Petrobras to begin building dedicated ethanol pipeline

Peter Ngo

        Petrobras last week said it is set to begin building a massive ethanol export pipeline system that could cost the Brazil's state-owned oil and gas company more than U.S. $1 billion to build.

        Transpetro, Petrobras' transportation subsidiary has just completed a feasibility study to find that the construction of the ethanol pipeline system would cost between U.S. $700 million and $1.1 billion.

        The Ethanol Export Corridor, as the plan is known internally, would link the western central sugar-producing regions to the ports of Santos and Paranagua. The 1,150-kilometer-long system would have a capacity to transport up to 8 billion liters of ethanol a year and would be the first such pipeline in the world.

        Earlier this year, Petrobras had said it plans to start building the pipeline in September. If so, the network would be ready for use in 2010 or 2011, said Marcelino Guedes Gomes, director of ducts and terminals at Transpetro.

        Transpetro is also planning to build a $2.4 billion pipeline to transport gasoline and fuel oil from Parana refineries to sugarcane producers in Mato Grosso do Sul.

        In addition, Guedes said that Transpetro is studying distribution schemes to get ethanol to North America and Asia, for which the company may eventually decide to either buy or build storage areas in the Caribbean and China.

        The Transpetro executive said the company may also build an ethanol distribution center in Italy, but that Petrobras was more tepid about European potential because a high level of subsidies for farmers within the EU has made it a more difficult market for Brazil to enter.

        Construction of an ethanol pipeline in the U.S., meanwhile, is a project many pipeline companies are considering but have not so far been able to justify.

        Individual ethanol refineries produce far less product than oil refineries — not enough to incur the steep construction costs and ordeal of obtaining the necessary permitting requirements.

        Many in the ethanol industry say what they need most is a massive pipeline that would run from the Midwest to the East Coast. Pipeline companies, such as Houston-based Kinder Morgan Partners, in turn, are estimating such a project could cost $2 billion or more.

        So in the U.S., pipeline companies are still holding out to see if Congress continues to feed ethanol demand in volumes that would make the economics of a dedicated pipeline work, and if so, whether that same Congress might help fund the project.

        At the moment, Congress merely has under consideration provisions in bills that would direct the Department of Energy to conduct feasibility studies similar to the one Transpetro has just completed.

Bumper cane harvest could send Brazilian blending mandate higher

Peter Ngo

        Ethanol prices in Brazil have been plummeting as sugarcane producers are reaping a bumper crop, a factor which is likely to have consequences on the U.S. market as well.

        Average Sao Paulo mill ethanol prices for hydrous ethanol on Friday slid to their lowest point in two years in nominal terms, according to the local Cepea-Esalq index.

        On Friday, hydrous ethanol prices at the Sao Paulo mill gate averaged just under BRL0.61 per liter ($0.31) without taxes, down 10.5% from the week before. Anhydrous ethanol prices also dropped to BRL0.76 per liter ($0.39) without taxes, down 13.7% from the week before.

        Brazil's Agriculture Ministry is already considering boosting the mandatory biofuel content in gasoline sold at pumps nationwide to 25% from 23%, and local analysts are reporting it's only a matter of time before Brazilian ethanol hits U.S., European Union and Asia in greater volumes.

        This month alone, local prices have fallen roughly 30% for both hydrous and anhydrous ethanol, with the onset of Brazil's enormous 2007-08 sugarcane harvest (May-April) and increased ethanol output.

        Brazil, the world's leading ethanol exporter, is forecasting ethanol output at over 5.3 billion gallons of ethanol in the current sugarcane season, up more than 13% from the harvest before, and about 1.05 billion gallons of that is destined for the export market, according to Agricultural Ministry figures.

        Petrobras has already made its first shipment of ethanol to the U.S. Earlier this month, Brazil's state-run oil firm sent a 12,000 cubic meters (3.17 million gallons) vessel headed for the U.S. market, and a second shipment of 20,000 cubic meters (5.28 million gallons) of ethanol is being prepared.

Pemex resists Mexican ethanol blending plan

        Mexico´s plans for a big push to encourage the use of ethanol in fuel are in a tussle with the state oil monopoly Petróleos Mexicanos, the Mexican edition of The Miami Herald reports.

