Domestic Fuel

According to the 11th annual Energy Industry Outlook Survey conducted by the KPMG Global Energy Institute, 62 percent of energy executives believe the U.S. can attain energy independence by 2030, eliminating dependency on foreign oil. The survey polled more than 100 senior energy executives in the U.S. and found that this is a 10 percent increase from last year’s survey. Of this number, 23 percent believe the country can attain energy independence as soon as 2020.

In addition, 17 percent of respondents believe that U.S. energy independence will never happen, a drop of 10 percent.

“Increased domestic production, particularly from shale assets, is having a profound impact on the global energy sector, introducing new sources to the energy matrix,” said John Kunasek, national sector leader for energy and natural resources for KPMG LLP.

He continued, “This ‘shale gale’ is certainly contributing to the increased optimism among energy executives on the potential for U.S. energy independence and driving large investments into the development and production from these shale assets, including ‘Greenfield’ investment plays.”

The survey shows that natural gas is predicted to play an important role and 79 percent of those surveyed agree that the energy industry’s emphasis in developing environmentally friendly technologies should focus on natural gas, followed by nuclear (39 percent), solar (33 percent), and clean coal technologies (32 percent), indicating a slight shift away from the total bullishness around natural gas seen in the 2012 survey results, to a more balanced view with solar and wind technologies making gains.

Ninety-five percent of energy executives expect continued R&D investment in alternative energy projects this year while 55 percent anticipate investments will remain unchanged in 2013. However, the percentage of respondents predicting a 10 percent increase in R&D investment nearly tripled, from 11 percent in 2012 to 30 percent in 2013.
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According to the U.S. Energy Information Administration (EIA), fuel ethanol production capacity was 13.9 billion gallons per year (903,000 barrels per day) as of January 1, 2013 with the majority of production located in the Midwest. The report shows a slight increase in the total capacity of operating ethanol plants (193) compared to the same time last year (194). Total nameplate capacity is 12.6 billion gallons per year (822,000 barrels per day) and this report included plants that were idled or temporarily shut down during 2012.

The next EIA annual report on ethanol production capacity is expected to be released during the spring of 2014. This report will include facility-level nameplate production capacity data, which EIA says will increase the transparency of the ethanol industry data.

The Iowa Renewable Fuels Association (IRFA) will be hosting a summer workshop series addressing upcoming changes in the fuels shipped to Iowa via the current pipeline system. According to IRFA, these workshops are aimed at assisting fuel retailers, suppliers and marketers in preparing for the first major change in the types of fuel available at retail locations since lead was phased out of gasoline starting in the mid-1970’s.

“Upcoming changes in the types of fuels offered through the major pipeline running through Iowa will force Iowa’s fuel retailers and distributors to make some important business decisions,” said IRFA managing director, Lucy Norton. “These workshops will help participants prepare for this product change, understand the economic considerations and evaluate how renewable fuel blending fits into the new product mix.”

Magellan’s announcement to eliminate regular unleaded gasoline shipments to Iowa will require all retailers to evaluate their product offerings. The workshops will provide details of the new fuel options along with the impact on ethanol blends, future market conditions, and E15 as a new fuel option.

“Fuel distributors and retailers have a lot to take into consideration before the fuel shipped through the major pipeline in Iowa changes in September,” Norton added. “We want to assist the fuel industry in preparing for this significant change to their business portfolio and encourage fuel suppliers and retailers to attend one of the workshops to better understand the fuel options that will affect the future of their businesses.”

One of the big issues that continues to dog the biofuels business, especially ethanol production, is the use of food crops as fuel sources. While many have made the case that the crops can provide both food AND fuel (consider the dried distillers grains from ethanol production, for example), a New Jersey-based company thinks it has a way to remove the food part from the debate altogether.

In this edition of the Domestic Fuel Cast, we talk to Kef Kasdin, CEO of Proterro, as she tells us about her company’s method of actually creating, not extracting, sugars. You’ll be able to hear how this process makes sugar for as low as 5 cents/pound… a pretty good bargain compared to 10-20 cents/pound of more conventional methods.

