Seeds of a new energy industry
New fuel standards are driving demand for biodiesel plants, but hopes hinge on subsidies
By Dave Cooper, edmontonjournal.com  March 14, 2011
 

EDMONTON — Adding vegetable oil to diesel will soon be the law across Canada, and with millions of hectares planted in canola, Alberta stands to be a big winner in the push to produce the green fuel.

But backers of proposed plants in Vegreville and Lloydminster, two huge projects that could supply half the Canadian market, are still hoping to get production credits from a federal EcoEnergy program which was exhausted in October.

They and other proponents hope funds already set aside but not used — because the winners can’t get their projects launched — will become available under the March 22 federal budget and redistributed.

“I am optimistic something will happen to encourage new domestic production. Certainly farm groups and federal Agriculture Minister Gerry Ritz have been huge supporters,” said Gordon Quaiattini, president of the Canadian Renewable Fuels Association.

“Since the announcement of the EcoEnergy program in 2007, not a single industrial-scale biodiesel facility (producing more than 100 million litres per year) has been built.”

The federal government intends to make a two-per-cent biodiesel (called B2) addition to petroleum diesel mandatory on July 1. Manitoba and B.C. already do that, and Alberta will insist on the B2 standard starting on April 1.

It’s a different story with ethanol added to gasoline. The demand created by the five-per-cent blend (which also comes into effect in Alberta on April 1) will be fully met by Canadian plants operating or under construction.

Alberta has biofuel production credits of between nine and 13 cents per litre under an extension of its biofuel program which also begins April 1. The federal EcoEnergy credits are 10 cents per litre.

Together, the federal/provincial aid would be enough to level the playing field with the United States, which offers its producers a $1-a-gallon blending credit (about 25 cents a litre).

Under free trade, U.S. biodiesel produced from American corn or soy can enter Canada, and it offers petroleum firms here a subsidized product for blending.

And that is what has been happening in B.C. and Manitoba, and will continue until Canada can supply its own market.

Many American plants are waiting to go online as more states enact biodiesel requirements. In 2009, U.S. production was 1.7 billion litres, but there was capacity for 5.9 billion litres. Canada will need one billion litres under the B2 blending standard, but currently produces only about 150 million litres in several small plants.

“The federal producer credits would be worth $100 million over five years to us,” said Darrell Michaels, president of Biostreet Canada Inc., which is ready to go with its 237-million-litre-a-year plant in Vegreville.

“So we might export, too. In Europe their biodiesel mandate is 10 per cent and there is a lot of demand, but they need their land for food production. In Alberta there is always lots of green (subgrade) canola available.”

With all its permits and engineering in place, Biostreet fully expected it would receive its EcoEnergy production credits last year, which would have allowed it to arrange financing and begin construction almost immediately.

“We were further down the road than anyone in Western Canada. The feds said they would tell us in April, then May, then in October they said they were out of money.”

So Biostreet has gone back over its financial projections and, with the Alberta credit and more investors, it hopes to get the project underway this year.

It’s a similar story in Lloydminster. Canadian Bioenergy plans to build a plant to produce up to 265 million litres a year in a joint venture with agri-foods giant Archer Daniels Midland.

“Alberta is the most attractive place to build. On the ethanol side you have wheat supply, and on the biodiesel side you have canola and animal fat,” said Doug Hooper, chief executive of Bioenergy.

“Alberta is also at the headwaters of the petroleum system, and the most efficient place to add biodiesel. But the province cannot be competitive with the U.S. plants” without credits of some kind, he added.

Besides the green-fuel industry, among the biggest supporters of the B2 fuel mandate are farmers, who estimate the industry will soak up one million tonnes of canola, roughly the equivalent of the production from more than two million acres of farmland.

In the Lloydminster region, Hooper said his plant would be taking “a good chunk of the crop, about five per cent of the average crop over the last five years.”

But he adds “this region is very rich in productivity, with great soils and efficient farming.”

Canadian Canola Growers Association president Ed Schafer said last month that biodiesel “will create significant economic and environment benefits that can be measured in new jobs, stable incomes for farm families, growth for rural communities and cleaner fuel for all Canadians.”

While the economic benefits for rural areas are obvious, whether such a tiny two-per-cent addition to the fuel supply will have much of an environmental benefit is less clear.

The trucking industry has been a critic of the federal biodiesel mandate, citing a study by EcoResources Consultants for Environment Canada that found any impact on the environment would be negligible and outweighed by the costs of compliance.

“Aside from the lack of environmental benefits, this new fuel standard could pose significant operating challenges for diesel engines in winter conditions,” Canadian Trucking Alliance chief executive David Bradley said last month.

Hooper’s firm, which was founded to supply Canadian biodiesel users with fuel before the major petroleum firms took over distribution, has followed the debate since the federal government announced its biodiesel intentions in 2006.

“Canada is not breaking ground with new its B2 biodiesel requirements,” he said, adding the European Community uses higher biodiesel blends (more than a two-per-cent average) and faces extreme weather in its northern regions.

Depending on the type of feedstock, biodiesel’s cloud point — where it starts to jell — can be just a few degrees below freezing. Biodiesel made from animal fats and grease will gel up at room temperature just like bacon grease in a frying pan.

But canola and soy oils have the lowest cloud points and are considered premium products.

To use biodiesel in today’s marketplace, where some engine warranties don’t allow a mix of more than five per cent, it must be blended with other petroleum products, including kerosene, a fuel widely used in aviation. “All fuel — gasoline and diesel — is blended for different seasons right now, so this should be no different,” Hooper said.

In Canada, petroleum firms have no intention of putting even two per cent biodiesel in the fuel they sell in winter. Since the two per cent will be an annual average, this will mean perhaps five-per-cent blends in summer and none during winter.

Canadian Petroleum Products Institute vice-president Ted Stoner said the oil industry supports renewable fuels “if done appropriately,” but has concerns about the July rush to begin the system across Canada.

“The governments and the renewable fuel folks say smile and be happy, everything is great,” Stoner said.

“But the obligated parties, the fuel distributors and sellers, say wait a minute, you start putting something in our products, and if it gels up at minus 10, well … the last thing you want is a trucker who is stopped because his fuel filter has gelled up. You think he is going to call Mr. Soy Biodiesel guy? No, he is going to call Mr. Esso or Shell and say ‘your fuel has just stopped me.’ ”

Stoner says the Western ­provinces — with requirements already in place or coming in shortly — are well ahead of Ontario, Quebec and the Atlantic provinces. “It is a capital-intensive structure to do this, with the blending racks and tankage required,” he said.

And while the big firms may be able to average their biodiesel to meet the mandates, it will be more difficult for regional petroleum firms such as Ultramar in Quebec.

In its final report, Natural Resources Canada’s National Renewable Diesel Demonstration Initiative (NRDDI) acknowledged that in regions where there are no existing provincial biodiesel mandates, upgrades to infrastructure to “ensure that consumers are not affected by the transition to biodiesel blends” could take up to three years.

Moving too quickly also risks disrupting the supply of diesel products and jeopardizing consumer acceptance of renewable diesel blends, CPPI said.