 2008 and 2 billion gallons in 2015. "On the renewable fuels side, it's very ambitious but doable," Conrad says.
Meanwhile, Dakota Skies continues its mission to make magic happen in Minot. After the first group of investors abandoned ship, developers didn't just sit around waiting for the phone to ring, Hauth says. It's out of persistence and passion, that the plant is rapidly nearing financial close and construction. The failed financing is now "ancient history," and multiple equity and debt providers have shown a high level of interest in closing the deal and getting the plant built, says Hauth, who adds with sincerity, "We've got a heck of a project here."

Holly Jessen is a Biodiesel Magazine staff writer. Reach her at [email protected] or (701) 746-8385.
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