You can listen to the Domestic Fuel Cast here: Domestic Fuel Cast - Proterro Creating Sugars for Biofuels

You can also subscribe to the DomesticFuel Cast here.

And you can check out the video below to get a better explanation of how the process Kasdin describes works.

According to recent study by FAPRI-MU higher biofuel blending requirements through the Renewable Fuel Standard (RFS) increase the incentives to use higher biofuel blends, as seen by high Renewable Identification Number (RIN) prices so far this year. The study began with baseline projections for biofuel and agricultural markets and then built on a series of assumptions about how the RFS will be implemented and how market participants will respond.

One key question of the study: what will happen when the RFS requires greater levels of biofuel use than can be achieved with 10 percent ethanol blends and mandated levels of biodiesel use?

The baseline assumes that domestic ethanol use will exceed the 10-percent “blend wall” if the effective cost of ethanol to blenders and fuel consumers drops low enough, long enough to encourage the use of higher-level blends such as E85 and E15; yet, how low and how long. The baseline assumes that use of these higher-level blends will only increase significantly if the consumer-level cost of these fuels is at a slight discount to conventional fuels, even after taking into account the lower energy value of ethanol-blended fuels.

The report looked at these questions from different perspectives using alternative assumptions about the implementation of the RFS and the behavior of biofuel market participants:

1. The first section calculates hypothetical RIN prices that would cover costs and discounts necessary to encourage expanded use of E85. Under one set of assumptions, the implied RIN values are very close to those recently observed in the market, but plausible changes in assumptions yield estimates that range from $0.28 to $2.34 per gallon.

2. The second section examines a scenario that assumes ethanol-blended fuel must sell at a deeper discount to conventional gasoline to encourage use of high-level blends—a somewhat steeper blend wall. This scenario results in less ethanol use than in the baseline, higher RIN prices, and increased use of biodiesel. However, the changes in quantities produced and consumed are fairly modest, so long as there remains a price that can encourage increased use of higher-level blends.

3. The third section explores the implications of alternative RFS implementation strategies and how they interact with alternative assumptions about the steepness of the blend wall. All else equal, the greater the total and advanced biofuel mandates, the greater the value of RINs and the greater the use of biodiesel. A steeper blend wall also results in greater RIN values and biodiesel use. Several different scenarios result in fairly similar levels of use of corn ethanol in 2013/14, provided that mandates are enforced.

4. The final section explores an extreme scenario where there is no price that will induce the use of higher-level ethanol blends. If the RFS remains in place, such a scenario would require large increases in biodiesel use that would require very high RIN prices and result in large increases in vegetable oil prices. Such RIN and biodiesel prices could induce new renewable fuels or trade patterns, and might be inconsistent with the view that ethanol expansion is impossible.

Methes Energies Canada, a subsidiary of Methes Engeries International, has signed a Purchase and Cooperation Agreement with BioFuel Aruba of Oranjestad, Aruba to purchase one Denami 600 biodiesel processor. The agreement was signed during the “Europe Meets the Americas” business conference in Aruba earlier this month.

Mr. Abe Dyck a cofounder and shareholder of Methes Energies was in Aruba for the ceremonial signing of the agreement. “I believe the signing of this agreement accomplishes the objective Aruba has of becoming a Green Gateway for companies wanting to deploy their technologies in the region. I see this as the start of a great relationship. I have enjoyed working with Gregory and the staff at Arina (Aruba Investment Agency) and look forward to commissioning the first 600 later this year.”

BioFuel Aruba was the first and is the only biodiesel producer in the country. The company will work with Methes to expand its biodiesel capacity. In addition, BioFuel Aruba has entered into pilot agreements with the Aruba Airports Authority and the public transit company, Arubus BV, to implement a biodiesel blend into their fleets. The two companies will also be working with the Government of Aruba to develop a biofuels mandate to be incorporated into their national energy policy.