        A deputy from the state of Veracruz told conferees at a sugar cane industry forum that Pemex had technical objections to ethanol because adapting existing facilities would be uneconomical.

        "These objections (have been) ... overcome. We now have to design a minimum pricing scheme that will be profitable for Pemex and will offer sugarcane producers an income," said Osiel Castro de la Rosa, a National Action Party deputy he said.

        The issue is crucial in Veracruz state, which produced around 40% of Mexico's sugar cane last year, according to the Herald.

        Last month, Mexico's Congress enacted a law calling for a 10% blend of ethanol to be used to oxygenate gasoline in Mexico's largest cities: Monterrey, Guadalajara and Mexico City.

        The most visibly controversial aspect of the law was that it did not expressly forbid the use of corn in ethanol production, something sought by many activists concerned about the skyrocketing costs of food.

        During negotiations on the law, Congressman Ramon Pacheco of the left-leaning Revolutionary Democratic Party (PRD) called using corn for ethanol "an absurd attack against the food supply of Mexicans."

        But Pemex's objections over the cost of upgrading its equipment has also been a major factor impeding President Felipe Calderón signing of the bill into law.

        In addition, Pemex is unhappy about the logistic costs of oxygenating with ethanol instead of MTBE, which the company imported from the U.S. Gulf Coast.

        "The import price of MTBE was crucial. Because of transport costs the company comes out better if it is produced in Mexico. It has to be imported by sea, not via pipelines. The expense of transport was the factor that made understand," Castro said.

        Speaking at the Veracruz conference, Eduardo Macías, a senior administrator at the Mexican state body that administers sugar companies that have gone into bankruptcy, was also quoted by The Herald complaining that the legislation was vague in many areas.

        "To give just one example, the legislation says ethanol will be 10 percent by volume in major urban centers, but does not say which cities are considered major urban centers," Macías said.

Philippines in $1.3B biofuel project with UK's NRG

Peter Ngo

        The biofuels unit of state-owned Philippine National Oil Co. (PNOC) last week signed a $1.3 billion deal Wednesday with British company NRG Chemical Engineering to build a biodiesel refinery and two ethanol plants in the Southeast Asian country.

        PNOC-Alternative Fuels will form a joint venture with NRG, in the largest biofuel deal for the country to date.

        Peter Abaya, president of the PNOC unit, told reporters Wednesday that he had been in negotiations with NRG for the past 9 months to broker the deal.

        The partnership has plans to build a biodiesel plant in the Philippines at a cost of around $450 million. The refinery will initially use coconut and vegetable oil as feedstock, while the partnership develops a 2.4 million-acre jatropha plantation to feed the new facility.

        Once the jatropha farm comes online, output at the biodiesel plant is expected to reach 3.5 million metric tons a year.

        PNOC-Alternative Fuels and NRG will additionally spend about $200 million to build a 300,000 metric ton ethanol plant. The plants will be fed by sweet sorghum.

        PNOC-AFC, a unit of state-owned Philippine National Oil Co., was set up last year to take the lead in the country's push to develop biofuels. Its long-term goal for jatropha-based biodiesel is to produce a total of 1 million tons a year.

        The joint venture would be 70 percent owned by NRG. The UK company's investment, spread over five years, is a big boost for Manila's ambitions to become a major source of alternative fuels.

        Philippines President Gloria Arroyo is determined to reduce the Philippines' dependence on imported crude oil in favour of alternative fuels produced from locally grown crops, such as sugar cane, coconut and jatropha.

        The Philippines’ Biofuels Act, requiring a mandatory 1% coconut blend in diesel was introduced earlier this month and by 2009, all gasoline is to contain a 5% mix of ethanol.         

        The government has courted foreign investment to boost biofuel local production and earlier this year signed agreements for five possible ethanol projects with China.

        Most recently, China's Guangxi State Farm Bureau and Philippine oil firm Eastern Petroleum announced last week that it will invest U.S. $350 million to develop a handful ethanol plants over the next two to five years.

        Guangxi and Eastern are looking at the possible production of 400 million liters of ethanol in 2010.

