Biodiesel Production in the County of Newell #4

Biodiesel Production in the County of
Newell #4
A Prefeasibility Study
PRODUCED BY : The Economic Development and Tourism Department
County of Newell #4
707 – 2nd Avenue East
Brooks, Alberta T1R 1B2
April, 2006
INDEX
SECTION
PAGE
1. THE BIODIESEL PRODUCT:
3
2. OVERVIEW OF THE INDUSTRY:
5
3. COMMERCIAL BIODIESEL PRODUCTION:
6
4. THE POTENTIAL MARKET FOR COUNTY BIODIESEL:
12
5. PROFITABILITY:
13
6. SUMMARY:
18
7. REFERENCES:
19
DISCLAIMER:
This study was produced with information that was considered accurate and
reliable at the time of development. However the biodiesel industry is evolving at
a rapid pace.
Therefore, those considering investing financially in the biodiesel industry should
consider this information as a general guide to further in depth research into the
commercial viability of potential biodiesel enterprises.
The County of Newell #4 specifically denies any liability pertaining to the use of
the information contained in this study.
2
1. THE BIODIESEL PRODUCT:
1.1 WHAT IS IT?
Biodiesel is an ester of alcohol manufactured from animal or vegetable oils
usually through a chemical process termed transesterification. There are several
variations of the process depending on the quality and type of oil used.
The oils comprise triglycerides which are glycerine molecules with three long
chain fatty acids attached to glycerine backbones. Transesterification takes place
when triglicerides are mixed with an alcohol and a catalyst.
The chemical reaction takes place reasonably quickly without any danger of
explosion and results in the production of methyl or ethyl ester and free glycerol.
The glycerol settles to the bottom of the reactor vessel for further processing and
the alcohol ester after filtering and de-watering is then known as Biodiesel.
1.2. CHARACTERISTICS OF BIODIESEL:
1.2.1. Use and Blending:
Biodiesel can be burned as pure ester (B100) or any mixture of biodiesel and
petrodiesel It mixes easily with petrodiesel and maintains mixture stability for
several months.
The most common mixtures at present appear to be B20 in above freezing
temperatures and B5 or B10 in cold weather.
1.2.2. Combustion and Energy Characteristics:
The cetane rating of B100 is approximately C55 compared to C40 for Canadian
petrodiesel. This allows for easier engine starting and warm – up as well as
theoretically greater engine efficiency due to better combustibility of the fuel.
One U.S. gallon of B100 biodiesel will produce 130,000 BTUs of heat energy
compared to 140,000 BTUs produced by a gallon of petrodiesel. However,
biodiesel is denser than petrodiesel so on a volume basis actual work performed
can be expected to decrease only 3%-4%.
1.2.3. Lubricity:
Biodiesel is a good lubricant (about 66% better than petrodiesel). This is
important in reducing injector and pump wear inherent in the use of low and ultra
low sulphur petrodiesel fuel. Even blends as low as B5 show a 50% increase in
lubricity.
3
1.2.4. Viscosity and Cloud Point:
The viscosity of B100 is slightly higher than petrodiesel. There is some
discussion still taking place as to whether injectors should be modified for B100
operation. However blends up to B50 are considered acceptable for most
engines.
The cloud point for B100 made from canola is about one degree centigrade
compared with that from tallow which is 16 degrees centigrade. The cloud point
for summer petrodiesel is –12 centigrade.
1.2.5. Combustion Pollutants:
The following table indicates the decrease in emissions that can be expected
from consuming biodiesel blends compared to petrodiesel.
Product of Combustion
B100
B20
B2
Unburned hydrocarbons
-67%
-20%
-2%
CO
-48%
-12%
-1%
Particulates
-47%
-12%
-1%
Nox
+10%
+2%
+.2%
Source: Independent Biodiesel Group
Carbon dioxide is not significantly reduced compared to burning petrodiesel
However, because biodiesel is derived from the production of plants and animals
approximately 78% of the CO2 is used in subsequent production cycles of
feedstocks on a one to two year basis.
1.2.6. Solvency:
Biodiesel even at low levels of concentration is an excellent solvent. It is
recommended that storage tanks be flushed before using to store biodiesel.
