Read ÿþBiodiesel Feasibility text version

Haas Center

for business research and economic development

An Evaluation of Biodiesel Production Feasibility in Santa Rosa County

www.haas.uwf.edu

An Evaluation of Biodiesel Production Feasibility in Santa Rosa County

Commissioned by: TEAM Santa Rosa Economic Development Council, Inc. 6491 Caroline St., Suite 4 Milton, FL 32570

Conducted by:

Phyllis K. Pooley, MBA, JD Associate Director Haas Center for Business Research and Economic Development

Submitted: Final Report submitted January 9, 2005

Table of Contents

Executive Summary............................................................................................3 Introduction.........................................................................................................5 Diesel Demand ....................................................................................................5 Facts about Biodiesel.........................................................................................7 Feedstocks ..........................................................................................................9 Vegetable Oils................................................................................................................. 9 Rendered Products ........................................................................................................ 10 Recycled Oils ................................................................................................................ 10 Price of Feedstocks ....................................................................................................... 10 Biodiesel Production Economics ....................................................................12 Plant Profile: Lakeland, Florida................................................................................... 15 Government Incentives ................................................................................................. 16 Trends................................................................................................................17 Santa Rosa County Plant .................................................................................18 Local Feedstocks........................................................................................................... 20 Site Selection ................................................................................................................ 22 Plant Size and Type ...................................................................................................... 23 Marketing...................................................................................................................... 24 Limits or Constraints..................................................................................................... 25 Economic Impact of a Production Facility ................................................................... 26 Conclusions and recommendations ...............................................................27 References ........................................................................................................29

Table of Tables and Figures

Table 1 - Effect on soybean oil prices of soybean based biodiesel production ................ 11 Table 2 - Biodiesel plant capital and operating costs by plant size .................................. 13 Table 3 - Projected production costs for diesel fuel by feedstock .................................... 14 Table 4 - Florida biodiesel distributors............................................................................. 16 Table 5 - Florida soybean production ............................................................................... 20 Table 6 - Economic impact of a 10 million gallon plant in Santa Rosa County............... 27 Figure 1 - Diesel Consumption in U.S. and Florida ........................................................... 5 Figure 2 - Pensacola MSA diesel consumption .................................................................. 6 Figure 3 - U.S. No.2 Diesel Retail Sales............................................................................. 6 Figure 4 - EPA emissions impact for biodiesel ................................................................. 8 Figure 5 - Historic prices of selected biodiesel feedstocks............................................... 11 Figure 6 - Biodiesel production process ........................................................................... 12 Figure 7 - Biodiesel operating costs as a percentage of total costs................................... 14 Figure 8 - Current and proposed U.S. biodiesel production facilities .............................. 15 Figure 9 - Alternative fueled vehicles in use .................................................................... 17 Figure 10 - Land in agricultural production...................................................................... 19 Figure 11 - Prime farm land.............................................................................................. 19 Figure 12 - U.S. soybean production costs ....................................................................... 21 Figure 13 - Santa Rosa County industrial sites................................................................. 23 Figure 14 - Location of Oil Seed Crushing Facilities ....................................................... 26 2

Executive Summary

With the recent surges in oil prices has come increasing interest in alternative energy sources as a means for decreasing reliance on petroleum products. Biodiesel is an alternative fuel for diesel engines that is produced by chemically reacting vegetable oil or animal fat with an alcohol to produce a fatty acid alkyl ester. Biodiesel is most often used as a blended fuel with petroleum diesel, but can be used as a pure fuel. Biodiesel can be produced from any type of vegetable oil or animal fat. The prices of all feedstocks typically used for biodiesel production tend to fluctuate together and, because many fats and oils may be substituted for each other, prices depend on demand not only of the individual products, but on the supply and demand situation for the entire fat/oil complex. Crude biodiesel is produced by transesterification. The most common is a methyl ester process that uses methanol along with a feedstock and sodium hydroxide as reactants. Most commercial plants use the methyl ester process. There are a wide range of production plant sizes that lend themselves to efficient biodiesel production. Initial capital costs vary depending upon the size of the plant primarily due to the increased cost of transesterification equipment as the amount of planned production increases. Feedstock and catalysts costs represent nearly 95 percent of the operating costs of a biodiesel plant. Changes of only 5 cents per pound can result in a 19 percent increase in the cost of the biodiesel produced. A challenge facing all biodiesel producers is how to deal with the crude glycerin produced as a byproduct from diesel production. Government incentives are currently in place that can make the retail price of biodiesel competitive with petroleum diesel. Trends suggest that increasing costs of oil coupled with aggressive investment and incentives could enable biodiesel to replace up to 18 percent of the petroleum diesel used in the United States by 2030. Santa Rosa County has a strong agricultural industry, particularly in the northern part of the county. Local feedstock sources, if entirely used in the production of biodiesel, could only support a 1 million gallon production facility. Competing demands for these crops make 100 percent utilization for biodiesel unrealistic. Consequently, location and operation of a biodiesel production plant in Santa Rosa County would require importation of feedstock. Site location criteria for a biodiesel plant include access to a rail line, excellent road service, source location of feedstocks, and access to water and electricity. Given the location of existing infrastructure, the best site location in Santa Rosa County would be an existing industrial park. Such parks currently have plant production requirements in place and are also conveniently located to the Air Products facility in Pace ­ a producer of methanol ­ via rail or truck. The parks

