7 Blendwall Busters

Blendwall-BustersWhat are the infrastructure hold-ups with renewable fuels? What are 7 Blend Wall Busters that can get renewable fuels back into high gear?

3 factors stand currently retard the expansion of renewable fuels volume in the United States and elsewhere around the world.

1. Sustainable, affordable, reliable, available feedstock. When the feedstock costs too much to grow, collect, ship or store, it’s a problem. When it’s tough to pre-treat, that’s another problem. When it causes pressure on supplies to other sectors that use biomass or causes other societal or environmental impacts, that’s a third problem.

2. Distribution infrastructure. In cases such as alcohol or biodiesel fuels, there are infrastructure changes required relating to vehicle design, retail pump, handling & storage, and delivery.

3. Immature technology. Some technologies are not ready, though promising. Some are close, but have needed elongated “commissioning periods” when they reach scale.

Of all these, the most perplexing is infrastructure, because it particularly impacts one technology at scale today in the US (corn ethanol) and one technology coming very close to “steady-state operation, at scale”, cellulosic ethanol. The infrastructure problem becomes most acute in the case of ethanol saturation, described by many as “the blend wall”.

What exactly is the blend wall?

In the United States, gasoline-powered passenger cars with 2001 or later model years are approved for 15 percent ethanol blends, while older cars are approved for 10 percent blends. The average vehicle age in the US is 11.1 years, meaning that only half of US vehicles can utilize E15 blends (today – as older vehicles are retired, that number will change)

Today, the US market has roughly 135 billion gallons of gasoline demand. That’s 13.5 billion gallons or so of alcohol fuels before we reach what is described, variously, as the E10 saturation point, the Blend Wall, or the Blend Pause. Some call it The Blockade. Some people spend so much time thinking about the topic that it has for them become anthropomorphized into a very naughty dog named RuFuS. The kind that pees on the carpet, barks in the night, and humps the furniture at the most inopportune moments.

Between 13.5 billion gallons and the 36 billion gallon target envisioned by the Renewable Fuel Standard, there’s an increasing amount of squawking about how much of a limiting factor that infrastructure really is. So, let’s look at 7 Blendwaull Busters and see what’s real.

7 Blend Wall Busters

1. Biodiesel

It’s America’s favorite advanced biofuel — industry can produce more than 2 billion gallons based on existing capacity. The Renewable Fuel Standard target volumes have moved along more slowly — so, we’re looking at the 1.7 billon range for now. But that counts, based on energy density, for 2.5 billion ethanol-equivalent gallons for RFS purposes. It’s popular, manufacturers are introducing more B100 and B20-compatible vehicles all the time.

How favored is America’s favorite fuel?

According to the Iowa Biodiesel Board, 76 percent of voters in Iowa support expanding the Renewable Fuel Standard to increase biodiesel use in the United States. The majority of voters surveyed also said a presidential candidate’s view on the RFS is important to their vote.

Limiting factor has been the search for affordable feedstock. We doubt if there’s a fryer or a source of fish waste that hasn’t been considered. But, there’s no reason other than feedstock price and sourcing between today’s volumes and something like 6 billion gallons, when biodiesel would start bumping into a B20 blend wall of its own.

Bottom Line. A Blend Wall Buster, for sure. It’s the definitive SARA fuel (sustainable, affordable, reliable, available). We just wish there was more affordable feedstock. Save your fryer oil.

2. Drop-in renewable diesel

This week, Propel Fuels reported a 15X jump in per-outlet sales of renewable fuel for diesel engines, based on a 3X increase in gallons sold of its new Diesel HPR fuel and 5X increase in renewable content for Diesel HPR (100% renewable content, vs the 20 percent renewable content in B20 biodiesel, which Propel formerly sold).

Diesel HPR is a low-carbon, renewable diesel fuel that meets petroleum diesel specifications and can be used in any diesel engine. Utilizing Neste’s (neste.us) NEXBTL renewable diesel, Diesel HPR is designated as ASTM D-975, the standard for all ultra-low sulfur diesel fuel in the U.S., and is recognized as “CARB diesel” by the California Air Resources Board even though it contains no petroleum.

And last month, UPS announced agreements for the purchase up to 46 million gallons of renewable fuels over the next three years from Neste, REG and Solazyme, constituting a 15-fold increase over prior contracts and making UPS one of the largest users of renewable diesel in the world. Specific volume agreements by company were not made available. UPS will shift more than 12% of its purchased ground fuel from conventional diesel and gasoline fuel to alternative fuels by the end of 2017.