Biodiesel will dissolve deposits in vehicle and machinery fuel tanks and may
result in several fuel filter changes before the fuel system is completely flushed.
1.2.7. Safety
B100 is non-toxic (5% of the toxicity of table salt) and has a flash point much
higher than petrodiesel. Spilled biodiesel degrades into harmless constituents
within several weeks.
4
2. OVERVIEW OF THE INDUSTRY:
2.1 Canadian Industry External Drivers
The Canadian industry at this time appears to be mainly driven by the high cost
of imported oil and the expectation that oil prices will rise in the medium term
future.
This is substantiated by research indicating that the discovery of oil reserves on
the planet peaked in the early 2000’s. As production from reserves typically
peaks within 25 years of discovery there is now an intense interest in developing
an alternate fuel industry that will complement the soon to be declining petrofuel
industry.
The possibility of declining oil imports from the middle East resulting from political
and cultural issues is driving the U. S. development of a national fuel self –
sufficiency policy. This will have positive ramifications for Canadian producers of
both petro and biofuels.
Canada appears to be committed to the Kyoto Accord and is taking the first steps
to ensure that the use biofuels will be part of the strategy developed to meet that
commitment. The first policy announcements were an exemption of biodiesel
from the $.04 per liter excise tax and a target of 500 million liters of biodiesel
consumption by 2010.
In addition Ontario, British Columbia, Quebec and Manitoba have exempted
biodiesel from the provincial fuel tax. Manitoba has taken the further step of
providing capital grants to biodiesel production plants.
Lastly, the introduction of a system of carbon credit trading may have a positive
effect on the Canadian industry. Initial indications are that the Canadian carbon
credits may trade in the range of $5 - $15 per tonne of CO2.
5
2.2. Canadian Biodiesel Production Capacity
The following outlines present Canadian capacity (operating and under
construction)
Name
Province
Feedstock
Ocean Nutrition
Nova Scotia
Fish oil
7,000,000
Rothsay
Quebec
A. Fats/used oil
35,000,000
Topia
Ontario
Used oil
15,000,000
Biox (const.)
Ontario
not known
60,000,000
Milligan Bio-tech
Saskatchewan
Canola oil
4,500,000
Agrigreen Biodiesel
B.C.
Canola/used oil
2,000,000 +
Kyoto Fuels (const.)
Alberta
A. fat/used oil/can. oil 33,000,000
Cal. Biodiesel (const.)
Alberta
Used oil/tallow
Total
Capacity (L)
20,000,000
176,500,000
By contrast, the USA has operating or under construction approximately 750
million liters of capacity with an additional 2.7 billion liters of capacity in the
proposal stage.
2.3. Distribution
Virtually all of the biodiesel in Canada is delivered as B100 to distributors “above
the rack.” Canada Clean Fuels and Canadian Bioenergy are prominent industry
players at this time.
3. COMMERCIAL BIODIESEL PRODUCTION:
3.1. Methods:
3.1.1. The Base Transesterification Reaction
The basic reaction can be stated for purposes of clarity as follows: 100 units of
mass of vegetable or animal fats are combined with 10 units of mass of alcohol
and and one unit of mass of base catalyst to produce 100 units of mass of
biodiesel and 10 units of mass of glycerol.
6
The alcohol is usually methyl alcohol and the base catalyst is sodium hydroxide
(lye). The reaction strips the fatty acid chains from the triglyceride oil molecule
and adds hydrogen atoms to produce a methyl ester (biodiesel) and glycerol.
This reaction is preferred for pure vegetable oils and animal fats containing few
fatty acids that are not connected to triglyceride molecules (free fatty acids).
The description of the reaction is given below
Source: National Biodiesel Board
This reaction has a number of characteristics that are useful in the commercial
production of biodiesel:
-
Low temperatures and low pressures are used in the reaction.
The conversion rate from feedstock to biodiesel is nearly 100%.
Excess methanol and wash water can be easily recycled.
No highly specialized steels, welding techniques or other materials are
needed in the construction of a biodiesel plant.
Reaction times are rapid – one to two hours at 140 degrees F.
Transesterification can be used in either batch or continuous flow plants.
