ND Biodiesel Task Force
Feasibility of Biodiesel Production in
Area of Fargo, North Dakota

Pat Downs, ND Bio-Diesel Task Force

Biodiesel: The Specifications
Advantages Compared to Petroleum Based Diesel Fuel

4 Biodiesel blends require essentially no engine modifications up to B20 while providing similar BTU content, fuel economy and performance

4 Specific advantages include superior lubricity, higher flash point, no sulfur or aromatics, higher cetane number and higher oxygen

Biodiesel Processing
Production Methods

4 The production processes for biodiesel are well known.  The three basic methods are:

• Base catalyzed transesterification of the oil

• Direct acid catalyzed transesterification of the oil

• Conversion of the oil to its fatty acids and then to biodiesel

4 Most biodiesel produced today used the base catalyzed reaction because:

• It is low temperature and pressure

• It yields high conversion (98%) with minimal side reactions and reaction time

• It is a direct conversion to biodiesel with no intermediate compounds

• No exotic materials of construction are need

Biodiesel Processing
Base Catalyzed Transesterification

4 Generally 100 pounds of fat or oil are reacted with 10 pounds of methanol (a short chain alcohol) in the presence of about 1 pound of a catalyst (usually sodium or potassium hydroxide)

Biodiesel Processing
Methanol vs. Ethanol

4 A rule of organic chemistry:  the shorter the carbon chain length, the more reactive the alcohol

4 Methanol is a single carbon alcohol while ethanol has two carbon atoms

4 For this reason, it takes about 1.8 gallons of ethanol to produce 10 gallons of biodiesel vs. 1.0 gallon of methanol

4 Assuming ethanol at $1.25 / gallon and methanol at $0.75 / gallon, use of ethanol will increase production costs by a minimum of $0.15 per gallon of biodiesel!

4 In addition, ethanol holds 5% water that cannot be removed via the less expensive method of distillation

Biodiesel Processing
Preprocessing (Refining)

4 Biodiesel can be produced from any type of vegetable oil or animal fat

4 However, all of these feedstocks require some level of pre-processing to remove materials that reduce the yield of biodiesel and increase the processing costs to achieve the ASTM specifications

4 In integrated production facilities, this is generally known as “refining”

4 Crude or unrefined oils contain free fatty acids (FFAs), gums and other impurities that must be removed

4 Pre-processing including esterification to remove FFAs involves:

• Filtering: typically used as a first step with yellow greases

• Degumming: mixing 3-5% water with the feedstock to precipitate the gums

• Refining: use of sodium hydroxide to form a soap that is separated

Biodiesel Processing
Free Fatty Acid and Impurities in Feedstocks

4 The quality of available fats and oils will vary depending upon the % of free fatty acids (FFA) and the % moisture, insolubles & unsaponifiables (MIU moisture along with other impurities) among other factors.  One measure of these impurities is indicated below:

Biodiesel Processing
Pre-Processing Costs by Feedstock

4 There are three components to supplemental costs associated with required pre-processing of biodiesel feedstocks:

• Added operating costs;

• Implied amortized capital requirements; and

• Lowered conversion rates to biodiesel from remaining “purified” feedstocks

4 The biodiesel industry is too young to have yet established broadly accepted supplemental cost numbers for the necessary pre-processing

4 SJH estimates of supplemental costs are directional in nature and shown on the next slide based upon the following assumptions:

• Operating costs:  based upon the mid-point of a range estimated by Frazier Barnes.

• Capital costs:  roughly equivalent to supplemental operating costs on a per pound basis

• Lowered conversion rates: based upon levels of FFA’s and MIU’s as indicated on the previous slide for different feedstocks (note that the level of these impurities can vary widely)

Biodiesel Processing
Pre-Processing Costs by Feedstock

4 Actual effective feedstock costs can vary greatly with time, feedstock costs and process technologies

Biodiesel Processing
Opportunities for Increased Processing Efficiencies

4 Process design / construction firms such as PSI Lurgi, Bratney and Crowne are unable or unwilling to identify specific quantitative cost advantages from their proprietary technologies

4 USDA ERRC cost model calculates non-feedstock processing costs at $0.25 / gal for the base catalyzed transesterification process, assuming a $0.12 / gal co-product credit and cost of methanol at $0.75 / gal

4 The variable processing cost for biodiesel, excluding purchase costs for feedstock and methanol, is approximately $0.30 per gallon

4 An extremely efficient production process might achieve up to a 15% reduction in process cost, reflecting a savings of up to 4.5 cents per gal.

4 Process cost savings of up to $0.045 per gallon ARE significant in terms of competitive advantage vs. other production facilities, but the assumption is that competitive facilities will also perform their due diligence!!!!  (Cost to compete, not an advantage!!!!)