Meanwhile, San Francisco announced a move to phase out petroleum diesel and substitute renewable diesel in the municipal fleet this month.

Advantages of renewable diesel? First, it’s a drop in, and can be used as a 100% substitute. Easier to move gallons than B5 or B20 biodiesel blends. Also, no infrastructure issues and few marketing issues. Other drop-in fuels? What about renewable gasoline? Mark that as a future fuel for now.

Bottom line. A complete blend wall buster and very much on the move. If global capacity did not break the 2 billion gallon barrier by 2022, we would be surprised.

3. Aviation biofuels

Aviation biofuels have been, er, “taking off”. The volumes are relatively small for now.  United signed offtake agreements for up 90 million gallons of biofuels per year, for example, with Fulcrum BioEnergy. But the first contracts are vitally important to the development of first commercial plants for companies like Fulcrum, Solena, Red Rock, Byogy and others.

One especially interesting aspect — airlines are not obligated parties under RFS but the fuels qualify towards RFS totals. So, when a refiner blends aviation biofuels, that counts towards their RFS obligation, but the fuel will not be used in road transport and side-steps the infrastructure problem. Airlines can use 50 percent blends of existing aviation-specific biofuels — so, no “blend wall” in sight given that aviation uses 60 billion gallons per year globally.

The Bottom Line. Bantamweight volumes for now, but light-heavyweight impact. A blend wall buster now, and even more so in the future.

4. Higher ethanol blends (E30 through E85)

Beyond E15, there are more than 16 million vehicles that are “flex-fuel”, according to the Renewable Fuels Association, and can use blends of up to 85 percent ethanol, and there are some 3,000 E85 pumps.

Two problems here. One, the vehicles (more of them in states like Texas and California) don’t always line up geographically with the pumps (they’re primarily in the Midwest).

Two, the American Petroleum Institute says that people don’t want to use E85, based on sales.

Turns out, one key factor is price. As an analysis of three years of Minnesota E85 sales demonstrates, per-station daily E85 sales rise by 8 gallons for every percentage point that E85 is discounted against gasoline (for those newer to the field, E85 gets roughly 75% of the mileage per gallon of gasoline, so a discounted price allows the per-mile costs to even out).

In the months that E85 was discounted in Minnesota at or above that 25% discount threshold, where the fuel costs the same or less, per mile, than gasoline, E85 outsold 91-octane premium fuel, which usually takes the third pump at the conventional station.

Another factor is the selling environment. Specialty renewable fuel marketer Propel Fuels, based in California, reports that it sells 30,000 gallons of E85 per outlet per month. That’s 10X the US average. Why? They credit effective pricing, station location and promotion. And that outsells mid-grade gasoline.

The Bottom Line. CARD has done an analysis of the potential demand for E85, and write: “There were enough flex vehicles on the road at the end of 2012 to consume about three billion gallons of ethanol if E85 were priced at parity with E10 on a fuel cost per mile basis. However, because of a limited number of stations, this fuel price ratio would result in 500 million gallons of ethanol sold as E85.” So mark this down as a blend wall helper, if not a buster.

5. E15

E15 is getting traction slowly. The theory here is that cars built after 2012 can tolerate E15 — by general agreement. And EPA and the ethanol industry agree that cars after 2001 can safely use E15. Manufacturers are balking on that point.

For now, it takes an extra pump to sell E15, because of the problem of older cars. E15 could be a standard blend by the the 2020s, but will be deployed pump-by-pump for now.

Infrastructure help is on the way in Iowa, which passed legislation that allows E15 infrastructure investments to become eligible for Iowa Renewable Fuels Infrastructure grants. Previously, the infrastructure program funds were only available for blender pumps and dispensers offering E85.

One technical hold-up. E15 needs a Reid Vapor Pressure (RVP) volatility waiver, which E10 ethanol has. In Washington, Rep. Adrian Smith (R-NE) introduced legislation to extend the waiver to E15, which has little chance this year.

One reason to go with E15 is emission reduction. In response to a query by the Minnesota Bio-Fuels Association, Dr Steffen Mueller, principal research economist at the University of Illinois at Chicago, said a gallon of E15 saves 1.26 g of CO2 equivalent (CO2e) per megajoule over regular E10 (gasoline that contains 10 percent ethanol). CO2e includes carbon dioxide, nitrous oxide and methane. If E15 replaced E10, it would save 358,000 tons of CO2 annually in Minnesota and up to 663,646 tons per year in Illinois, according to a technical analysis by the University of Illinois at Chicago.