The main disadvantage of this process is that it can only be used to efficiently
process oils and fats that contain less than .5% free fatty acids. Feed stock
exceeding this level of FFA results in the production of soaps which can clog the
production system. In addition the loss in biodiesel bound to the soap is about
double the amount of soap produced.
7
However, this problem can be overcome by using an acid catalyst variation of
transesterification on the high FFA feedstock to produce biodiesel that contains
.5% FFA. The pre-treated biodiesel can then be used as feed stock for a base
transesterification plant.
The following diagrams illustrate a commonly used esterification process and a
high FFA pre-treatment system.
Source: Independent Biodiesel Feasibility Group
8
Source: Iowa U.
3.1.2. Acid Transesterification Reactions:
Biodiesel can be made with a direct acid process. However this calls for
specialized plant manufacturing techniques and adds capital cost.
Another version converts all feedstocks to fatty acids and then employs acid
transesterificaction to produce biodiesel. Again, added capital and operating
costs are inherent in this alternative.
3.1.3. The Biox Process:
The Biox process was developed in Canada and claims to produce biodiesel
from either low or high FFA feed stock. It uses a co-solvent that speeds the
reaction. Advantages stated by the developers are lowered plant operating costs
and as well as higher biodiesel yields.
3.2. Processing Outputs:
Three outputs (with the exception of soaps) are possible from a biodiesel plant.
The most important is biodiesl itself. In order to be saleable in North America it
must attain the ASTM D-6751 standard of quality. This is not difficult but to
ensure adherence to the standard, stringent quality control systems must be part
of any production facility. The Alberta Research Council also maintains testing
facilities that can be used by private biodiesel producers.
9
Glycerine is an important co-product that can be sold in a crude form or further
refined into a pharmaceutical grade product.
If potassium hydroxide is used as a catalyst rather than sodium hydroxide,
potassium phosphate is produced in small amounts. This has the potential of
being marketed as a fertilizer. However the plant scale would have to large
enough to ensure that the fertilizer profit center is viable.
Finally, if the plant features an integrated oil seed crushing facility there is an
opportunity to create a substantial canola meal profit center.
3.3. Feedstocks:
The County of Newell is ideally positioned to provide biodiesel feedstock . The
285,000 acres of irrigated cropland can assure a consistent supply of canola and
the Lakeside Packers facility produces a considerable amount of beef tallow.
3.3.1. Canola:
Canola appears to be the best cultivar feedstock available at present. One
bushel of canola seed will produce ten liters of biodiesel as well as approximately
30 pounds of canola meal.
Within the County of Newell it is estimated that approximately 27,000 acres of
canola could be grown on a yearly basis with only minor dislocation of other
primary agricultural production. At yield of 55 bushels per acre this would equate
to an annual production of 1,485,000 bushels of feedstock. This would produce
approximately 14,850,000 liters of biodiesel and 20,000 tonnes of canola meal.
It is interesting to note that off grade canola will produce basically the same
amount of biodiesel as that which attains a number one grade.
Based on Western Canada canola statistics approximately 30% of the crop is
considered off grade. If this ratio is applied to County of Newell production it
appears that on average there could be a potential of 500,000 bushels of
feedstock available on an annual basis.
This feedstock contains minimal free fatty acids and will not require the acid pretreatment outlined in a previous section.
3.3.2. Tallow:
Based on current slaughter rates and a non-edible tallow rendering rate of
approximately 38 liters per animal, it is estimated that the Lakeside facility in the
County generates approximately 57 million liters of biodiesel feedstock annually.
10
The conversion rate to biodiesel varies somewhat based on the quality of tallow.
However, at a conversion factor of .9 it is reasonable to assume a potential
biodiesel production rate of 51 million liters of biodiesel from tallow feedstock.
It can be expected that this feedstock will comprise FFA in the range of 2% –
35% which will require an acid transesterification pre-treatment.
3.4. County of Newell #4 Biodiesel Plant
3.4.1. General Considerations:
Based on the above, it is possible to make some inferences regarding a
production construct that maximizes the advantages inherent in the County of
Newell.
The plant should employ hybrid transesterifaction technology. This would allow
for first stage acid transesterification of high FFA tallow from Lakeside Packers
as well as second stage base transesterification of pre-treated tallow and
untreated canola oil.