* * *

CORRECTION: The article that ran in the May 21st edition of Ethanol & Biodiesel News,"China’s Guangxi province strikes feedstock-for-market deal with Eastern Petroleum", incorrectly stated that China passed a Biofuels Act mandating "5% blending of ethanol in gasoline by the beginning of 2008 – stepping up to a 10% mandate by 2010." The Biofuels Act was passed by the Philippines - China as of yet has no blending mandate.

Switzerland’s BioPetrol Industries bottom line hit by German taxes

        Swiss biodiesel producer Biopetrol Industries would have had a great quarter had it not been for the effect of Germany's new biofuel taxes.

        The company said last week that its gross profit for the first quarter of 2007 fell by 14% versus the same period a year ago, even though its consolidated quarterly revenue was up nearly 35%.

        The company said that B-100 taxation in Germany had led to a decreased demand for biodiesel, which, in turn, had caused the fuel option's prices to fall. The company's results were also impacted by non-optimal production costs during the start-up phase at its new biodiesel plant in Rostock, Germany.

        The company attributed its increased sales (€42.3 million in the first quarter of 2007) to the new plant, which went into production at the end of 2006.

        In Q1 2007, Biopetrol produced more than 52,000 metric tons of biodiesel, or roughly 38% more compared to the previous year, and expects to increase annual capacity to 750,000 tonnes in 2008.

        Klaus-Ulrich Henschel, Biopetrol's CEO, said that the start-up of production at the Rotterdam plant has been delayed until Q1 2008 from the initial target of the end of 2007. Henschel blamed the postponement on regulatory issues.

        Biopetrol is gradually reducing its dependence on the German market, as a result of the region's surplus capacities and tax burdens. The company currently does more than 30% of its business with customers outside of Germany, and hopes to reduce the proportion of sales in Germany and reliance on the German market to 40% by 2008.

        The company is now looking to consolidate its position on the European biofuels market by increasing its presence in Scandinavia, the Benelux and Eastern Europe.

ConocoPhillips to invest up to $100M in biofeedstock co-processing mods

Jack Peckham

        ConocoPhillips not only aims to become the first U.S. major oil company to produce renewable diesel from vegetable and animal oils/fats at U.S. refineries this year, but also will see a net increase in total ultra-low sulfur diesel output as a result.

        At several of its U.S. refineries, the company will invest up to $100 million in modifications to enable co-processing of biofeedstocks into ULSD, as Fuel & Vehicle Trends Manager Joe Kaufman explained to Society of Automotive Engineers annual meeting in Washington, D.C. recently.

        The so-called thermal depolymerization process qualifies for a $1/gallon subsidy under the 2005 Energy Policy Act. But conventional biodiesel producers (led by the National Biodiesel Board) aim to overturn that law in order to thwart competition from refiners making renewable diesel, while preserving a $1/gal. subsidy for mostly soybean-based esterified biodiesel.

        Such tax subsidies are needed to support renewable diesel.

        “It’s not free,” Kaufman pointed out, "Capital expense is required to enable the process."

        The co-feed scheme introduces renewable fats or oils (in the U.S., starting with animal fats from Tyson Foods) into a diesel hydrotreater operating at between 600-800F and 150-2,400 psi hydrogen.

        While the “normal reaction” in the hydrotreating process is sulfur removal, under such hydrotreating conditions “fat or oil conversion to renewable diesel is 100%” although the C3 backbone of the oils or fats is converted to propane, while oxygen is converted to CO2 or H20.

        The refinery can tap the incidental propane for fuel-gas, Kaufman pointed out.

        The resulting “renewable diesel” is a straight-chain paraffin (C13-C18) with no oxygen, no carbon double-bonds, “in the heart of diesel fuel” (C10-C22), high cetane and consistent in quality regardless of feedstock, he showed. Like conventional esterified biodiesel, it has a cold-flow penalty, but that can be overcome with additives.

        Unlike conventional biodiesel, hydrotreated renewable diesel consistently meets ASTM D-975 performance properties, while boosting cetane number. In tests of a soy-oil based renewable diesel, a 41.2 cetane base fuel got a 4.6 number cetane boost with a 5% blend. A 20% blend boosted cetane by 10 numbers, to 51.2, Kaufman showed.