3

are also located within easy access to Interstate 10 and most connect to the Port of Pensacola via railroad. Benefits from construction and operation of larger plants of 10 million or more capacity include reduction in equipment cost per gallon of fuel production and reduction in operating expenses due to economies of scale. Large plants also have a greater economic impact on a community. Plants with the flexibility to use multiple feedstocks have the advantage of being able to choose feedstocks based on price. Thus consideration should be given to construction of at least a 10 million gallon multi-feedstock facility. Several markets are developing for biodiesel, including agriculture, marine engines, over-road trucking, public transit buses and school buses, stationary engines for pumping and emergency power generation and home heating oil applications. The factors affecting biodiesel's entry into all of these segments include fuel price and availability, legislative mandates and incentives, environmental regulations, and consumer awareness. The development of a marketing strategy for an individual producer requires an assessment of the local demands for diesel fuel, choice of what segment(s) to address, and development of strategic partnerships to produce, transport, and sell the product. In the Pensacola area, major markets would include county transportation fleets, including school buses; boaters and the trucking industry. In order to support continued production at a large plant, however, it would be necessary to find markets outside of the local area. Using the projected project figures calculated from financial information from various feasibility studies and information on employment at a 10 million gallon facility, an IMPLAN input-output model was generated. Based on the model results, it's estimated that the annual economic impact generated from construction and operation of a biodiesel production facility in Santa Rosa County will be slightly over $29 million. There are a variety of feedstocks available in Santa Rosa County, but the relatively small quantity and lack of processing facilities make importation of feedstock more realistic. Infrastructure is in place, including a local methanol supplier, to support development of a large facility of 10 million gallons or more. There are no apparent workforce issues. The processing technology for producing biodiesel is well established and presents little technological risk. Biodiesel can be easily integrated into existing petroleum distribution systems from handling, chemical, physical and performance perspectives. Given the present levels of government incentives and a low enough cost feedstock, biodiesel can be cost competitive, particularly when used as an additive.

4

Introduction

With the recent surges in oil prices has come increasing interest in alternative energy sources as a means for decreasing reliance on petroleum products. Production of bio-fuels such as ethanol and biodiesel are being seriously considered not only as petroleum replacements, but also for environmental and local economic development purposes. Biodiesel feasibility studies have been conducted for Mississippi, Kansas, Missouri, the Southeastern U.S., North Dakota, British Columbia, Minnesota, Georgia, the Inland Pacific Northwest, Seattle, WA, Oregon and Kentucky. Further studies have been conducted on national and international levels, or have focused on specific topics such as emissions, production methods, and markets. Most of these feasibility studies were published since 2000 as interest in biodiesel has grown. Team Santa Rosa Economic Development Council, Inc. has commissioned the Haas Center for Business Research and Economic Development to produce a study of the feasibility and potential economic impact that will result from the construction of a biodiesel processing facility in Santa Rosa County, Florida.

Diesel Demand

According to the Energy Information Administration (EIA), on average some 20 million gallons of No. 2 diesel fuel are consumed daily in the United States, with over 5 million gallons of that occurring in the state of Florida. See Figure 1.

Figure 1 - Diesel Consumption in U.S. and Florida

No. 2 Diesel Consumption

25,000 Florida United States

Thousands of gallons per day

20,000

15,000

10,000

5,000

0 Jan- Feb- Mar- Apr- May- Jun04 04 04 04 04 04 Jul04 Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun04 04 04 04 04 05 05 05 05 05 05

5

In the two-county Pensacola region, nearly 35 million gallons of No. 2 diesel fuel was consumed in 2002. See Figure 2.

Figure 2 - Pensacola MSA diesel consumption

40,000 35,000 30,000 (thousands of gallons) 25,000 20,000 15,000 10,000 5,000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Escambia Santa Rosa

Source: Florida Department of Revenue

Prices for Number 2 diesel fuel in the U.S. increased 73 percent between January, 2003 and November, 2005. See Figure 3.

Figure 3 - U.S. No.2 Diesel Retail Sales

U.S. No. 2 Diesel Retail Sales by All Sellers (Cents per Gallon)

330 310 290 270 250 230 210 190 170 150 Oct-04 Feb-04 May-04 Feb-05 May-05 Mar-04 Nov-04 Dec-04 Mar-05 Oct-05 Jan-04 Jun-04 Jan-05 Jun-05 Aug-04 Aug-05 Nov-05 Jul-04 Sep-04 Jul-05 Sep-05 Apr-04 Apr-05

Source: EIA

6

Facts about Biodiesel

Biodiesel is an alternative fuel for diesel engines that is produced by chemically reacting vegetable oil or animal fat with an alcohol to produce a fatty acid alkyl ester. Production requires a catalyst, such as sodium or potassium hydroxide and produces glycerol as a byproduct. The approximate proportions of the reaction are: 100 lbs of oil + 10 lbs of methanol 100 lbs of biodiesel + 10 lbs of glycerol Soybean oil is the most common feedstock used in U.S. production, while rape seed oil is used in Europe. An important factor in considering which feedstock to use is the stock's free fatty acid (FFA) content. Sources with high FFA content require pretreatment prior to biodiesel production which adds to the cost of production. Biodiesel is most often used as a blended fuel with petroleum diesel, but can be used as a pure fuel. The most common blend is B-20, a mixture of 20 percent biodiesel and 80 percent petroleum diesel. B-100 refers to 100 percent biodiesel. Biodiesel has a lower flashpoint and burns cleaner than petroleum diesel, reducing emissions of nitrogen, carbon monoxide and unburned hydrocarbons. Burning biodiesel or biodiesel blends requires little to no modifications to current engines. Biodiesel has greater lubricating qualities than petroleum diesel and adding even small amounts of biodiesel to poor quality petroleum diesel can increase its lubricating qualities to acceptable levels. Biodiesel is more susceptible to cold than petroleum based diesel fuel. It will generally start to gel at higher temperatures than #2 diesel fuel. Soybean oilbased biodiesel will form crystals at about 0°C and biodiesel from saturated fats, such as are commonly found in animal fats and greases, can form crystals at higher temperatures. The cetane number of biodiesel is a measurement of the ignition performance of a diesel fuel oil obtained by comparing it to reference fuels in a standardized engine test (ASTM, 1994g). The cetane number for biodiesel should be a minimum of 47; however a cetane number that is too high can lead to engine problems. Biodiesel's cetane number depends on the feedstock used for its production. Energetically, biodiesel has approximately 85 percent of the energy potential of petroleum diesel. When blended with petroleum diesel at levels less than 20% (v/v), these blends generally perform similarly to neat petroleum diesel. The US Park Service has adopted biodiesel use at many of its parks within the US and thus has kept an extensive database on the fuel's performance in a wide variety of vehicles. Their data show excellent performance and strong evidence as to the high potential for using biodiesel as a displacement fuel to petroleum. Several