“We can’t wait for our first Denami 600 to be delivered. With two pilot projects soon to start with Arubus and the Airport, we are looking forward to a greater demand for biodiesel. Methes’ technology is a great fit and will allow us to add more Denami’s as the demand increases even more here in Aruba and in the surrounding islands,” said BioFuel Aruba President, Gregory Fung.

The Environmental Protection Agency’s (EPA) decision that makes aviation biofuel, better known as biojet, eligible for Renewable Identification Numbers (RINs) could make those green fuels viable for the aviation industry. This piece from Platts says the aviation industry could qualify for D4 biodiesel, D5 advanced biofuel or D7 cellulosic diesel RINs, despite jet fuel being exempt from RINs obligations.

“The availability of RINs is a critical bridge to commercial viability,” Nancy Young, vice president of environmental affairs for US airline trade group Airlines for America, said in a recent interview.

“What the RIN value does is it creates an incentive to buy and trade this fuel,” he said. “The whole reason we need the RFS is because we can show up with a cheaper better fuel, but it doesn’t necessarily get it into the marketplace because it’s so vertically integrated. RINs make sure the renewable fuel is used in an economically efficient way.”

The article goes on to say that the increasing costs of biodiesel RINs could end up causing trouble for biojet.

The American Coalition for Ethanol (ACE) along with Michael Best & Friedrich LLP (Michael Best) are hosting a webinar series focused on pressing legal issues facing ethanol producers. The first webinar focused on compliance issues with federal Health Care Reform in 2013. The 30 minute webinar, says ACE Executive Vice President Brian Jennings, will be a valuable resource for the ethanol industry.

“With so many demands on our members’ time, we are pleased to team up with ACE member Michael Best to sponsor this series of webinars providing ethanol producers with useful and timely updates on important legal issues,” said Jennings.

Porter J. Martin, Michael Best partner, describes the webinar series as an approachable way to communicate information every ethanol producer needs in the most efficient way. “The webinars are based on our experience representing ethanol producers and other industry clients. The goal is to provide participants with a basic understanding of potential legal challenges they may face in their business and prepare them to make educated decisions in the future,” said Martin.

Future webinar topics include, long-term compliance with health care reform (2014 and beyond), intellectual property concerns, OSHA inspections, State and EPA enforcement activities, negotiating air permits, employee wage and hour matters, and others. You can access the first webinar here.

Wisconsin is the home of eight new E15 pumps. The 15 percent ethanol 85 percent gasoline blend is now offered at SmartStation, 1290 Business Highway 151, Platteville, Wisconsin. The station is a wholly owned subsidiary of Badger State Ethanol.

“We are honored to be Wisconsin’s first retailer to offer E15 to our customers who have been asking for it,” said Erik Hushitt of Badger State Ethanol. “We hope other retailers follow our lead so that consumers around the state have an opportunity to gain access to a cleaner burning fuel that contributes directly to the billion dollar ethanol industry in Wisconsin.”

E15 is approved for cars and light duty trucks model year 20o1 or newer. This represents a market of more than 75 percent of vehicles on the road today eligible to use E15. This market also represents 85 percent of the unleaded fuel sold across the country.

“We congratulate Badger State Ethanol and Wisconsin’s ethanol industry for working together to bring E15 to the Wisconsin market,” said Joshua Morby of the Wisconsin Ethanol Coalition, an organization that helps retailers interested in selling E85 navigate the process. “E15 offers retailers a chance to set themselves apart by offering a new, exciting fuel to their station that not only confirms their commitment to domestic renewable fuels but also offers them a competitive advantage.”

Morby added, “We expect retailers around the state to take notice of the demand by consumers for cheaper, cleaner, more homegrown E15.”