        As for vehicle emissions, U.S. EPA transient-cycle tests on a 2006 International 6.0-liter diesel engine showed that renewable diesel cuts all criteria emissions, unlike conventional biodiesel, which usually causes an increase in NOx emissions.

        The Conoco tests found that “all renewable diesels evaluated have lower emissions of non-methane hydrocarbons, CO, NOx and particulate matter than baseline diesel,” including those made from soy, beef tallow, canola, poultry fat and yellow grease.

        As for relative CO2 life-cycle emissions, the Conoco renewable diesel from soy-oil has only 44% of the CO2 of petroleum diesel. In contrast, B100 biodiesel has higher CO2 life-cycle emissions (59% of petroleum diesel). The UOP and NExBTL renewable diesels likewise have lower life-cycle CO2 than biodiesel or regular diesel, the Conoco study showed.

        Following initial commercial tests at Conoco’s Ireland refinery, the company will launch renewable diesel production in the U.S. in late 2007, with output reaching up-to 12,000 barrels/day from animal fat.

        In parallel, Neste is producing 3,400 b/d of such renewable diesel at its first NExBTL plant in Finland this year, followed by other plants in Finland and Australia in 2009. BP likewise is producing 1,900 b/d of renewable diesel at a refinery in Australia this year, Kaufman showed.

        In Brazil, Petrobras likewise aims to have four refineries producing 4,000 b/d of H-Bio hydrotreated biodiesel, while Italy’s Eni aims to have its first “green diesel” plant in operation by 2009, in a partnership with UOP.

        All of this activity ought to be seen in the context of oil companies doing something about reducing carbon emissions, as Conoco fuels and regulatory affairs manager Gary Schoonveld said.

        “As you know, Conoco is the first U.S. major oil and gas company to support the development of a national framework for mandatory climate change programs,” Schoonveld said.

        “As part of this commitment, the company is actively looking at ways to lower our carbon footprint. One way to do this is to modify select refineries to process renewables.

        “Policy makers have determined that mandates and credits are desirable to promote renewables. Conoco is looking to be a part of the solution to these issues and our efforts are inclusive of all emerging technologies.

        “There are those groups who seek to exclude and stifle technology and competition in order to protect their market, and to exclude others from participation. Such protectionist actions are not in the best interest of the U.S.,” he said.

        Asked about the potential metallurgy and catalyst risks of running biofeedstocks through the same hydrotreater along with crude-based feedstocks, Schoonveld told us that “renewable diesel technology is still being developed and there are technical risks. We are making informed decisions on the basis of our experience and will assess new information as it becomes available.”

        Asked whether Tyson Foods is pre-treating the feedstocks so as to avoid possible problems with distillate hydrotreaters, Schoonveld said that any such feedstock processing is proprietary.

        While the higher cetane value of renewable diesel might seem to offer an opportunity to upgrade low-cetane refinery streams to ASTM D975 ULSD, the volume of co-processed renewable feedstock would be “small in comparison with total refinery throughput, offering limited if any upgrading opportunity,” he added.

        Unlike the UOP green diesel process, Conoco isn’t interested in licensing its renewable diesel process to other refiners, he said.

In age of high corn prices, research focuses on feed value of glycerin

        The way one University of Missouri-Columbia researcher sees it, the increasing cost of corn byproduct feeds for livestock could be offset by feeding livestock a nettlesome byproduct of biodiesel production – glycerin – more commonly used in soap.

        Monty Kerley, professor of ruminant nutrition in the College of Agriculture, Food and Natural Resources, began a study this month to assess just that.

        Through November, the MU researcher will monitor the growth habits of calves from various breeds to determine if glycerin has a positive or negative effect on calves' growth performance, and second, to assess its impact, if any, on meat quality.

        "Originally, the biodiesel plants were concerned with just getting rid of this material, but data shows that glycerin has energy feed value equal to corn," Kerley said. "If you can get glycerin for less than corn, that's obviously a sizeable savings."

        He said economics are another factor because glycerin is currently less expensive than corn, which is most commonly used as cattle feed. Glycerin is about 4 cents per pound; corn costs around 8 cents a pound.