7

original equipment manufacturers (OEMs) are providing warranty coverage for fuels using as much as a B20 fuel blend. In the case of a spill, biodiesel is a fairly environmentally benign chemical that is fully biodegradable. Conversely, petroleum diesel releases into the environmental are a serious threat to the ecosystems receiving these chemicals because many of the components of petroleum diesel are carcinogenic and persistent. Biodiesel must be segregated and handled separately because of its unique physical properties. Biodiesel can be corrosive to rubber materials and liner materials and cannot be stored in concrete lined tanks. A major by-product in the production of biodiesel is glycerol. Marketing glycerol often dictates the profitability of a biodiesel plant. According to a study from Mississippi State University, identifying and maintaining this market is absolutely critical to a successful biodiesel venture. A potential glut in the glycerol market is of concern to the further development of the biodiesel industry. Current uses for glycerol are many including pharmaceuticals, cosmetics, paints, and toothpaste. The US Biodiesel Board (2003) reports that studies show that the use of biodiesel reduces exotic (derived from outside of the biosphere) carbon dioxide flux into the biosphere by over 75% because of recycling of the carbon dioxide within the biosphere. Carbon monoxide production on a life cycle basis is reduced by approximately 35%. Measurements of particulate matter emissions from diesel-run buses indicate a reduction of particulates by over 60%. Soot (black smoke released during rpm increases) within the same tests were reduced by over 80%. Sulfur dioxide and methane releases have been documented to be reduced by over 8% and 3%, respectively. Nitrogen oxide releases were approximately 9% higher than those measured from combustion of petroleum diesel fuel. Wastewater production and hazardous waste generation during processing of biodiesel over petroleum diesel is approximately 80% and 95%, respectively, lower.

Figure 4 - EPA emissions impact for biodiesel

8

Recently published research has suggested that it takes 27 percent more fossil energy to produce biodiesel than the resulting biodiesel fuel produces. Critics of this research state that it is based on out-of-date farming methods and production statistics and that recent improvement in both make the process more cost-effective. Additionally, a study performed by the U.S. Department of Energy and the U.S. Department of Agriculture in 1998 found that the total fossil energy efficiency ratio (ie. total fuel energy/total fossil energy used in production, manufacture, transportation, and distribution) for diesel fuel and biodiesel shows that in terms of effective use of fossil energy resources, biodiesel yields around 3.2 units of fuel product for every unit of fossil energy consumed in the lifecycle. By contrast, petroleum diesel's life cycle yields only 0.83 units of fuel product per unit of fossil energy consumed.

Feedstocks

Biodiesel can be produced from any type of vegetable oil or animal fat. Some of the suitable feedstocks may require some pre-processing to remove materials that reduce the yield of biodiesel. Crude or unrefined vegetable oils contain free fatty acids and gums that must be removed before entering the methyl ester process. The pre-processing can take the form of refining, degumming and/or filtering to remove the impurities. Degumming involves mixing a small amount of water (about 3-5%) with the feedstock which precipitates the gums which then can be separated by centrifuging the mixture. Refining involves adding sodium hydroxide to the feedstock to form a soap that can be separated by centrifuge from the oil. Yellow grease or spent restaurant fats must be filtered and refined to remove the free fatty acids and residual cooking fines.

Vegetable Oils

Vegetable oils suitable for producing biodiesel include the commodity oils: palm, soybean, corn, canola, sunflower and rapeseed. Some oils, such as olive and peanut oils, can be used for biodiesel, but their prices are generally too high for economic production. Coconut oil can be used for biodiesel, but the fatty acid composition is such that the pour point and cloud point properties are very poor. Cottonseed oil can also be used, but it is a primary feedstock for the margarine industry. A key factor in the decision to use vegetable oils for biodiesel feedstock is the fact that these oils are premium food products. This means that the pricing of all vegetable oils is somewhat higher than other triglyceride sources. Vegetable oils have the advantage that whether they are partially or fully refined, they have low free fatty acid content and typically have very low concentrations of most process contaminants, including water. The fatty acid profiles of most temperate climate vegetable oils allow the esters to meet cloud point and pour point requirements without need for winterization. The polyunsaturate content desirable for most premium food oils can lower the cetane number of the biodiesel and may contribute to lower storage stability for the product.

9

Futures trading for the plant's oil supply can offer opportunities to lower the average cost of the vegetable oil feedstock. Also, off-specification oils from regional processors may be suitable for use in biodiesel production, although may not be available in large quantities. One possible source of feedstock not yet being explored fully in the United States is the use of non-edible vegetable oils. Because there are no competing food uses, non-edible oil prices would not suffer the fluctuations of edible oil products. Non-edible oilseed products used outside the United States for biodiesel production include jatropha curcas, a hedge plant that grows in tropical and subtropical climates. The residue oil cake left after crushing jatropha is used in organic fertilizers. A 2.5 acre farm planted with 4400 jatropha plants under rain fed conditions can yield approximately 396 gallons of oil. By comparison, soybeans produce about 122 gallons of oil on the same acreage. Jatropha also has the advantage of being able to be grown in sub-prime farmland.