Bottom Line. For now, a Blend Wall helper. In the 2020s, a Blend Wall Buster.

6. Renewable compressed natural gas

If the outlook on cellulosic biofuels is relatively bullish in 2015 compared to 2014 — Last year, there were 33.0 million RINs generated for cellulosic biofuels; this year 36.9 million RINs and we’re only in summer — credit Renewable Compressed or Liquified Natural Gas — last year 32.6 million RINs in all, and 95% of the volume for this year.

It all got underway just a while ago, when the EPA approved a rule that allows LNG and CNG produced from biogas to qualify as cellulosic biofuel along with biogas-powered electricity for electric vehicles. Other rules including those relating to the use of crop residue as feedstock as well as smaller refineries were released.

Accordingly, companies like Fiberight is switched gears and rather than build a garbage-to-ethanol facility at a mothballed ethanol plant in Blairsville, the company will instead produce biogas for CNG from the garbage.

And, St. Landry Solid Waste Disposal District will invest $2.8 million to triple the size of its methane capture system that produces natural gas for vehicles while opening a filling station in Opelousas that will allow consumers easier access to the fuel.

Limiting factors? Projects have to be established to make rCNG from landfill waste or farm residues — takes time and money, and CNG is not sold as widely now as it will be later.

The Bottom Line. Mark this down as a blend wall helper, because the growth rate is terrific but from small numbers, and there are some feedstock limitations on volume in the long-term, and some infrastructure limits on CNG distribution and sales right now.

7. Isobutanol

As we have noted before in the Digest, biobutanol blends effectively (in engine testing) at levels up to 60 percent with gasoline – and on an emissions level has been approved at blends of up to 16 percent.

Plus, biobutanol has a higher energy density than ethanol — not quite as dense as gasoline but only a few percentage points of difference. You get about 30 percent more energy from a gallon of biobutanol than ethanol.

Renewable Fuel Standard targets are expressed in ethanol-equivalent gallons. So, you could blend 36 billion gallons of ethanol in 2022 to meet the proposed renewable fuel target. Or, you could blend 27.7 billion gallons of biobutanol.

Now, keep in mind that, at 16 percent, you can blend 21.4 billion gallons of biobutanol into the fuel supply (based on 134 billion gallons of demand), and every car in America could run on that blend — and biobutanol is compatible with today’s fuel infrastructure.

What’s the hold up? So far, only one isobutanol technology has reached scale — that’s Gevo’s, and they’ve been in an elongated effort to reach steady-state operations. A debilitating lawsuit with Butamax over IP hasn’t helped, and oil prices hovering near $40 a barrel aren’t adding to the momentum.

The strategy — for Gevo and Butamax — is to convert smaller-volume, legacy ethanol plants to isobutanol production. Gevo’s Luverne plant, a former 19 million gallon ethanol operation, is a good example. One problem is that small plants don’t have great economies of scale: getting costs down is tougher.

Even converting the entire US ethanol fleet to isobutanol wouldn’t even come close to the “biobutanol” blend wall, so it’s definitely a blend wall buster, though one that many people would like to see much farther along the commercialization track.

Bottom Line. A future fuel, for now. But a Blend Wall Buster when it arrives at scale, in wide distribution.

The Digest’s Take

It’s not unreasonable to look towards 2022 for:

3 billion gallons of biodiesel
2 billion gallons of renewable diesel
300 million gallons of aviation biofuels
500 million gallons of E85 sales
100 million gallons of E15 (steady deployment)
300 million gallons (equivalence) of renewable CNG
200 million gallons of renewable isobutanol

In ethanol-equivalent RFS terms, this translates into 9.57 billion gallons. Add that to 13.5 billion gallons of E10, you would have 23.06 billion gallons of ethanol-equivalent fuels, blended into the fuel supply. Well short of 36 billon gallons — which would be tackled by more aggressive efforts with higher ethanol blends, or more aggressive deployment of blendwall busting fuels.

One thing to think about, as a parting note. Brazil has a minimum ethanol blend that hovers around 25 percent. Basically, the same car manufacturers and many of the same oil companies.

In the US, that would translate to around 33.75 billion gallons. Add in today’s existing biodiesel and renewable diesel distribution and you have a clear path to 36 billion gallons. Which gives a clear idea of why Congress believed such an aggressive target was possible over 15 years, based on infrastructure limits. And it also suggests, to a great extent, what the hold-up has been.

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