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FROM HYDROCARBONS TO CARBOHYDRATES: BIODIESEL BUSINESS BOOMS
A crowd of farmers, petroleum workers and others gathered in April at a petroleum terminal in McPherson, Kan. They watched with interest as an ordinary fuel truck filled its gigantic reservoir. It was just another day to the driver, but to those watching, the event was nothing short of monumental. The truck was taking on a load of 8,000 gallons of petroleum diesel blended with biodiesel, and the driver would take that blend to a petroleum distributorship to sell to farmers and other customers. It marked the first time that petroleum distributors could fill up with pre-blended biodiesel right at the terminal, a sign that biodiesel may become less of an "alternative" fuel and more of a mainstream fuel, fully integrated with the petroleum industry.

"This is a big day for me," beamed Harold Kraus, a soybean farmer near Hayes, Kan. "This means biodiesel's arrived."

Biodiesel, a cleaner-burning fuel that can be made from any fat or vegetable oil, such as soybean oil, works in diesel engines with few or no modifications. Performance is similar to petroleum diesel - it offers comparable fuel economy, horsepower and torque, while providing superior lubricity. Although it can be used in its pure form, most use biodiesel in a blend of 20 percent (B20) or a two percent blend (B2).

The terminal, a major petroleum distribution point where petroleum pipelines come together, offers B2 to its distributors. Grain and energy Fortune 500 company CHS is the primary owner of the terminal and will open additional pre-blended biodiesel fuel systems in Council Bluffs, Iowa, and McFarland, Wis.

According to Mark Fenner, regional sales manager for CHS's energy division, the decision to offer biodiesel via terminal injection was propelled by farmers.

Harold Kraus, a soybean farmer near Hayes, Kan., watches as a fuel truck takes a load of B2, or a 2 percent biodiesel blend, at a petroleum terminal in McPherson, Kan.
"Farm producers asking their local Cenex distributor for biodiesel blends is a primary reason we are here today," he said during a press conference at the McPherson terminal. "The second key driver is our commitment to the biodiesel industry. CHS is not only involved in the refining and marketing of petroleum products but we also operate a significant oilseed processing division. And although we are not currently a manufacturer of pure biodiesel, our oilseed processing interests certainly support expanded markets for soy-based products like biodiesel."

Add to this the fact that CHS is a farmer-owned organization and it's clear that the company's core interests are a great match for biodiesel. Fenner says the investment in expanded infrastructure is another step towards the company's vision of being a leader in the marketing of biodiesel blends.

Since biodiesel can be made from soybean oil, the farm market seems like an obvious one to pursue. Research conducted by the United Soybean Board (USB) shows that in some states, 50 percent of farmers use soy biodiesel. Nationally, 31 percent of farmers use it. The increase comes after a two-year campaign put on by USB and state soybean organizations to try to convince farmers and ranchers that they should ask fuel suppliers for B2, and to purchase and use B2 in their operations.

"All U.S. soybean farmers can take ownership in soy biodiesel," says Greg Anderson, vice chairman of USB and a farmer near Newman Grove, Neb. "They're our soybeans. We can and need to put them to work for us."

Biodiesel Off The Farm

Although biodiesel is becoming successful in the farm market, that is just one small segment. Government vehicles, public utility companies, school buses and U.S. military vehicles are the biggest users. More than 400 major fleets currently use B20, such as at St. Louis Lambert International Airport, where fleet maintenance foreman Frank Williams became a quick convert four years ago.

"I'm just a city boy, and I didn't even know what a soybean looked like," he says. "When my supervisors asked me what percentage of biodiesel I thought we could use, I said none. But now, I love the stuff."

Lambert has just two main runways, both of which are overstretched, so tasks like timely snow removal are critical. In 2000, the airport began using B20 in snow removal equipment and about 300 of its other maintenance vehicles.

"The reliability is great," Williams said. "We've had sustained 25-below wind chill factor for multiple days and never had a problem with the B20."