Rendered Products

The primary animal fats considered for biodiesel are beef tallow (inedible grade) and inedible grade pork lard. Because of the palmitic and stearic acid content, biodiesel from these sources may need to be winterized or blended to meet pour point and cloud point specifications. Poultry fat has not been explored extensively for biodiesel, but it has the potential to be a significant feedstock. Fish oils could be used for biodiesel, but they tend to be priced at a premium. In addition, fish oils are highly unsaturated which may lead to stability problems unless these fatty acids are removed. Animal fats tend to have higher free fatty acid contents than vegetable oils because they have been cooked (rendered) once in their preparation.

Recycled Oils

Used cooking oils in the form of yellow or brown grease are often used in the production of biodiesel. Yellow grease is typically oil derived from vegetable oil that is collected by renderers from restaurants. The renderers then clean the raw product, test it for quality and sell it as a commodity. Yellow grease is used in the commercial food industry as a lubricant and in animal feeds. Brown grease is grease from collected from sewage traps at restaurants and is also known as trap grease. Brown grease has a higher FFA content then yellow grease and is less desirable as a feedstock for biodiesel.

Price of Feedstocks

The prices of all feedstocks typically used for biodiesel production tend to fluctuate together and, because many fats and oils may be substituted for each other, prices depend on demand not only of the individual products, but on the 10

supply and demand situation for the entire fat/oil complex. In general, vegetable oils have a higher unit value than do the animal fats. The chart below shows the historical range of prices for leading potential feedstock sources.

Figure 5 - Historic prices of selected biodiesel feedstocks

Soybean oil 40 Cottonseed Oil Sunflow er seed oil Corn oil Canola oil Edible tallow Yellow grease

35 30

cents/lb

25

20

15 10

5 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

An additional issue with the use of edible feedstocks for biodiesel production is the impact on price that such increased demand would generate. A report from the Energy Information Administration suggests that competing uses for soybean oil would drive the price of the feedstock up significantly in future years. See Table 1.

Table 1 - Effect on soybean oil prices of soybean based biodiesel production

11

The American Soybean Association reports that for every 100 million gallons of soy-based biodiesel demanded, the price of a bushel of soybeans is expected to rise 10 cents.

Biodiesel Production Economics

Crude biodiesel is produced by transesterification. Transesterification is the process of reacting a triglyceride molecule with an excess of alcohol in the presence of a catalyst) to produce glycerin and fatty esters. Biodiesel can be made using two chemical processes. The most common is a methyl ester process that uses methanol along with a feedstock and sodium hydroxide as reactants. Most commercial plants use the methyl ester process.

Figure 6 - Biodiesel production process

A second process uses ethanol in place of methanol, and oil feedstock and an inert catalyst to create ethyl biodiesel, but the process, while having some advantages over the methyl ester process also suffers from quality and higher production cost issues. There are a wide range of production plant sizes that lend themselves to efficient biodiesel production, although a Georgia study found that economies of scale peaked at 15 million gallons per year. Initial capital costs vary depending upon the size of the plant primarily due to the increased cost of transesterification equipment as the amount of planned production increases.

12

Table 2 - Biodiesel plant capital and operating costs by plant size

University of Wisconsin March 2005 Plant size (gallons/yr) Capital Investment Feedstock Raw materials Utilities Labor Miscellaneous Depreciation Total operating costs Sale of Byproducts Cost per gallon Georgia Study 2003 Plant size (gallons/yr) Capital Investment Feedstock needed Feedstock cost sensitivity 10 cents per pound cost 15 cents per pound cost 20 cents per pound cost 25 cents per pound cost University of Iowa 2004 Plant capactity (gal/year) Feedstock cost ($/lb) Methanol cost ($/gal) 25% Sodium Methoxide cost ($/lb) Hydrochloric Acid cost ($/lb) 50% Sodium Hydroxide cost ($/lb) Natural Gas cost ($/1mil btu) Electricity cost ($/kWh) Average Labor cost ($/hr) Labor required per shift Days of Operation per year Hours of Operation per day Est. Total Installed cost Depreciation period Year Maintenance cost as %Total Overhead and Administration cost ($/yr) 30 million 0.22 0.98 0.5 0.06 0.06 8.2 0.048 20 3.5 300 24 $18 million 10 years 3.3 225,000 Half million $950,000 3.75 mil. lbs. 500,000 gal. Half million $ 1.96 $ 2.34 $ 2.72 $ 3.09 3 million $3.4 million 22.5 mil. lbs 3 million gal. 3 million 1.33 1.70 2.08 2.46 15 million $9.6 million 30 million $15 million 4 million $6.6 million Soybean oil $ 10,690,400 $ 220,906 $ 634,900 $ 330,990 $ 625,200 $ 12,502,396 10 million $8.8 million Yellow Grease $ 15,576,000 $ 552,266 $ 598,620 $ 680,320 $ 633,828 $ 18,041,034

Yellow Grease Soybean oil $ $ $ $ $ $ 6,230,000 220,906 634,900 330,990 625,200 8,041,996 $ 26,726,000 $ 552,266 $ 598,620 $ 680,320 $ 633,828 $ 29,191,034

$ (1,056,000) $ $ 2.8616 $

(1,056,000) $ (2,640,000) $ (2,640,000) 1.7466 $ 2.6551 $ 1.5401

112.5 mil. lbs. 225 mil. lbs. 15 million gal. 30 million gal. 15 million 1.11 1.48 1.85 2.21 30 million 1.10 1.48 1.85 2.21