While we talk a lot about using more biodiesel and ethanol, there’s no more fitting place to use the green fuels than the farms where it all starts. A Minnesota farmer took his own advice to use more biofuels to heart, and this article from the Rochester (MN) Post Bulletin explains most farmers should use higher blends because their equipment can handle it:

[Eyota, Minn. farmer Dan] Brandt, who is president of the Olmsted/South Wabasha County Corn and Soybean Growers, discussed his idea of encouraging more biodiesel use with directors and members of the group at their annual meeting. They liked it and encouraged him to proceed…

“Nobody’s asking for it (higher blends), and that’s what we have to change,” Brandt said.

The article goes on to quote Kaleb Little, communications and member specialist with the National Biodiesel Board, who says the majority of agricultural manufacturers design their engines to use at least B20, some even allow the use of higher blends. New Holland engines can run B100, Little said.

Wisconsin-based Virent has delivered the first 100 gallons of its bio-based jet fuel to the U.S. Air Force Research Laboratory (AFRL) for testing. This company news release says it will be validated against the standards required for qualification and approval of new aviation turbine fuels established by the American Society for Testing and Materials (ASTM):

Dr. Tim Edwards of the AFRL’s Fuels and Energy Branch said, “AFRL is looking forward to working with Virent and the FAA to evaluate the performance of this fuel. This larger sample will help generate the performance data needed to advance the technology toward engine and flight testing.”

Lourdes Maurice, Executive Director of the FAA’s Office of Environment and Energy said, “We are excited that Virent is able to effectively utilize FAA funding to deliver these gallons for testing. The fuel will be used with our partners in the industry and government to progress testing of novel alternative jet fuels that can help meet FAA’s environment and energy goals under the Next Generation Air Transportation System.”

Virent officials say if the testing is successful, they next step will be to get the refinery up to commercial capacity.

Last week the biofuel industry took a hit when Florida voted to repeal its Renewable Fuel Standard, HB4001, that required fuel retailers to blend ethanol into their gasoline. The charge against ethanol was led by Florida Senator Greg Evers, who represents Escambia County, which happens to be the largest receiver of BP oil spill funds in the state. In fact, the same week HB4001 was passed, the county was one of the first to receive approximately $56 million to go toward restoration projects. Apparently, oil “balls” are still washing up on shore.

Escambia County receives its BP funds….ethanol gets squashed.

Coincidence?

I think not.

Let’s take a closer look at the correlation between state Renewable Fuel Standards and ethanol. In states that have a robust oil industry, Texas, Alaska, California, North Dakota, and New Mexico, combined with the state that has several oil refineries, Louisiana, with the exception of California, none of these states have Renewable Fuel Standards. While California has tried to move away from oil with its low carbon fuel standard, it was ruled unconstitutional. Although the legislation is temporarily moving forward, the oil industry is hoping to get another win when the roll-out is halted.

One could argue that when looking at states with the most ethanol production: Iowa, Minnesota, Illinois, Nebraska, and Indiana, you’d think there would be state renewable fuel standards in place. But this is not the case. With the exception of Minnesota, which has a biodiesel mandate, these states have tax incentives for production, but no mandates for use at the pump. They don’t seem to need them. Residents of these states appear to take advantage of choice at the pump (and support home grown fuels).

If there is catastrophic oil crisis, Americans in Midwestern states would be driving long after those in states heavily reliant on straight gas at the pump. In fact, Iowa produces enough ethanol and biodiesel each year to fuel 100 percent of its vehicles plus still have fuel to export.

Common sense should tell us to go the way of the Midwest, but when it comes to logic this country seems fresh out and no one wants to pay the money during a recession for a clue.
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The message being delivered to Washington, D.C. today is that Big Oil attacks on the Renewable Fuel Standard (RFS), so-called blend wall and E15 are bogus. Today representatives from the Iowa Renewable Fuels Association (IRFA), the American Coalition for Ethanol (ACE) and the Auto channel held a briefing in the Capitol Visitors Center to discuss these issues as well as highlight how E15 and the RFS are key parts of an “all of the above” American energy solution.

