Located in the heart of heating oil country, Paul Nazzaro Sr. has a birds-eye view of biodiesel and Bioheat growth. As president of Advanced Fuel Solutions Inc., he has served as the National Biodiesel Board's petroleum liaison since the 1990s. From his office in North Reading, Mass., he has an ideal perch for his role in developing and implementing a far-reaching communications program that conveys biodiesel information to refiners, distributors and pipeline and terminal operators.
As the unofficial start of heating season draws near, Nazzaro was busy spreading the word about Bioheat, home heating oil blended with biodiesel. This season promises to be volatile. In mid-August, the U.S. DOE's Energy Information Administration projected that heating oil prices on average will increase 31 percent to $4.35 per gallon from $3.31 last heating season. That monthly short-term energy outlook was released prior to Hurricane Gustav hitting the Gulf Coast, and at press time a series of tropical storms were building strength in the Atlantic Ocean.
Despite the turbulence in the commodities markets and in weather patterns, Nazzaro has been successful in bridging the gap between the biodiesel and petroleum industries. He provided Biodiesel Magazine his insight shortly after the Labor Day holiday.
Q: Please discuss your role as petroleum liaison for the NBB.
A: Before talking about my role with NBB as the petroleum liaison, I believe it is important to note that prior to taking on the role, I spent close to two decades in a variety of roles in the oil industry. First with a retail oil company that was responsible for delivering home heating oil to the retail customer, then with wholesale terminal operators who were responsible for supplying home heating oil, gasoline and diesel fuel to the retail distribution network throughout New England. It was through these experiences I was able to understand not only how petroleum products moved throughout the distribution chain, but it also gave me a better understanding of who the customers were throughout the chain and how they operated. It also gave me significant credibility with industry leadership and a working knowledge of who the key contacts would be should biodiesel become a viable alternative fuel that could be blended into both home heating oil and transportation diesel fuel. Without this first-hand knowledge of key personnel and a critical understanding of how the industry worked behind the scenes, I do not believe I would have been able to navigate some of the mine fields NBB would come across as it moved to get biodiesel accepted as not just a petroleum substitute but a viable alternative fuel that would be good for consumers, retailers and wholesalers alike.
Q: In your estimation, has the petroleum industry's view of biodiesel changed in recent years? If so, how? How are things developing between the biodiesel industry and its customer, the petroleum industry?
A: Yes, I do believe the petroleum industry's view of biodiesel has changed over the years. When I first started talking to people throughout the industry about what we were trying to do at NBB, I was met with blank stares, perhaps even laughter to outright disbelief that we were talking about blending "vegetable oils" with petroleum products such as heating oil and diesel fuel. Conceptually it was an idea that no one had really heard about before so most in the industry gave it little if any chance of becoming a commercial success. If anything, they felt that it might become a boutique fuel that may appeal to a certain market segment, but large commercial success was out of the question.
Today, oil industry leadership groups such as the National Oilheat Research Alliance, Petroleum Marketers Association of America and the New England Fuel Institute realize the benefits biodiesel offers. With a move to greener products, biodiesel helps the industry address concerns over global warming with lower greenhouse gas emissions, and consumers are looking for renewable fuel alternatives compared with fossil fuels of the past.
Like any new product that comes to the market, education can often be the single biggest barrier to entry, and biodiesel was no different. Once consumers understand the benefits and how the product works, acceptance is the next logical step. Unfortunately, with the petroleum industry, education and acceptance must come along the entire distribution network-from pipeline companies to barge and shipping companies to wholesalers and terminal operators to retail fueling stations and retail distributors-before you even reach the ultimate consumer. This takes a lot of time and resources.
We have come a long way from those original meetings I had with industry leaders almost 10 years ago. Petroleum companies along the entire distribution network are helping us find ways to get biodiesel to the market quickly and more cost effectively. They no longer view biodiesel as a boutique fuel but one that will help secure our energy independence and help combat environmental issues such as global warming.
So, as I head into my second decade of working with the petroleum industry for NBB I am optimistic that biodiesel has a strong supporter and partner. As we continue to move forward, biodiesel is a product that will be good for both industries. As the old saying goes "Rome was not built in a day," and it is no different with biodiesel. I can also say there is a light at the end of the tunnel, and no, it is not a train. The time is right. The market is asking for cleaner, greener, renewable fuels that will help secure our independence from foreign sources of energy. Biodiesel and Bioheat are positioned to fill this need.
Q: Analysts say we should expect higher heating oil and natural gas prices again this winter. How does that impact Bioheat home heating oil?