        "We're really looking at the energy value and how it compares to corn," Kerley said. "When the animal consumes glycerin, it's absorbed, and the glycerin is used to make glucose.

        "Actually, it's like feeding sugar to a cow," Kerley said.

        In addition to monitoring feeding limits and growth patterns, Kerley also is analyzing how cattle metabolize the varying amounts of glycerin. Unlike the dry feeds they are accustomed to eating, Kerley said the glycerin is liquid-based and comes mostly from the processing of soybean oil.

Neste Oil to lead comprehensive emissions tests on NExBTL

Joanna Franco

        Neste Oil, is leading a consortium of oil and automotive companies team to conduct emissions tests on its NExBTL diesel, its so-called “green diesel” fuel made from vegetable oil and animal fat.

The companies, which include the logistics division of Swedish Post, Posten Logistik AB, shipping company Waxholmsbolaget Ångfartygs AB, Volvo Penta and Scania, have signed a letter of intent to conduct a three-year trial documenting how tailpipe emissions change with varying levels of NExBTL diesel.

Using 100 vehicles provided by Posten Logistik and two to three ships operated by Waxholmsbolaget, the group will first test how the vehicles run on diesel containing about 30% NExBTL.

The testing team will then gradually increase the amount from 30% to 100%. Volvo Penta will carry out the emissions measurements and inspections for the trial, while Swedish-based bus and truck manufacturer Scania will also be fueling several Helsinki-area buses with 100% NExBTL in spring 2008.

The trial, which will run from fall 2007 to the end of 2010, is meant to gauge the emissions’ impact within the Stockholm area. Neste, the proprietary developers of NExBTL, has explored promoting NExBTL in the U.S. and Canada in addition to plants in Northern Europe (see EBN 2/26/2007).

Chevron venture unit to partner with Texas A&M for cellulosic research

        Chevron's venture capital unit has begun a biofuel research bid with two Texas A&M University research teams.

        The announcement follows Chevron Technology Ventures' unveiling of its new minority-owned 20 million gallon biodiesel plant, which opened this week in Galveston, Texas.

        In Tuesday's announcement, the venture capital unit said it would support research initiatives over a four-year period through the Texas A&M BioEnergy Alliance, a formal partnership combining the university's Texas Agricultural Experiment Station and Texas Engineering Experiment Station agencies.

        The venture capital unit said that the research initiatives will focus on several technological areas to improve current biofuel technology. The partnership will focus on, among other things, developing cellulosic processing technologies, as well as cultivating the biomass crops to feed them.

        Chevron and the Texas A&M groups may also look at developing integrated logistics systems associated with the harvest, transport, storage and conversion of bioenergy crops, the companies said.

         Chevron formed a biofuels business unit last May to pursue commercial opportunities related to the production and distribution of ethanol and biodiesel.

         Its research and development activities in biofuels are currently structured around a research initiative with forest products company Weyerhaeuser, and an alliance with the Department of Energy’s National Renewable Energy Laboratory.

        Chevron’s biofuels business unit has also formed research arrangements with the Georgia Institute of Technology, the University of California–Davis and the Colorado Center for Biorefining and Biofuels.

        Chevron Technology Ventures' new plant in Galveston, which is 78% owned by a division of Standard Renewable Energy, will initially produce 20 million gallons of biodiesel per year and has the capability to expand operations to produce 110 million gallons annually.

Iowa State sees ill food pricing effects of expanded ethanol production

Peter Ngo

        A study funded by the U.S. Agriculture Department as well as agribusiness and food interests argues, along with a growing body of critics, that expanded U.S. ethanol production will cause long-run crop prices to increase.

        The report itself is raising eyebrows because it's authored by economists at the public land-granted university of Iowa, the state that has arguably benefited the most from the ethanol boom.

        The authors, at the Center for Agricultural and Rural Development at Iowa State University, found that livestock farmgate prices, along with retail meat, egg, and dairy prices, in response to feed cost increases.

        The ISU study sees U.S. corn ethanol production growing over the next 10 years to 15 billion gallons a year, triple last year's production, under current economic projections. Ethanol production could double, to 30 billion gallons, if oil prices are $10 a barrel higher than projected, according to the just-released report, titled "Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets".

