Entrée into the Majors
Biodiesel Magazine talks with major U.S. biodiesel marketer Renewable Energy Group and midstream energy giant Kinder Morgan, about the preparedness of the nation's infrastructure to meet the forthcoming U.S. biodiesel mandate.
A growing number of fuel terminals over the past few years, however, have begun to offer B100 tank storage and biodiesel blending capabilities, but the question remains: Is the necessary infrastructure in place to successfully implement the forthcoming U.S. biodiesel mandate? Furthermore, how does infrastructure come into play economically in establishing incentives to blend biodiesel at levels above the mandated amount? It is important to remember that any mandated volume is a floor, not a ceiling. Also, any federally mandated amount is the obligation of refineries to carry out and is designed to be tracked using renewable identification numbers, or RINs, associated with each gallon of biodiesel blended into on-road and off-road fuel supplies.
The term "infrastructure" refers to all the means required to get B100 fuel from the producer to the consumer in the desired blended amount. This includes railcars, barges, tanker trucks, adequate B100 storage, blending racks or other necessary equipment at the terminals, pumps, and the most efficient mode of infrastructural transport of them all-moving biodiesel in pipelines. Some may wonder why it's important to move biodiesel efficiently under a mandate. After all, it's the refiners' obligations, so let them worry about it, right? Not necessarily. If the refiners find it economically advantageous to blend biodiesel then they will have an incentive through the directive to blend biodiesel, but also there will exist an economic incentive to blend volumes higher than required by federal law.
It's also important to remember that virtually anyone affected by the biodiesel mandate can petition the U.S. EPA for a waiver under the new renewable fuels standard (RFS), as opposed to the previous RFS, which said only states could petition EPA for a waiver. Ostensibly, then, this could mean that the more economically refiners can blend biodiesel, the fewer petitions for waiver EPA might receive. "I think it is possible, and I think there is potential, for blending volumes of biodiesel above the mandated amount," says Gary Haer, vice president of sales and marketing for Renewable Energy Group Inc., a major biodiesel producer and marketer. "The mandated amount only impacts the refining business and the refining industry." Haer says over the past couple of years a market has been developed that is essentially independent of the refining market segment. "I see it as being incremental to the market today," he says. "So the factors that are going to impact that are, what the feedstock costs, and what the manufacturing costs are relative to the price of petroleum. The market could be huge and consume lots of biodiesel given the right price parameters. If those price parameters are not correct and do not provide an incentive to the market to consume biodiesel, then it will be lower." The cost-efficient distribution of that fuel is also an important factor in determining favorable blend economics to drive U.S. biodiesel consumption beyond the federally mandated amount. "It's strictly an economic question," Haer tells Biodiesel Magazine. "I think going forward that is going to be the deciding factor to how big the market will be."
Examining the Question
In late 2008, the EPA announced that because of the lack of mechanisms to implement the 500 million-gallon biomass-based diesel portion of the RFS, it would likely rule that refiners will not be obligated to meet the 2009 mandate volume in 2009 per se; but rather EPA may allow refiners to meet those requirements in 2010 along with the mandated volume of biodiesel required for blending in 2010, which is 650 million gallons. If no RINs are generated in 2009 from the 500 million gallons of biodiesel required for blending in that year, it would mean refiners would be obligated to blend 500 million gallons (from 2009) plus 650 million gallons required in 2010 by the end of that year; and conversely, any qualified biodiesel RINs generated in 2009 will certainly count towards the 2009/2010 combined volume. However, this has not been officially announced-only alluded to by EPA as a likely decision it will make. It is important to remember, however, that RINs generated by off-road markets can be sold to refiners to help obligated refiners meet their quotas.
So will the U.S. infrastructure be equipped to meet the mandate of one-billion gallons by 2012? Haer says that's a great question. "Is the infrastructure just sitting there today, not being utilized, ready for biodiesel to go into?" he asks. "No. But I think there are ways we can introduce biodiesel and biodiesel blends into the marketplace through the existing infrastructure that creates a real exciting opportunity for our industry in the future." He says ASTM's diesel specification, D 975, invisibly allowing up to 5 percent biodiesel in the spec, should facilitate the broader introduction of B5 as a fungible commodity that can move through existing infrastructure. "That's going to be a real solid mechanism for the big oil and the petroleum community to begin to look at biodiesel and blends, and how can it move through existing transportation infrastructure," Haer says. "It gets us thinking about pipelines, thinking about terminals, truck racks, loading racks, and everything utilized today to move petroleum. So it gives us a mechanism and an opportunity to blend in biodiesel and become a part of that fuel that moves through the existing infrastructure."
James Holland, vice president of logistics for Kinder Morgan Energy Partners LP, says this extra time could be critical to Kinder Morgan's work in proving out the feasibility of pipelining low-level biodiesel blends. "It means we have a little extra time to do more research, and it gives us the ability to look at our economics of scale when purchasing equipment-let's say to investigate pipelining biodiesel on a broad basis-how would you actually inject biodiesel in the pipeline and how much does it cost, and is it economically viable for your customers to go down that path," Holland says.
