INSIGHT: Biofuel refining grows up

16 July 2008 17:31  [Source: ICIS news]

By Ben Lefebvre

HOUSTON (ICIS news)--The US biodiesel industry is growing up, but there are still a few things it has to do if it wants to leave its adolescent stage behind. 

To see that the US industry as a whole is still relatively young, one only has to visit GreenHunter, a Houston, Texas-based refinery that opened in June.

Hearing the company describe its brand new site as the largest biodiesel plant in the US drums up expectations. The walk through the plant, however, with its 105m gal/year biodiesel refinery, glycerine processing system and six methanol tanks, takes less than 45 minutes – and that includes time for Q&A and picking up hard hats.

But while the sheer size of the operation might not be impressive, innovations found here show that the company has done its homework. The latest generation of operators is doing everything it can to break the stereotype of the small, mom-and-pop business in the frozen Midwest turning small amounts of soybean oil into small amounts of renewable fuel.

For starters, GreenHunter, like a few newer biodiesel plants, has recognised that biodiesel operators everywhere are going to have to widen their diet to include alternative, non-food feedstocks as soon as possible. 

The surest way to cost-bloat and eventual bankruptcy is dependence on one feedstock, subject to foul weather, supply tie-ups and price hikes.

Refiners have seen the cost of soybean oil – which can account for more than 90% of the finished fuel product – triple since January 2005.

As such, smart refiners are going to have to broaden their raw material base. On the menu: chicken fat, beef tallow, canola oil, jatropha seeds and algae. Smart operations won’t settle for just one, but design their facilities to be open to all.

Companies trying to avoid feedstock price volatility are partnering with plantations around the globe to ensure steady streams of renewable feedstocks. If the chicken fat runs out in Texas, the company can still secure jatropha from India. A few companies, such as W2 Energy in Toronto, Canada, are even exploring municipal waste as a potential raw material source. 

Another important change has to do with real estate, where, as the old saying goes, it’s all about location, location and location.

Off to the side of GreenHunter’s plant, a ship is anchored along an embankment of the channel leading to the Port of Houston. Barges literally pull up to the site to drop off raw material or pick up finished product for delivery on deep sea lanes.

Construction workers are lengthening a nearby rail line to connect the plant to an inland distribution system.  

Other large biodiesel projects point to a migration towards the shores of the US Gulf and the west coast. With about 60-70% of US biodiesel being exported to Europe and an ever-increasing global web of feedstock sources, well-connected refineries with water-front property are going to have an easier time moving product.  

The third step is for producers to develop economies of scale. Already, companies like REG Energy have sought to hasten industry consolidation by buying smaller refineries or entering into agreements to manage their biodiesel.

The result – the Iowa-based company is now a major supplier, controlling about 220m gal/year of the renewable fuel. GreenHunter says it is exploring the possibility of new plants near the Gulf in Alabama and Mississippi.

Smaller producers will still have a place as regional operators supplying local markets, but when behemoth fuel companies like ExxonMobil need a lot of biodiesel for blending and need it fast, they will look to work with a supplier with lots of material at easy disposal, analysts said. A 10,000 gal/year business in Spanish Fork, Utah, is not going to cut it.

Most market watchers believe the end of this decade will see four or five big players emerging from the current cast of over a hundred in the US to become global leaders, able to draw as much supply as needed and distribute it anywhere.

Finally, many in the biodiesel industry say they are going to have to lobby harder for a coherent US energy policy.

Biodiesel supporters will point to cleaner emissions, better fuel efficiency and renewable raw materials as advantages their products have over petroleum-based fuels. But for now, they still depend on subsidies from state and federal governments to keep their products competitively priced in the market.

With Congress still stalled on the Renewable Energy and Job Creation Act and its $45bn in tax incentives, renewable fuel producers are worried that this crucial advantage may disappear.

The best thing, they say, would be a federal energy policy that maintains the subsidies and nudges the biofuels industry as a whole away from corn and petroleum.

Some would like to see a blending mandate akin to the European Union’s, which calls for a 10% blend of biofuels in all products sold at the pump by 2020, to foster domestic demand.

The fuels-versus-food debate may take that off the political table, however. A World Bank report on higher food prices leaked to the press says biofuels are responsible for a 75% jump in food costs since 2002.

There has been debate over the validity of that number, but the consensus is that biofuels play a major factor in increased food prices whatever the percentage may be.

In all, the industry as a whole still has lots of homework to complete. GreenHunter offers plenty of material for biodiesel students to study, however. 

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Bookmark Simon Robinson’s Big Biofuels Blog for some independent thinking on biofuels

By: Ben Lefebvre
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