        The magnitude of the ethanol expansion will depend on the future makeup of the U.S. automobile fleet. If sufficient demand for E-85 from flex-fuel vehicles is available, corn-based ethanol production is projected to increase to over 30 billion gallons per year with the higher oil prices.

        The direct effect of higher feed costs is that U.S. food prices would increase by a minimum of 1.1% over baseline levels, according to Bruce Babcock, director of Iowa State's Center for Agricultural and Rural Development.

        Furthermore, the Iowa State analysis found what appeared to be an unsettling lack of cushioning in the event of massive crop failure. If the U.S. were to experience a drought similar to that seen in 1988, the economists say, the reduced crop output, combined with the ethanol blending mandate, would mean sharply higher crop and food prices, a drop in livestock production. Corn exports would drop significantly, and feed costs would rise. Wheat feed use would rise sharply.

        In any event, the report also suggested the biodiesel market will not grow substantially unless the government requires its usage or adds more subsidies.

        Biodiesel production would reach just 500 million gallons a year, twice last year's sales and about 1% of U.S. diesel consumption, even if oil prices are permanently $10-per-barrel higher than assumed in the study's baseline projections.

        "In our projections, we can't see why anyone would build a biodiesel plant right now unless you are speculating on a biodiesel mandate," said Bruce Babcock, director of ISU's Center for Agricultural and Rural Development.

        The Iowa State report was released nearly at the same time as another distressing report from UN-Energy, a consortium of 20 United Nations agencies and programs.

        UN-Energy warned in its recent report that rapid growth in liquid biofuel production worldwide will make substantial demands on the world's land and water resources and could force food prices to rise, putting a strain on the poor.

        The agency also said that increasing production could spur deforestation in fragile ecosystems, such as Brazil's Amazon rainforest.

Preem mulls building cellulosic ethanol facility

Swedish refiner Preem Petroleum is conducting a pilot study with Swedish pulp and paper group Svenska Cellulosa AB (SCA) to determine the feasibility of constructing an ethanol plant in Harnosand, northern Sweden. The proposed ethanol plant would eventually use wood pellets from an adjacent SCA factory, according to Swedish News Digest.

If the ethanol plant goes forth, it would produce 100,000 cubic meters of ethanol annually, with production starting in 2011. Imported grains would be the initial feedstock for the plant. Investment costs could cost between SEK1-1.5 billion ($146-$219 million).

The study is expected to be completed by mid-June.

Preem has also been planning to produce biofuels at their Lysekil refinery.

Notice: World Refining & Fuels Conference at Rio de Janeiro, June 4-6, 2007

        Hart Energy’s upcoming World Refining & Fuels Conference in South America, focused on obtaining International Success with Clean Fuels & Technology Advancements, offers an excellent opportunity to expand your understanding of the fuels and energy markets and meet your peers.

        Several hundred delegates are expected at the conference, to be held in Rio de Janeiro, Brazil, at the Sheraton Rio Hotel & Towers June 4-6, 2007.

        Recently, the U.S. and Brazil signed an agreement to cooperate on ethanol research and development and to promote the use of ethanol in other countries. This conference will enable you to discuss the impacts this will have on the industry with your colleagues in industry and government, and offers you the opportunity to learn about the latest developments in the energy, fuels and transport industries and the regulatory requirements impacting these industries.

The conference will include a keynote speech by Paulo Roberto Costa, Downstream Director, Petrobras, on the company’s vision for clean fuels. Tommy Kudo, President, Japan Petroleum Energy Center, will talk about Japan’s energy strategy and challenges.

Investing in liquid fuels will be discussed by Jean Sentenac, President & CEO, Axens.

        Carmen Difiglio, Deputy Assistant Secretary for Policy Analysis, U.S. Department of Energy, will also give a keynote address on the conference’s first day.

Another keynoter is Mauricio Garrón B., Director of Strategies and Projects, OLADE, who will begin the conference’s second day by discussing successful Latin American energy policies.

        Click here for more information about the World Refining & Fuels Conference. Or to register, contact Linda Carter at 1-703-891-4804.