Testing biodiesel shipments in pipelines isn't a new concept-Magellan Midstream Partners LP, World Energy, Growmark Inc., and other companies have done it in the past-but in late November, Kinder Morgan completed one of the nation's most recent test shipments of a biodiesel blend. The test involved injection blending of a B5 mix in a lengthy segment of Kinder Morgan's
Plantation Pipeline, which runs from Collins, Miss., to Greensboro, N.C. Kinder Morgan took over Plantation Pipeline operations in 2000 when it also became partial owner of the pipeline.
"We actually took some B100 from soy and put it in tanks at one of our facilities on the Plantation Pipeline, and then injected the B100 into ULSD (ultra-low sulfur diesel)," Holland says. "We did it at a rate to give us a B5 blend, delivered it to a downstream location, and then took some samples to verify we actually achieved a B5 blend and delivered it the way we were expecting. That part-the feasibility let's call it-to be able to blend biodiesel in proportion to the pipeline stream to come up with a B5 blend, we were successful at that."
Plantation Pipeline is one of the largest products pipelines in the U.S. and delivers more than 600,000 barrels a day of gasoline, jet fuel and diesel through its 3,100-mile pipeline network, serving large markets in the Southeast such as Atlanta and Washington, D.C. According to Kinder Morgan, the line consists of petroleum products pipelines connected to 34 shipper terminals in eight states, which are owned by petroleum refiners, marketers, and military and other commercial fuel users. Products are tendered to the Plantation Pipeline from nine refineries in Mississippi and Louisiana, from other products pipeline systems, and through marine facilities on the Mississippi River.
John Fay, manager of scheduling and quality control for Plantation Pipe Line Co., sent a letter to his customers along the line in September 2008, prior to the B5 shipment. The letter, forewarning its customers of the upcoming test, read: "Plantation Pipe Line Company will be conducting a test movement of blended B5 biodiesel in the near future in order to assess the operational viability of transporting this renewable fuel through its system. The batch will be specifically identified within the normal ultra low sulfur diesel sequence and transported in the CNG (compressed natural gas) pipeline. The CNG pipeline extends from Collins, [Miss.] to Greensboro, N.C., with several intermediate delivery locations. No aviation fuel is currently transported in the CNG pipeline."
The line in Fay's letter stating there is no aviation fuel being transported in the CNG Plantation Pipeline is critical. "That was one of the concerns expressed early on," Holland says. "[Customers wanted to know], what are the implications of this trailback into jet fuel? And, at that point, the engine manufacturers, who warranty the jet engines, said they wouldn't recognize their warranties if there was a problem and biodiesel was found in the jet fuel. So that pushed everyone away from pipeline applications." Holland agrees there is still the need, if a company intends to ship biodiesel via a pipeline segment that carries jet fuel, for a single parts per million test method to detect trace levels of biodiesel trailback in jet fuel; and jet engine makers still need to establish maximum trace levels of biodiesel allowable in jet fuel without causing adverse affects in their jet engines.
One could look at the relationship between the U.S. ethanol industry and the obligated refiners required to blend 11 billion gallons of ethanol into gas supplies in 2009, and wonder if ethanol can reach maturation without widespread pipeline acceptance. Why then should the much smaller biodiesel industry be concerned with pipeline movement at all in this stage of the game? Holland says there are a couple of different reasons. "No. 1, our customers are looking for the most efficient ways to transport biodiesel, or at least have it available commercially," he tells Biodiesel Magazine. "And second, when you look at some of the pending regulations, you may not be able to swap an ethanol RIN for a biodiesel RIN so that places a new emphasis on how they can comply with that regulation in the most efficient manner. If you can blend biodiesel the way we did into the Plantation Pipeline, then that saves everyone a lot of money by not having to put individual blending facilities in at each individual terminal."
There are and will continue to be growing numbers of terminals outfitted with B100 tank storage and blending racks. Railcars, tanker trucks and blending racks at individual terminals will all continue to be a mainstay in the biodiesel distribution network. But the ability to move large quantities of a fungible B5 blend strategically through the pipeline network can eliminate or help curb the costly and inefficient installation of new B100 storage tank capacity and specialized injection racks throughout the decentralized terminal network. "This would be another way to take advantage of those economics," Holland says. "You have potentially one single point where you can inject and make a blend as opposed to trying to equip each and every downstream terminal with blending equipment and also the infrastructure for bringing all of that B100 into each and every terminal." So, while the biodiesel industry may not need pipeline access to see fulfillment of the 1 billion-gallon RFS by 2012, the shipment of biodiesel blends through the pipeline infrastructure may provide that extra economic advantage needed to build the incremental market out beyond any mandated volumes.
Ron Kotrba is a Biodiesel Magazine senior writer. Reach him at email@example.com or (701) 738-4942.