“Exposing the so-called blend wall for what it is—a Big Oil bluff—highlights how important E15 and the RFS are to achieving a more secure energy future for America,” said IRFA Executive Director Monte Shaw to the crowd. “Big Oil uses scare tactics like the so-called blend wall and bogus E15 studies to protect the petroleum monopoly at the expense of the American consumer. Meanwhile, renewable fuels benefit the American consumer by lowering gas prices, creating American jobs, and decreasing our dependence on foreign oil.”

Fuel retailer and owner of Midway Service in Sioux Falls, S.D. Bruce Vollan said to the ethanol advocates, “We have been offering blends of ethanol from zero to E85 at our station for nearly five years, and year after year, my customers buy an average of 20 to 25 percent ethanol. Despite what the so-called ‘experts’ say, we haven’t had to pay a single repair bill during that time. I think we’ve shown that – given the choice – customers are smart enough to know what works in their engines, and – given the choice – they will buy more ethanol. Being able to offer my customers all of the different fuels they want is just one of the reasons I’ve been an independent retailer for nearly ten years. I couldn’t sell these blends if my station was branded.”

When discussing Big Oil’s efforts to smear E15, ACE Senior Vice President Ron Lamberty explained, “Ethanol’s opponents have dramatically misrepresented the findings of studies about E15. We want to make sure that Congress is looking at the actual science and not just Big Oil’s distorted representations of that science.”

Auto Channel Executive Vice President Marc Rauch added, “For 180 years, the world’s top scientists and automotive engineers have known that ethanol is the best and safest engine fuel. It’s time to put this great domestic resource to serious use, and that means embracing E15 today. I’d much rather have my fuel money go to American farmers than to foreign terrorists.”

Global energy and commodity price reporting agency Argus has added a new tool to its arsenal: Argus India ethanol assessment. The company says the new product is designed to meet the growing demand for price reference and transparency in the market and was created in response to India’s mandate for increased ethanol blending in gasoline. The daily assessment is specifically for anhydrous ethanol, delivered to India. Indian demand for ethanol is expected to rise to as much as 2.2bn litres next year (38,000 b/d) to fulfill the country’s mandatory E5 blending. India plans to move to E20 blending by 2018.

According to Argus, the new assessment will provide a useful reference for the growing number of traders, brokers, planners, analysts, risk managers and strategic decision makers that follow this market. Argus spot market price assessments are based on a robust methodology, and are expected to be used by governments, regulators, oil companies with ethanol and biofuel operations, chemical companies, commodity firms, beverage companies and exchanges.

“We are delighted to introduce this assessment within a month of launching ethanol fob Pakistan (hydrous), ethanol cfr Philippines and B-grade cfr northeast Asia assessments. Argus now provides comprehensive coverage of Asian ethanol prices,” said Argus Media chairman and chief executive Adrian Binks.

The new price assessment is published daily in Argus Biofuels, a global report covering various biofuel prices including assessments for Renewable Energy Directive (RED) compliant ethanol.

Iowa Renewable Fuels Association (IRFA), American Coalition for Ethanol (ACE) and The Auto Channel are bringing together a panel of experts in the fields of renewable fuels, automotive and vehicle technology and fuel retailing to discuss important issues regarding E15 fuel, the so-called blend wall, and the Renewable Fuel Standard (RFS). The briefing will highlight how E15 and the RFS are key parts of an “all of the above” American energy solution.

The event is taking place on Thursday, May 2, 2013 from 9:30 am to 11:00 am EST in Washington, D.C. at the Congressional Meeting Room South CVC 217 in the Capitol Visitors Center.

Speakers include Bruce Vollan, Owner, Midway Service, Sioux Falls, South Dakota; Marc Rauch, Executive Vice President, the Auto Channel; Ron Lamberty, Senior Vice President, American Coalition for Ethanol; and Monte Shaw, Executive Director, Iowa Renewable Fuels Association.

Please RSVP to T.J. Page, with the IRFA at 515-252-6249 or via email.