An integrated oilseed crusher unit incorporating oilseed, meal and oil storage
should be an integral part of the of the production complex. The unit should be
sized such that custom crushing for other biodiesel plants or canola farmers
could be developed as a profit center.
The plant should be located on a main rail line to facilitate tanker shipments with
consideration given to ease of trucking tallow from Lakeside Packers.
The site should be large enough to permit expansion into on site blending and
production of downstream products as motor and hydraulic oils as well as
industrial lubricants and performance additives. Based on site research relating
to U. S. plants the site should be in the three to seven acre range.
3.4.2. Biodiesel Engineering Companies:
There are many engineering companies entering the biofuels sector in North
America. Biodiesel plants presently being marketed in Canada and the USA
range from 50 million gallon per year enterprises down to skid mounted
production units with capacities of one million gallons per year.
In addition, production alternatives being sold range from continuous flow to
batch flow and hybrids that combine features from both systems.
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This emphasizes the need to deal with an engineering company with in depth
expertise in the design and construction of all manner of plant alternatives to
ensure that the County of Newell facility exploits the advantages of the area.
Two engineering companies seem to exhibit the expertise necessary to design
and construct a facility in this area. They are Crown Iron Works Company based
in Minnesota and Lurgi PSI Inc. with offices in Tennessee and Texas.
The following illustration depicts a biodiesel production facility of applicable scale
relating to the County of Newell #4.
Source: Fumpa Fuels
4. THE POTENTIAL MARKET FOR COUNTY OF NEWELL #4 BIODIESEL:
At this time two target markets segmented on a geographic basis appear to have
potential for biodiesel produced in the County of Newell #4.
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4.1. Alberta:
Petrodiesel consumption in Alberta for the year 2001 was in excess of four billon
liters. This equated to about 30% of the diesel fuel burned in Canada. Of this
about five percent was consumed in the oilsands sector.
Potential large commercial and institutional customers include:
Company
-Suncor and Syncrude
- Enmax and Epcor
- Alberta railway operations
- Municipal governments
Petrodiesel consumption/year (liters)
300,000,000
300,000 plus
250,000,000
not known
It is interesting to note that United Farmers of Alberta apparently is showing
interest in supplying biodiesel blends as part of it’s farm fuel service. However,
potential sales volumes are not known.
4.2. Western U.S.A. :
Washington State recently passed legislation mandating the use of B5
commencing January first, 2008. It is expected that Oregon and California will
also pass similar legislation. It is unlikely that these jurisdictions will be able to
meet these targets from domestic production. Since biodiesel can be shipped to
the USA on a duty free basis there may be an opportunity for the Newell plant to
develop an export market.
4.3 General Observations:
It is clear that there is a significant known potential market in Alberta. In order to
capture a portion of that market, biodiesel will have to be sold as a differentiated
product. Differentiating characteristics as superior lubricity, low toxicity,
environmentally safe decomposition in the case of spillage and greenhouse gas
mitigation will be part of the marketing strategy.
A provincial policy of supporting the use of biodiesel would also be of advantage.
The provincial Minster of Agriculture has stated that he intends to urge the
Government of Alberta caucus to eliminate the road tax on biodiesel. He has
also indicated that the production of biofuels will be part of the provincial
agricultural profitability strategy.
5. PROFITABILITY:
The following section outlines the the projected source and application of start-up
funds, and year one profitability of a forty million liter per year biodiesel plant
located in the county of Newell #4.
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5.1. Source and Application of Start-up Funds:
Biodiesel Pre-feasibility Study April, 2006
Source and Application of Start-up Funds
Intergrated Canola Seed Crusher Dual Feedstock Biodiesel Plant - 40 MM Liter Per Year
APPLICATION:
Design and Engineering
720,000
Site Preparation
200,000
Water and Sewer
160,000
Utilities
100,000
Machinery and equipment
Tanks
Buildings and land
Access
Contingency
TOTAL
14,400,000
782,000
1,480,000
120,000
1,796,200
$ 19,758,200
SOURCE:
Shareholder Equity
Term Debt and Mortgage
TOTAL
8,891,190
10,867,010
$ 19,758,200
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CAPITAL COST DETAILS:
Main plant equipment.