$ $ $ $

$ $ $ $

$ $ $ $

Independent Biodiesel Feasibility Group Installed cost (millions) Plant size Low High Million gallons $1.9 $3.1 1.0 $3.6 $6.0 3.0 $4.9 $8.2 5.0 $6.3 $10.5 7.5 $7.5 $12.5 10.0 $9.5 $15.6 15.0 $11.4 $19.0 20.0 $14.5 $24.1 30.0 $19.7 $32.8 50.0 *using soybean oil with low FFA content November 2002 figures

Feedstock and catalysts costs represent nearly 95 percent of the operating costs of a biodiesel plant. See Figure 7. Changes of only 5 cents per pound can result in a 19 percent increase in the cost of the biodiesel produced. There is a strong

13

relationship between the cost of feedstock and the breakeven point in biodiesel production.

Figure 7 - Biodiesel operating costs as a percentage of total costs

Labor 1% Energy 1% Catalysts 10%

Depreciation 3%

Overhead and maintenance 1%

Feedstock 84%

While the increasing costs of diesel fuel make alternative fuels look more attractive, there is still a significant production cost gap between biodiesel and petroleum diesel, and this gap is projected by the EIA to widen between now and 2013. See Table 3.

Table 3 - Projected production costs for diesel fuel by feedstock

14

However, when biodiesel is priced as a fuel additive rather than in its pure form, a Georgia study found that the added cost to the retail price of fuel when biodiesel is added at either a 2 percent or a 20 percent blend is less than a penny a gallon and actually reduces the cost at the pump as diesel prices increase. According to the National Biodiesel Board, there are more than 45 biodiesel production facilities throughout the United States, with 54 companies announcing plans for future plant construction.

Figure 8 - Current and proposed U.S. biodiesel production facilities

Plant Profile: Lakeland, Florida

Purada Processing, owned by World Energy Alternatives, LLC, is an 18 million gallon per year biodiesel production plant in Lakeland, Florida. As the nation's largest multi-feedstock biodiesel facility, the plant handles feedstocks ranging from waste vegetable oil and poultry fat, to corn, canola and soy oils. By locating in the southeast, the Lakeland plant is in a prime location to receive a variety of feedstocks from soybean crushers, poultry operations and yellow grease from the hospitality industries of Tampa and Orlando. Management at the plant identifies feedstock versatility as the single most critical determinant of supply stability and risk mitigation. Much of the feedstock is shipped to the plant by rail.

15

In business since 1997, the plant produces methyl ester biodiesel in a continuous batch sequence. While the product is produced in batches, the batches are continuously moved through the production process. Feedstock type and quality influence the plant's speed and throughput and four operators per shift are used to keep the plant running smoothly. A challenge facing all biodiesel producers is how to deal with the crude glycerin produced as a byproduct from diesel production. While increased biodiesel production will also increase the supply of crude glycerin and thus cause the value to fall, Purada Processing has taken the step of vertically integrating its glycerin production by constructing a glycerin refinery on site. The company believes that to produce large quantities of biodiesel requires either an alliance with a glycerin refiner or the ability to refine the product in house. According to the National Biodiesel Board, there are 11 distributors of biodiesel in operation in Florida. See Table 4. The two Pensacola sites also retail biodiesel.

Table 4 - Florida biodiesel distributors

BioFuels America, Inc. 120 E. Oakland Park Blvd., Ste. 105 Fort Lauderdale , FL 33334 Delco Oil 174 S. Highway 17 East Palatka, FL 32131 Freedom Fuels, Inc 1168 SW 25 Place Gainesville, FL 32601 Gulf Coast Fuels LLC 2103 W Herman Ave Pensacola, FL 32505 MacMillan Oil 2955 East 11th Ave Hialeah, FL 33013 Hallandale, FL 33008 T-Gill Fuels Inc 2100 Herman St Pensacola, FL 32505 TransMontaigne 2401 Eisenhower Blvd G Fort Lauderdale, FL 33316 Ward Oil Co 2701 Louisiana Ave Tampa, FL 33610 Ware Oil & Supply Co. Inc. 2715 S. Butler Parkway Perry, FL 32348 Port Consolidated South East 14th Ave. Ft. Lauderdale, FL 33335 SJG Fuels

Government Incentives

The 2004 JOBS bill includes excise tax credits for biodiesel blending. The legislation allows diesel blenders to claim a credit against the applicable Federal motor fuels excise tax if a batch of diesel fuel contains biodiesel. If the blender uses biodiesel made from virgin oil, such as soybean oil, the credit is $1 (nominal dollars) per gallon of biodiesel. If the blender uses biodiesel made from nonvirgin oil, such as yellow grease, the credit is 50 cents per gallon of biodiesel. The

16

proposed legislation also includes business income tax credits at the same rates for the blending of biodiesel from virgin or non virgin oil. The proposed Federal tax credits would expire after 2006, although it will likely be extended through 2010. The USDA Bioenergy program offers grants through the Commodity Credit Corporation (CCC) The CCC payments for expansion of biodiesel production in the fiscal years 2004-06 are $1.45-$1.47 (2002 dollars) per gallon for soybean oil biodiesel and 89-91 cents per gallon for yellow grease biodiesel. Base production payments apply to production up to the level of the prior fiscal year, and additional production payments are for production above the level of the prior fiscal year. The CCC payments effectively reduced the variable cost of additional soybean oil and yellow grease biodiesel to $1.10 and 53 cents per gallon, respectively, in fiscal year 2004. Additional units produced in fiscal year 2004, however, became base units in fiscal year 2005 and are eligible only for much smaller, and declining, base production payments. The variable cost of soybean oil and yellow grease biodiesel added in fiscal year 2004 jumps to $2.32 and $1.27 per gallon, respectively, in fiscal year 2005.