A: Higher heating oil and natural gas prices will be a reality this winter compared with the previous year but the overall price of these fuels will not have much impact on biodiesel use. When talking about prices of any of these fuels it requires a deeper understanding of commodity markets in general. All commodity prices are up this year including many of the key products that go into producing biodiesel. Therefore, the cost of biodiesel is higher this year compared with the previous year so Bioheat costs will be higher this year. A majority of the Bioheat that is supplied into the market is a B5 to B10 blend. Therefore, as prices for traditional heating oil rise, Bioheat costs will also rise.
However, higher prices bring about awareness of larger political issues such as national security and energy independence. As long as we, as a country, continue to rely on foreign sources of energy, it is safe to say that we cannot control our own energy future and prices will remain volatile. This is one of the greatest strengths of biodiesel. Since it is predominately a domestically produced product with multiple feedstocks such as soy, canola, sunflower, recycled greases and tallow it is easy to see how biodiesel and Bioheat will become more widely used. When you consider new products such as algae, jatropha and switchgrass it is easy to envision a time in the not-too-distant future that biodiesel will be
less expensive than traditional fuel oil, which will increase its use and the blend percentage, helping drive overall costs lower.
Over the past year or two, Bioheat growth has risen dramatically. However, when you consider we are talking about a market that didn't even exist a few years ago the total demand for Bioheat is still very small. I don't expect that to change much this coming winter. In the past, much of the growth was fueled by independent oil dealers who wanted to provide a marketing edge for their companies compared with others they compete against. Bioheat demand is growing thanks to companies such as Schillwalker in Long Island, N.Y., Devine Brothers Inc. in Norwalk, Conn., and Simply Green Biofuels in Portsmouth, N.H., that have been willing to take a chance on a product they believe in and to take advantage of the competitive edge it provides. When looking at the total demand for home heating oil in the Northeast of about 9 billion gallons per year, Bioheat doesn't even register as it only represents a fraction of the total demand.
However, the growth that Bioheat is about to realize will dwarf anything we have seen in the past. Driven by the renewable fuels standard signed into law in 2007 by President George W. Bush, and subsequent laws at the state level that will mandate the use of Bioheat, I envision that overall demand for Bioheat could easily represent a minimum of 5 percent of the total heating oil market (450 MMgy) to as much as 20 percent (2 billion gallons per year) over the next five to 10 years.
Massachusetts recently signed the first Bioheat mandate into law. Beginning in July 2010, all Massachusetts heating oil and transportation diesel fuel must contain a minimum of 2 percent biodiesel, increasing to 5 percent by 2013. Based on past demand in the state of Massachusetts, biodiesel demand will reach more than 100 MMgy by 2013. Other states including New York are also considering mandates. Should the mandate in New York pass as currently written within the next year, we could see an additional demand for Bioheat in excess of 400 MMgy by the time it is fully implemented in 2015. As more states mandate the use of Bioheat, the product will become more readily available in other states, helping to drive demand and bring about significant growth for the industry. Although we are not there yet (you can see why I say I can see the light at the end of the tunnel), we are getting closer because of mandates and growing acceptance by the petroleum industry.
Q: ASTM's new blend specifications clear the way for up to B5 to be included in the home heating oil specification ASTM D 396. What impact, if any, will that have?
A: The changes at ASTM may be the biggest single thing NBB accomplishes as it moves to bring biodiesel to greater acceptance throughout the petroleum world. Everything in the industry revolves around ASTM standards and having ASTM D 396 amended to include 5 percent biodiesel removes a lot of questions concerning warranties from original equipment manufacturers as well as addressing concerns over insurance for both the oil dealer and the homeowner. Amending D 396 paves the way to bringing universal acceptance of Bioheat to the marketplace. ASTM also brings about a certain level of comfort and credibility throughout the industry that biodiesel is indeed a quality fuel that offers the benefits we have been touting for so many years. However, sometimes you need third-party verification, and this is what ASTM did when they agreed to amend D 396.
In closing, I would like to say that the groundwork has been laid and many of the barriers that existed just three to five years ago have been removed. The growth of Bioheat is about to take off, but much still remains to be done. Additional education must take place across all lines of the petroleum distribution network, additional infrastructure must be put in place to meet future demand (both from production and supply) and ultimately the consumer must be educated about the fuel they will be using to heat their homes. Over the course of the next two to five years consumer education and awareness must be given top priority so we can bring about universal acceptance of Bioheat.
Dave Nilles is the Biodiesel Magazine contributions editor. Reach him at dnilles@bbiinternational.com or (701) 738-8026.