5,500,000
Canola crusher and storage
4,500,000
Tallow first stage pretreater
2,000,000
Subtotal
12,000,000
Add 20% over run - unforeseen
2,400,000
Grand Total Equipment less Tanks
Buildings
14,400,000
Sq. ft.
Main plant
Tallow
Crusher
Office
3500
2750
3750
2000
1,200,000
Tanks
8@80,000 gals
782,000
Land
7 acresx40,000
280,000
Engineering
5% of equip less tanks
720,000
Site prep
200,000
Gas- power
160,000
Water, sewer
100,000
Road upgrade
120,000
SUB-Total
Contingency - 10%
Total Capital
17,962,000
1,796,200
$ 19,758,200
15
5.2. Year One income Statement / Cash Flow:
16
5.3.
Notes Relating To Profitability:
5.3.1. Capital Cost:
-
Source and application data is subject to variation regarding steel and
concrete prices. However, significant contingency allowances have been
included that will mitigate these uncertainties.
5.3.2. Revenue:
-
The plant selling price of biodiesel was based on the current price of
petrodiesel less taxes and retail margin. No price premium was charged
for the differentiated characteristics of biodiesel outlined in a previous
section.
-
Selling prices for canola meal and glycerine reflect current spot market
prices. It should be noted that glycerine prices are at historic lows and
could be expected to recover by several multiples as supplies work
through the system.
-
No allowance was made for custom crushing of oil feedstocks. This has
the potential of evolving into a profit center for the plant.
5.3.3. Expense:
-
The sourcing of off grade canola feed stock could be problematic in some
years. However, it should be noted that Alberta produces an average of
2.2 MM tonnes of canola seed per year. Based on approximately 30% of
the crop being off grade (Western Canadian average) this calculates to
about 32MM bushels.
Of this amount the plant would have to source 1MM bushels of bin heated
or field heat stress canola. This seems eminently possible.
The price of heated canola in the fall of 2005 ranged from $25 - $190 per
tonne. The price used for feedstock in this analysis was taken as $196.60
per tonne including shipping.
-
The price of tallow was taken as $.19 per pound and would be sourced
from Lakeside Packers.
-
The biodiesel plant would employ twenty people. Eight of these would
require technical or professional certification.
17
5.3.3. Return On investment / Sensitivity:
-
The simple rate of return on equity before taxes calculated to 43%. This,
of course, is subject to market variations in the critical prices of feedstocks
and biodiesel. However, it is interesting to note that a west coast U.S.A.
biodiesel plant has a currently posted price of $1.04 Ca per liter.
-
The break – even sales revenue of the plant is approximately
$13,000,000. Contribution to overhead and profit is $.22 per dollar of
sales.
-
Plant design and construction is estimated as 18 months. No provision for
construction bridge financing has been included in this analysis.
6. SUMMARY:
This pre-feasibility study outlines a strategic wealth generating opportunity that is
focused on the comparative advantages of producing biodiesel in the County of
Newell #4. The critical advantages are:
-
Central location with access to rail transportation and highway #1 and
proximity to the U.S. border.
-
Local access to an immense amount of tallow feedstock.
-
Access to a local secondary oilfield service industry with expertise in
fabrication and instrumentation.
-
Availability of technical personnel relating to the management and
operation of a biodiesel production facility.
For addition information relating to this opportunity, please contact:
D. Erdman, Economic Development/Tourism Coordinator
County of Newell #4, 707-2nd Ave. E.
Brooks, AB T1R 1B2
Ph. 403-632-3266
Email: erdmand@countyofnewell.ab.ca
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7. References:
National Biodiesel Board
Climate Change Central
Biodiesel Supply and Demand Factors in Alberta
Jacobsen Biodiesel Bulletin
Independent Biodiesel Feasibility Group
Iowa State U.
Economic, Financial and Social Analysis for Biodiesel Phase One
BBI International
National Renewable Energy Laboratory
Wisconsin Biorefining Development Institute
Fumpa Biofuels
Agrifood Canada
Alberta Agriculture
Manitoba Energy Development Initiative
University of Missouri
Lurgi PSI
Washington State U.
Sigma Capital Group Inc.
Eastern Connecticut State U.
Alberta Canola Commission
Crown Iron Works
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