Trends

Alternative fueled vehicles have historically had a slow adoption rate in the United States. While the number of alternative vehicles on the road doubled between 1995 and 2004, the still represent only a small fraction of all vehicles on the road today.

Figure 9 - Alternative fueled vehicles in use

5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 Alternative Fueled Vehicles 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Replacement Fuel Consumption (000's gal.)

17

According to the Energy Information Administration, energy demand for transportation is projected to grow from 27.1 quadrillion British thermal units (Btu) in 2003 to 40.0 quadrillion Btu in 2025. Motor gasoline use is projected to increase by 1.7 percent per year from 2003 to 2025, when it makes up 60 percent of transportation energy use. Alternative fuels are projected to displace 207,000 barrels of oil equivalent per day in 2010 and 280,500 barrels per day (2.2 percent of light-duty vehicle fuel consumption) in 2025, in response to current environmental and energy legislation intended to reduce oil use. Gasoline's share of demand is expected to be sustained, however, by low prices relative to the rate of inflation and slower fuel efficiency gains for conventional cars, vans, pickup trucks, and sport utility vehicles than were achieved in the 1980s. According to the National Biodiesel Board, biodiesel capacity was 100 million gallons in 2004, but only 30 million gallons were sold. Sources with NBB estimate that the annualized June 2005 rate of US biodiesel production and sales is about 100 million gallons. During 2005, two new 30 million gallon Midwest biodiesel plants and six smaller plants will begin production. Existing tax incentives are expected to further escalate biodiesel investment. NREL has stated that by 2030, with more aggressive steps and incentives, the United States could replace up to 18 percent of the 55 billion gallons of diesel consumed each year.

Santa Rosa County Plant

Agriculture is still a very active business in Santa Rosa County, particularly in the northern part of the county. See Figure 10. While a significant portion of land is presently under cultivation, additional land is available to expand crop production. See Figure 11.

18

Figure 10 - Land in agricultural production

Figure 11 - Prime farm land

19

Local Feedstocks

Potential feedstock crops currently grown in Santa Rosa County are corn, cotton, soybeans and peanuts. Soybean oil is the cheapest of these commodity oils and according to the Florida Agricultural Statistics Service, some 110,000 bushels of soybeans were produced in Escambia and Santa Rosa counties in 2004. See Table 5. Crushed, the entire 2004 production would produce approximately 5.8 million pounds of soybean oil. This is a sufficient amount of feedstock to produce approximately 773,000 gallons of biodiesel annually.

Table 5 - Florida soybean production

SOYBEANS: Acreage, yield and production, by county, 2004 Planted for

District District 10 Calhoun Escambia Gadsden Holmes Jackson Jefferson Santa Rosa Washington Other Total District 30 Madison Suwanee Other Total Other, State State Total

Harvested Acres 400 2,500 500 1,800 4,600 600 500 1,300 400 12,600 2,300 1,100 400 3,800 600 17,000

Yield per Production Bushels 34 .0 36 .0 32 .0 33 .0 35 .0 35 .0 42 .0 39 .0 29 .0 35 .3 30 .0 31 .0 26 .0 29 .9 33 .7 34 .0 13,600 90,000 16,000 59,400 161,000 21,000 21,000 50,700 11,600 444,300 69,000 34,100 10,400 113,500 20,200 578,000

500 2,800 600 2,000 5,100 700 600 1,400 400 14,100 2,600 1,200 400 4,200 700 19,000

Given the competing uses for all of Santa Rosa's oilseed products, however, it is unlikely that the entire crop would be used to produce biodiesel. While the county has sufficient undeveloped land suitable for increasing the number of oilseeds grown, the price needed to for local farmers to profit from their production makes the production of biodiesel from these sources expensive. See Figure 12.

20

Figure 12 - U.S. soybean production costs

U.S. Soybean Production Costs and Returns 2003 $/Planted Acre (Hectare)

Gross value of production Soybeans Total, gross value of production Operating Costs: Seed Fertilizer Soil Conditioners Manures Chemicals Custom operations Fuel, lube, electricity Repairs Purchased irrigation water Interest on operating capital Total, operating costs Allocated overhead: Hired Labor Opportunity cost of unpaid labor Capital recovery of machinery andequipment Opportunity cost of land (rental rate) Taxes and insurance General farm overhead Total, allocated overhead Total cost listed Value of production less total costs listed Value of production less operating costs Supporting information: Yield (bushels per planted acre,metric tons per hectare) Price ($ per bushel, $ per metric ton) Enterprise size (planted acres, hectares) 1/ Production practices: 1/ Irrigated (percent) Dryland (percent) 9 91 36 6.56 268 1.9 16.11 43.43 81.93 5.8 11.66 160.83 238.49 -4.88 155.95 27.42 7.39 0.12 0.46 16.92 6.32 8.73 9.77 0.12 0.41 77.66 233.61 233.61

1/ Developed from survey base year, 2002.