4 The same potential for savings are NOT significant in terms of establishing overall operational profitability when feedstock costs can vary by as much as $0.90 per gallon of biodiesel!!!

Biodiesel Characteristics
Measures of Cold Flow Properties

4 Cloud Point (CP): the temperature at which a cloud of wax crystals that might plug the fuel filter first appears (ASTM D2500)

4 Pour Point (PP): the lowest temperature at which movement can be observed when the sample container is tilted (ASTM D97)

4 Low Temperature Flow Test (LTFT): is designed to determine if a fuel can be expected to pass through an engine fuel filtration system (ASTM D4539)

4 Cold Filter Plugging Point (CFPP): similar in design and intent to LTFT  (ASTM D6371-99)

Feedstock Availability
ADM – Enderlin and Mankato

4 Enderlin crushes a mix of canola, sunflower, and soybean

4 Enderlin crush mix changes depending upon availability and economics of oilseeds

4 Close to two-thirds of Enderlin crude soy oil is shipped to the west coast, with the remainder refined at Mankato

4 Sale of all product is determined daily by the central trading desk in Decatur

4 ADM expressed willingness to supply a local or regional, independent biodiesel plant with feedstock

4 A recent feasibility study for biodiesel production in Minnesota reflects the mix of ADM’s short and long-term interest in biodiesel production

Feedstock Availability
Canola Oil

4 Canola has traditional maintained a price premium to soy oil of approximately 15%, although that has been inverted several times over the past ten years

4 From a horticultural perspective, canola appears to make sense: 42% oil content and potential for almost twice the oil per acre

4 However, macro trends in concerns for diet, along with pending labeling of trans-fats will likely further drive the historic price differential between canola and soy oils

4 Although a case could be made for an integrated canola crush facility in the Mandan region (or further west), it is difficult to overcome the obstacle of higher market costs for the oil

Feedstock Availability
Summary

4 Short to mid-term, it appears that an independent biodiesel producer will be able to source sufficient soy oil to support a 10 – 15M gpy facility, the minimum size required to attain the efficiency of scale from use of a continues production process

4 However, it appears likely that if the biodiesel market becomes positive in terms of both volume and margin, every source of feedstock in the tri-state region is likely to produce biodiesel

4 Long-term, an independent producer faces a number of competitive challenges in competition with an integrated operation:

• Cost of feedstock will inevitably include a small upside to provide margin to the crush facility;

• Pre-processing (otherwise known as refining) results in residuals – soap stocks and other “bottoms” that must be marketed; and

• Access to a secure, long-term supply of required feedstock is not secure

Feedstock Availability
Implications from Feedstock Availability

4 Independent biodiesel production is unlikely to be viable:  there are very few independent refiners remaining in the U.S.

4 Options NDBDT appear to include either a substantial long-term relationship with an existing market player or construction of new crush capacity

4 SDSP and West Central Soy have expressed interest in long term management relationships

4 However, no one expressed willingness to “put skin in the game,” without “looking closely at the numbers”

4 There appears to be no real advantage for existing crush facilities to participate in production of biodiesel off-site, although most would not dismiss consideration out of hand

Viability of New Crush Capacity
Soybean Production vs. Crush Capacity

4 Regional crush capacity, particularly in North Dakota, handles only a fraction of local soybean production

4 But local / regional consumption of soybean meal is a better measure of future venture viability

Feedstock Availability
Soybean Crushing Facilities

Feedstock Availability
Implications for New Crush Capacity

4 U.S. crush capacity has declined by 14% over the past two years, despite new capacity in Minnesota

4 Declining demand for soybean meal has been driven by

• Domestic livestock numbers are not increasing;

• World production, particularly in Brazil and Argentina, has increased

• China is buying NO soybean meal on the international market

• Recent high market prices (driven by tight supplies) have created some product switching

4 North Dakota soybean meal consumption is small compared to existing state crush capacity (and not increasing)

Feedstock Availability
Implications for New Crush Capacity

4 New MN crush capacity has created significant disruption to historic meal markets

• All players report more difficult market conditions

• Basis and freight rate pressures have created problems with unit car rail shipments to Mexico

4 There is little competitive advantage for a new crush facility in North Dakota except by looking north

4 To proceed, NDBDT needs to understand the long-term opportunity of a Canada export market

4 It will also be necessary to carefully weigh the trade-offs between size required to support biodiesel production and efficiencies of scale

• 12M gpy biodiesel uses oil from approximately 800 tpd soy crush

• All other crush facilities in the tri-state region are about three times that size!