Issue Date: November 10, 2008
Chewing The Fat
IT SOUNDS almost too good to be true. Using a process similar to what is found in an ordinary refinery, oil companies and engineering firms have developed a technology to turn fats and oils into a renewable diesel fuel that is more compatible with the petroleum-based diesel pool than traditional biodiesel. Putting this alternative-to-an-alternative fuel source to commercial use is progressing, but it also has been facing obstacles. Not the least of these is an obscure provision of the recent Wall Street bailout bill.
Both the new alternative fuels and typical biodiesel start with animal or vegetable fat. However, the new fuels use hydrogenation technology developed by oil refiners such as ConocoPhillips, Neste Oil, Petrobras, and BP; the engineering firm UOP; and the synthetic fuels expert Syntroleum. These firms have sought a way to use familiar technology to break into a business that has thus far been dominated by biodiesel makers that churn out fatty acid methyl esters in plants situated in rural locales.
Biodiesel production is based on the transesterification reaction, whereby a catalyst, usually sodium methylate, and methanol break apart triglyceride molecules into fatty acid methyl esters and glycerin. In the hydrogenation processes, hydrogen breaks the triglyceride into water, propane, and hydrocarbons of anywhere between 16 and 24 carbons in length, depending on the feedstock fat. The hydrogen also saturates any unsaturated bonds in the hydrocarbon chain. Generally, a decarboxylation reaction also occurs in the reactor, stripping oxygen and carbon from the triglyceride to make carbon dioxide.
There are two varieties of the new technology: coprocessing in an oil refinery and production in stand-alone plants constructed specially to make the new fuels.
In the coprocessing technology, refiners feed the triglycerides, along with the diesel fraction of the refinery's crude distillation unit, into a hydrotreatment unit. This is the refinery unit that uses hydrogen to remove sulfur from and saturate any double bonds in the hydrocarbons.
Lou Burke, biofuels manager for ConocoPhillips, says that hydrotreaters have to be modified before they can make the biofuel, called renewable diesel to distinguish it from biodiesel. The company has been studying making 12,000 barrels of renewable diesel per day among a couple of its refineries from a stream of chicken, pork, and beef fats from Tyson Foods, the world's largest meat processor. Estimates for the capital costs of the setup have been as high as $100 million.
Burke cites a number of different investments that refiners have to make to use the new process. They would likely need to modify equipment to handle the increased heat generated in stripping off the oxygen from the triglycerides. And they would need equipment to extract the water, carbon dioxide, and propane coproducts from the diesel stream. He adds that refiners also face additional expenses in setting up an infrastructure to handle new feedstocks like tallow, plus additional steps in cleaning such fats of catalyst-poisoning impurities. "Even edible tallow is too dirty for your fixed-bed reactor, so there is a lot of cleanup that goes in," Burke says.
In the stand-alone technology—developed by UOP, Syntroleum, and Neste Oil—the renewable diesel is hydrotreated in a plant that doesn't also process conventional diesel. Such plants are usually designed to run the resultant straight-chain paraffins through an isomerization unit that creates branched molecules and thus improves fuel properties such as the pour point. If the fuel's pour point temperature is too high, it might not function well in winter.
The isomerization unit also breaks the paraffins into smaller pieces. For example, UOP's process can yield as much as 10% of fuels containing 14 carbons or fewer, well into the jet fuel or even the gasoline range.
Companies developing the two routes to renewable diesel highlight the fuel's advantages over both biodiesel and conventional petroleum-based diesel. Graham Ellis, business manager for renewable energy and chemicals at UOP, points out that renewable diesel has a high cetane value, a measure of diesel's readiness to combust in an engine. He notes that the fuel is also lighter than conventional diesel and thus easier to blend with heavier and cheaper diesel fractions to meet blend specifications. He expects that renewable diesel would be sold at a premium over petroleum diesel, as biodiesel has been.
Moreover, Ellis notes that renewable diesel doesn't contain oxygen, as fatty acid methyl esters do. As a result, it can be blended right in the refinery or transported through existing diesel pipelines. Biodiesel has to be kept separate until it is blended further downstream.
Steve Howell, technical director of the National Biodiesel Board (NBB), counters that various biodiesel blends meet ASTM International standards recognized by automakers. He also notes that there haven't been enough comparisons of biodiesel and renewable diesel to draw conclusions regarding emissions.
Thus far, the only commercial hydrogenation plant in the U.S. is a 300-bbl-per-day coprocessing unit at ConocoPhillips' site in Borger, Texas. Tyson's Amarillo, Texas, processing plant supplies beef tallow for the unit. However, controversy has prevented this coprocessing route from going any further in the U.S. and has killed the two companies' larger, 12,000-bbl-per-day project.
At the center of the controversy has been the question of whether the coprocessing route is entitled to the same $1.00-per-gal tax credit that biodiesel makers using transesterification enjoy. The issue pitted ConocoPhillips, Tyson, and the meat industry against biodiesel makers.