A secondary problem with the expansion of soybean production in Santa Rosa County in particular is disease. Asian soybean rust can affect crop yields and has been identified by the USDA as being present in Santa Rosa County. Implementation of crop rotations could facilitate the utilization of other

21

commodities for biodiesel production. For example, corn can be rotated on a yearly basis with soybean and cotton. Again, however, the commodity prices of oil produced from these products and competing uses make them expensive choices for biodiesel production. Just increasing the quantity of production will not necessarily drive the market price downwards as, for economic reasons, there is a minimum price level which farmers cannot go below in selling their crops. Another possible feedstock available locally is grease collected from local restaurants. A study performed on behalf of the National Renewable Energy Resource Laboratory estimated that restaurants in metropolitan areas generated 9 lbs of yellow grease and 13 pounds of brown grease per resident annually. Based on 2005 population estimates for the Pensacola MSA, this translates into approximately 3.9 million pounds of yellow grease and 5.6 million pounds of brown grease available annually. This is sufficient quantity to produce approximately 782,000 gallons of biodiesel from yellow grease. Again, there is already an existing market for yellow grease and it is unlikely that all local resources could be used in biodiesel production. Consequently, location and operation of a large biodiesel production plant in Santa Rosa County would require importation of feedstock to sustain production.

Site Selection

There are several important considerations in selecting a plant site location. Particularly important is access to a rail line, and excellent road service. Costs are minimized if feedstocks are delivered by rail, and if manufactured fuel is to be distributed by trucks, it is important to have good access to major roadways. It is also important to consider the source location of possible feedstocks. The largest cost in transporting feedstocks, however, is incurred in the loading processes, and the marginal cost of additional miles traveled is relatively low. Experts recommend that if using soybean oil, the plant should be located near crushing or extraction facilities, and if using yellow grease, the plant location should be in an area with sufficient population to generate the feedstock for the plant. It is also recommended that areas exploit existing synergies by locating plants in industrial parks with access to rail, roads, power, and water. Given the location of existing infrastructure, the best site location in Santa Rosa County would be in an existing industrial park or industrial site. See Figure 13. The industrial park in Milton, for example, currently has plant production requirements in place and is also conveniently located to the Air Products facility in Pace ­ a producer of methanol ­ via rail or truck. The park is also located within easy access to Interstate 10 and connects to the Port of Pensacola via railroad. It is also within easy commuting distance to county population centers.

22

Figure 13 - Santa Rosa County industrial sites

Plant Size and Type

If the existing biomass grown in Santa Rosa County and local supplies of yellow grease were turned over to biodiesel production, the area might support a one million gallon per year plant. At that plant size, the price of the produced biodiesel, even with the cheapest feedstock, would be over $3.00 per gallon and the impact to the community in terms of employment would be low.

23

Large plants are defined as 10 million gallons per year and larger. Benefits from construction and operation of larger plants include reduction in equipment cost per gallon of fuel production and reduction in operating expenses due to economies of scale. Large plants also have a greater economic impact on a community. Disadvantages of large plants include the need for more customers to support production; higher financing and capital investment requirements; and higher transportation costs. Plants with the flexibility to use multiple feedstocks have the advantage of being able to choose feedstocks based on price. Given the area's access to the port of Pensacola by rail, it would make sense for the area to leverage this advantage and import sufficient feedstocks to support a larger production facility. Additionally, given the existence of chemical plants in the area and the small number of operators needed even for larger plants, local labor availability should not be an issue in the area.

Marketing

Several markets are developing for biodiesel. In agriculture, producer commodity organizations and cooperatives have promoted the use of biodiesel blends in farm trucks and power equipment. Marine engines are another developing market segment, driven by biodiesel's safety to marine life relative to petroleum diesel. Public transit buses and school buses are both significant users of diesel fuel and represent a growing market in biodiesel blends as desires to reduce carbon monoxide, hydrocarbon and particulate emissions grow, and other large fleet operators, such as the federal government, also use biodiesel blends. Other possible segments include stationary engines for pumping and emergency power generation and home heating oil applications. The factors affecting biodiesel's entry into all of these segments include fuel price and availability, legislative mandates and incentives, environmental regulations, and consumer awareness. The development of a marketing strategy for an individual producer requires an assessment of the local demands for diesel fuel, choice of what segment(s) to address, and development of strategic partnerships to produce, transport, and sell the product. However, the dominant market for diesel fuel remains over-road trucking. The fuel supply system for the trucking industry is predominantly through companyserviced truck stops. The same jobber that delivers gasoline to the truck stop will likely also deliver diesel fuel. Unless the petroleum company and the local jobber approve of the blending and sale of biodiesel blends at their facilities, there will be no biodiesel sales.

24

In Florida, the Florida Greenways and Trails Office uses trucks that run on biodiesel. The Florida Department of Transportation uses biodiesel in its fleets. Other users include Pinellas and Broward county fleet vehicles, the University of South Florida, MacDill Air Force Base, City of Jacksonville, Florida Power & Light and the U.S. Postal Service in Miami. In the Pensacola area, major markets would include county transportation fleets, including school buses, boaters and the trucking industry. Limitations on the ability of a production plant to provide fuel directly to this market would include lack of the proper distribution infrastructure, outsourcing of school bus services to a private contractor that may be reluctant to switch fuel sources; lack of storage tanks at major truck stops to hold biodiesel for sale, and education to the ultimate consumer on the benefits of using a biodiesel blend. In order to support continued volume production, it would also be necessary to find markets outside of the local area. Thus initial product marketing from a local production facility would probably be to wholesalers and distributors outside of the area, with the potential for local government support to businesses willing to setup retail and industry support facilities locally.

Limits or Constraints

There are no oilseed crushing facilities located in either Santa Rosa or neighboring counties. Oilseed crushing facilities are typically located close to major growing areas in order to minimize handling and transportation costs. Analysis of whether the local area can support such a facility is beyond the scope of this study. See Figure 14.

25

Figure 14 - Location of Oil Seed Crushing Facilities

Local consumption alone is insufficient to support a large facility. The entire two county area diesel usage is approximately 40 million gallons per year. At 100 percent adoption of a B20 blend (unlikely), this represents only 8 million gallons of demand in the immediate area for biodiesel.