The success story is typical with biodiesel, which blends seamlessly into diesel operations. Its ease of use is one reason the Department of Energy (DOE) calls biodiesel the fastest-growing alternative fuel. The industry estimates about 25 million gallons of biodiesel were produced and sold in 2003, up from 15 million the year before. There are 19 dedicated and non-dedicated biodiesel plants scattered throughout the nation, with at least a dozen more proposed.

Biodiesel Heats Up

Emerging markets for biodiesel are not necessarily tied to diesel vehicles. The fuel can also be used as heating oil. As in the transportation sector, biodiesel can be introduced into the heating oil pool with few or no modifications to the furnace or boiler and can even help keep it clean. Biodiesel can be blended with No. 2 heating oil at any level.

Based on 2000 Energy Information Administration data, No. 2 heating oil is used in 7.7 million homes in the United States - 69 percent of them in the Northeast. Officials at U.S. Department of Agriculture's Beltsville Agricultural Research Center, which has successfully heated its buildings with biodiesel since 2000, estimate that if everyone in the Northeast with an oil furnace used a B5 blend, 50 million gallons of regular heating oil could be conserved.

Test results released in September 2003 by the Massachusetts Oilheat Council (MOC) and the National Oilheat Research Alliance found that a blend of 80 percent low-sulfur heating oil and B20 reduced sulfur oxide emissions by as much as 80 percent or more. Nitrogen oxide emissions were lowered by about 20 percent. In addition, carbon dioxide emissions can be lowered by 20 percent.

"We are committed to expanding this work and will continue to define the critical next steps in bringing fuel and equipment innovations to the residential home heating market," said Michael Ferrante, MOC president.

Benefits and Barriers

Besides its ease of use, the fuel has many benefits. Biodiesel is nontoxic, biodegradable and essentially free of sulfur and aromatics. It significantly reduces emissions of carbon monoxide, particulate matter and unburned hydrocarbons. On a lifecycle basis, biodiesel reduces carbon dioxide by 78 percent compared to petroleum diesel.

Biodiesel is also the first and only alternative fuel to have fully completed the health effects testing requirements of the Clean Air Act. Results show biodiesel poses no health threats, and it reduces the compounds linked to cancer by 80 to 90 percent compared to petroleum diesel.

Another benefit is that every gallon of biodiesel used contributes to domestic energy security. A DOE and USDA full lifecycle emissions study found that for every unit of fossil energy needed to make biodiesel, 3.2 units of energy are gained. In contrast, it takes 1.2 units of fossil resources to produce one unit of petroleum diesel. So potentially, every gallon of biodiesel could extend our petroleum reserves by four gallons.

The many benefits of biodiesel may leave some wondering why it isn't widespread. Biodiesel is more expensive than petroleum diesel, and although it has many premium attributes, some view the cost as a barrier.

As a general rule, biodiesel costs about a penny more per percentage - a gallon of B20 might cost 20 cents more than petroleum diesel. In order to level the playing field between biodiesel and petroleum diesel, the biodiesel industry has made pursuing a tax incentive its number one priority. The tax incentive, currently a part of the stalled Energy Bill and the Senate Transportation Bill, is a federal excise tax credit in the amount of one penny per percentage point biodiesel blended with petroleum diesel. The incentive will reduce the cost of biodiesel to consumers.

Which brings us back to the petroleum terminal in Kansas. The incentive will be taken at the blender level where there is tax liability, far "upstream" in the petroleum distribution process.

"CHS will be very well positioned when the biodiesel tax incentive is passed, since the incentive will likely be taken at the terminal level," said Bob Metz, chairman of the National Biodiesel Board and South Dakota soybean grower. "People will be banging on the doors there to get biodiesel."

How much biodiesel will be sold as a result of the tax incentive passing is difficult to predict. But it's a safe assumption that many doors will continue to swing open as Americans begin to realize the benefits of the fuel and the important role biodiesel can play in taking the country from hydrocarbons to carbohydrates. Y

Jenna Higgins is director of communications for the National Biodiesel Board, www.biodiesel.org.


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