The controversy began when the Internal Revenue Service ruled in April 2007 that coprocessing is entitled to the tax credit. ConocoPhillips and Tyson then announced plans to team up in biofuels.
NBB has been fighting the policy, arguing that the $1.00 credit amounts to a subsidy of existing refining capacity. In the biodiesel trade group's view, a credit for practitioners of hydrogenation coprocessing perverts the intention of a biodiesel tax credit. The credit is meant to create incentives for new biodiesel infrastructure, generate new jobs, and help wean the U.S. off imported oil.
"Fuels that provide new production capacity deserve a tax incentive similar to what biodiesel receives," Howell says. "But those companies that are using existing refining capacity should be treated differently from a tax incentive perspective because they are not really increasing the capacity they use to produce fuel."
A provision in the Emergency Economic Stabilization Act of 2008, otherwise known as the bailout bill, has settled the matter. It has reduced the tax credit for renewable diesel based on coprocessing technology to 50 cents per gal, which is not enough, ConocoPhillips' Burke says, to continue with the project. "There are no supporting economics to expand," he says, adding that the days are likely numbered for the test facility as well. "It makes the feedstock costs substantially more expensive than the finished product, let alone the operating expenses and capital investment recovery."
Tyson spokesman Gary Mickelson says his company is disappointed with the bill's provision. "Denying the tax credit will only serve to limit the expansion and availability of alternative fuels and will hurt the ability of livestock farmers and ranchers to participate in the renewable energy business."
ON THE OTHER HAND, Tyson has been able to move forward with Syntroleum's hydrogenation technology. The companies have formed a joint venture, Dynamic Fuels, which has broken ground on a $138 million plant in Geismar, La., that will make 5,000 bbl of renewable diesel per day when it starts up in 2010.
Because it is a stand-alone plant, it will qualify for the $1.00 tax credit. Jeffrey M. Bigger, senior vice president of business development at Syntroleum, points out other economic advantages of its process. The ConocoPhillips process needs to start with a near-food-grade feedstock because of conventional hydrotreaters' intolerance for impurities. However, because Syntroleum's expertise is in finicky Fischer-Tropsch catalysis, Syntroleum has developed a core competency around feedstock purification that enables it to convert "bottom of the barrel" fats into fuels. "We are actually going to capture some of the material that is currently being hauled off to landfills," he says.
Bigger says the Syntroleum process has economic advantages over transesterification biodiesel, too. He explains that the joint venture needs the tax credit because biodiesel makers already have one. This tax credit, he says, has encouraged biodiesel production and driven up the cost of feedstock fats. But if the tax credit were taken away from all biobased diesel production, Dynamic Fuels would survive, whereas biodiesel makers would go out of business. This, he says, is because of hydrogenation's cost advantage in using cheaper feedstocks versus the relatively pure soybean oil that most biodiesel makers use.
Although hydrogenation technology is just gaining a foothold in the U.S., it is already practiced commercially in other parts of the world. ConocoPhillips' refinery in Cork, Ireland, makes 700 bbl of renewable diesel per day. The plant receives enough government incentives, Burke says, to allow the plant to use soybean oil as a feedstock.
THUS FAR, two companies are planning to use UOP's Ecofining hydrogenation process. One is Italian oil company Eni, which developed the technology with UOP and is building a 6,500-bbl-per-day plant in Livorno, Italy, that will open next year. Another is a plant of the same size that Galp Energia is building in Sines, Portugal.
Neste Oil constructed the first unit that makes renewable diesel using a stand-alone process, a 3,500-bbl-per-day unit at its Porvoo, Finland, refinery, in 2007. Another such unit will come onstream there next year. Neste will start up a 16,500-bbl-per-day unit, the largest plant making diesel from renewable feedstocks in the world, in Singapore in 2010.
In other parts of the world, Brazilian state oil company Petrobras has retrofitted four of its refineries with its H-Bio hydrogenation process. And BP is producing renewable diesel via hydrogenation at a refinery in Australia.
Ian O'Gara, resources strategy manager for consulting firm Accenture, says he understands why the technology has taken off faster in Europe than in the U.S. In Europe, diesel-powered passenger vehicles are easily found, whereas in the U.S., diesel is burned mostly in trucks.
O'Gara can also explain why the subsidy was pulled from the coprocessing route in the U.S. He says governments encourage the use of biofuels for three reasons: energy security, carbon dioxide reduction, and rural development, the last being particularly important to U.S. policymakers. "Credits going to established oil companies are not what the subsidy is intended for," he says. In Europe, he notes, greenhouse gases are a more important issue.
The fortunes of the new hydrogenation technology in the U.S. may depend somewhat on the vagaries of government policy. But its other advantages over biodiesel are likely to make the new alternative fuel a niche player in biofuels in the years to come.
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