Economic Impact of a Production Facility

Although various plants sizes are feasible for the area, a 10 million gallon plant using soybean oil was selected to calculate to potential economic impact to the 26

community as representing a typical production facility. Economic impacts would include one time construction costs and the effects of ongoing operations, primarily in the form of wages paid to employees. While additional impacts could be felt should local agricultural products be used in biodiesel production, they were excluded from this analysis because of the absence of local oil processing facilities. While impacts from the operation of the facility might be felt throughout a multistate region, the primary area of interest for the purposes of this study is the project's effect upon Santa Rosa County. Thus the study area used was limited to Santa Rosa County. Using the projected project figures calculated from financial information from various feasibility studies and information on employment at a 10 million gallon facility, an IMPLAN input-output model was generated. Based on the model results, it's estimated that the annual economic impact generated from construction and operation of a biodiesel production facility in Santa Rosa County will be slightly over $29 million.

Table 6 - Economic impact of a 10 million gallon plant in Santa Rosa County

Estimated Economic Impact of Biodiesel Plant in Santa Rosa County

Estimated Impact of Processing Plant Construction Total Spending (Output) Value Added Incomes Generated Jobs Supported Estimated Impact of Ongoing Plant Operations Total Spending (Output) Value Added Incomes Generated Jobs Supported Direct $3,300,000 $1,414,842 $1,279,120 44.2 Direct $23,784,948 $1,478,937 $909,072 31.1 Indirect $679,709 $371,990 $264,352 10.0 Indirect $528,741 $276,906 $181,403 6.5 Induced $643,532 $405,602 $189,077 8.5 Induced $453,491 $285,825 $133,240 6.0 Total $4,623,241 $2,192,434 $1,732,549 62.7 Total $24,767,181 $2,041,668 $1,223,715 43.5

Source: IMPLAN Professional Social Accounting & Impact Analysis Software

This represents a conservative estimate and variations in plant size constructed or use of local agricultural products could affect this estimate.

Conclusions and recommendations

There are a variety of feedstocks available in Santa Rosa County, but the relatively small quantity and lack of processing facilities make importation of feedstock more realistic. Infrastructure is in place, including a local methanol supplier, to support development of a large facility of 10 million gallons or more. There are no apparent workforce issues. The processing technology for

27

producing biodiesel is well established and presents little technological risk. Biodiesel can be easily integrated into existing petroleum distribution systems from handling, chemical, physical and performance perspectives. Given the present levels of government incentives and a low enough cost feedstock, biodiesel can be cost competitive, particularly when used as an additive.

Key success factors: · · · · · Construction of a multi-feedstock facility; The ability to balance feedstock supplies, processing technology, and market penetration in an integrated system that that is both reliable and efficient; The ability to form stable strategic alliances with feedstock suppliers, distributors, end users, and other stakeholders; The ability to anticipate and deal effectively with competitive pressures; and The ability to generate a business plan that will allow a project to attract financing, and maintain its financial health.

Risk factors: · · · · · Legislation ­ possibility of removal of price supports before the industry can achieve cost competitiveness Feedstock market swings due to the reliance on edible feedstocks Diesel fuel market swings that impact cost competitiveness Glycerol pricing and a potential market glut that would eliminate sales of the byproduct as revenue generating Competition ­ including the potential for lower cost imports. EarthFirst, a Tampa company, recently imported its first shipment of foreign-made palm oil biodiesel from Ecuador (St. Petersburg Times, November 19, 2005).

28

References

The Biodiesel Plant Development Handbook, Executive Summary, Independent Biodiesel Feasibility Group, LLC, November 2002. Fortenbery, T. Randall. Biodiesel Feasibility Study: An Evaluation of Biodiesel Feasibility in Wisconsin, University of Wisconsin-Madison, March 2005. A Study on the Feasibility of Biodiesel Production in Georgia, University of Georgia Center for Agribusiness and Economic Development, 2003. Annual Energy Outlook, 2005, with Projections to 2025, Energy Information Administration, Office of Integrated Analysis and Forecasting, U.S. Department of Energy, February 2005. Radich, Anthony. Biodiesel Performance, Cost and Use, Energy Information Administration, U.S. Department of Energy. Van Gerpen, Jon. Business Management for Biodiesel Producers, August 2002 ­ January 2004, National Renewable Energy Laboratory, Colorado. www.nrel.gov. Wigglesworth, Terry. Biodiesel ­ An Affordable, Renewable Fuel, Natl Pet News 97 no7 July 2005. Wiltsee, G. Urban Waste Grease Resource Assessment, National Renewable Energy Laboratory, Colorado, November 1998. Giese, Rick. Biodiesel from Recycled Vegetable Oil, Powerpoint presented at New England Biodiesel Workshop, March 26, 2003. Gustafson, Cole R. Biodiesel: An Industry Poised for Growth?, Choices, 3rd Quarter 2003. Prusko, Rudy. Biodiesel as a Business, Powerpoint presentation, Center for Industrial Research and Service, Iowa State University Extension. A Comprehensive Analysis of Biodiesel Impacts on Exhaust Emissions, United States Environmental Protection Agency, October 2002. Ginder, Roger. Evaluating Biodiesel as a Value-added Opportunity, Department of Economics, Iowa State University, July 2004.

29

Information

ÿþBiodiesel Feasibility

30 pages

Report File (DMCA)

Our content is added by our users. We aim to remove reported files within 1 working day. Please use this link to notify us:

Report this file as copyright or inappropriate

1225848


Notice: fwrite(): send of 201 bytes failed with errno=104 Connection reset by peer in /home/readbag.com/web/sphinxapi.php on line 531