Cover story: The truth about biofuels and why customers want them

“Look, biofuels are a con,” a man says animatedly. “They push up the price of food and rainforests are being cleared to make way for the crops they’re made from.”

“They reduce greenhouse gas emissions,” argues another. “And oil is running out so the world needs to move away from fossil fuels.”

These matters seem to be a common subject for debate these days. From being widely hailed as a clean and attractive alternative to fossil fuels a year or two ago, the view of biofuels has changed in some quarters. The caution is warranted but once sustainability issues are worked through, the stage should be set for long-term expansion of biofuels usage.

The fact is, these fuels have an important role to play in Australia’s energy supply security and in helping to reduce greenhouse emissions into the future. If properly developed, biofuels need not adversely impact food supplies and have undeniable environmental benefits.

Greenhouse gases from producing and using ethanol and biodiesel blends are significantly less than from fossil fuels alone. In addition, Caltex’s biofuels are made from feedstocks that include waste products and by-products of food processing.

Caltex has backed its belief in biofuels with a significant investment in a business which has grown quickly and dramatically from a tiny base about five years ago. This year Caltex will sell 750 million litres of blended fuels containing 39 million litres of neat (unmixed) biofuels. One in every 21 litres of fuel sold by Caltex is a biofuel blend.

The growth in volume has been made possible by a rollout of biofuel blends to hundreds of service stations in Queensland, New South Wales and the ACT, and by sales to commercial customers who see benefits in its use.

Caltex now sells biofuels at 400 sites offering either the 10 per cent ethanol petrol blend Bio E10 Unleaded and Bio New Generation Diesel (a blend of 2 per cent biodiesel and regular diesel) or both. And that figure excludes around 60 sites branded Caltex but operated by Woolworths. So biofuels are sold in over 380 Caltex-branded locations.

Increasingly, our customers want biofuels. Commercial and industrial businesses are seeking out biodiesel, a diesel substitute made from renewable materials such as tallow and vegetable oils which is blended into diesel at ratios of two, five and 20 per cent.

“We have lots of large commercial customers asking for it as a potential option, with the level of interest increasing dramatically over the past few years,” says National Fuels Marketing Manager Michael Ridley-Smith.

Caltex is selling B5 – the five per cent biodiesel blend – in a few locations in New South Wales, primarily to commercial customers. In Adelaide we’re selling B5 and B20 to business customers including bus companies and are currently negotiating to supply other commercial customers in that city.

For E10 as well, acceptance is increasing, helped by a discounted price relative to unleaded petrol at retail sites in NSW. Where customers have choice, E10’s penetration has increased from six per cent of the petrol portfolio to about 16 per cent. In Queensland it has moved from the low teens to 20 per cent at sites where motorists are offered the choice.

“We have some sites in Queensland where E10 penetration is up to 50 per cent, in pockets of Brisbane for example,” says Michael. “It’s bought by people who like the price discount and want to help the environment.”

Displacement trial – farewell to Unleaded

Interestingly, where Caltex’s Bio E10 Unleaded is sold, total petrol sales have remained the same or increased. With this in mind, Caltex is exploring the option of removing unleaded petrol (ULP) altogether at many sites and replacing it with Bio E10 Unleaded.

As a start, Caltex has been running a “displacement trial” in New South Wales at selected sites selling only E10 and two premium petrol brands, Vortex95 and Vortex98 says Biofuels Marketing Manager Mabelle Reyes.

In the current trials, 12 sites went E10-only in September, with more sites scheduled in October and November. “We know there’s work to be done to generate more consumer trust in ethanol and we’re getting there,” says Mabelle. “With the roll-out plan we need to do it at a pace that’s commensurate with consumer acceptance and the ability of contractors to convert sites.”

In areas where E10 is well accepted, Caltex will roll out the E10-only policy town by town. At others it will identify whether more work is needed to generate interest and acceptance.

There’s an infrastructure issue here too. Tankage at some sites is old and not suitable for E10. “We’ll be addressing this in our tank replacement program which aims to upgrade tankage across our network,” says Mabelle.

Making the supply chain more efficient

To ensure more efficient and cost-effective delivery of E10, Caltex has spent $6 million on recently completed ethanol blending infrastructure projects at Lytton Terminal in Brisbane and Banksmeadow Terminal in Sydney. These facilities enable Caltex to supply more E10 to its networks as demand keeps growing.

The Banksmeadow facilities, opened in June, include ethanol tankage and ratio blending of ethanol and unleaded petrol to make E10 Unleaded at the loading rack. This cuts loading time because petrol was previously taken to the Vopak terminal three kilometres away to add the ethanol then the truck had to return to Banksmeadow to complete the invoicing.

A similar project at Lytton, opened in August, represents an even bigger efficiency improvement because Caltex previously had to blend ethanol with petrol from Lytton at the South East Queensland Fuels Depot at Rocklea, 30 kilometres away.

E10 blending infrastructure is currently under construction in our Newcastle Terminal, adding to the efficiency of ethanol blending and marketing from that location. Newcastle Terminal will also see biodiesel blending facilities in place at the loading rack early in 2009, which will permit efficient marketing of B5 and B20 blends as well as the current B2.

Where our biofuels come from

The ethanol and biodiesel Caltex uses in its transport fuels are produced by specialist Australian manufacturers using various feedstocks. The commercial arrangements between Caltex and these suppliers are of equal importance to both parties. “Our commercial links are a vital part of the supply chain,” observes Caltex’s Manager Government Affairs & Media, Frank Topham. “Biofuels can only be successful if all links in the supply chain work together to promote them, from biofuels producers to fuel companies to vehicle manufacturers, motorists and commercial fuel users. Things are improving but we are still quite a long way from a consensus on biofuels strategy.”

Dalby Bio-Refinery
A good example of this interdependence is the new Dalby Bio-Refinery ethanol plant in south west Queensland which will produce 80 million litres of ethanol a year, mainly from locally-grown sorghum. Caltex is contracted to buy a substantial proportion of the output from the Dalby plant.

Manildra
Another supplier to Caltex is the agri-business giant Manildra, which distils ethanol from waste wheat starch at its processing facility at Nowra, south of Wollongong. This plant’s capacity is currently being increased and by the middle of next year it will have doubled its ethanol production to more than 250 million litres a year.

CSR
CSR Ethanol, a division of sugar refiner CSR Limited, is upgrading its distillery in Sarina, Queensland, to increase fuel grade ethanol production from 35 to 60 million litres a year. Its ethanol is made from molasses, a by-product of sugar production.

BIA
Caltex’s biodiesel is supplied mainly by Biodiesel Industries Australia’s (BIA) purpose-built production factory – the first in Australia – at Rutherford, NSW. It has a capacity of 15 million litres a year.

ARF
Australian Renewable Fuels (ARF) has supplied biodiesel to Caltex in South Australia. Their Adelaide plant had been closed for the past 12 months but has re-opened and will continue its supply of biodiesel to Caltex in the future. ARF also has a biodiesel plant in Picton, WA. Caltex is not currently marketing biodiesel blends in WA but this is under regular review.

BPL
Caltex also has a biodiesel supply contract with Biodiesel Producers Ltd (BPL) and takes product from their state-of-the-art biodiesel plant near Wodonga in northern Victoria.

Government policy – the latest

In Queensland, where about 32 million litres of fuel ethanol are produced each year, all from molasses, the government intends introducing a five per cent ethanol mandate by 2010. In NSW, legislation requires ethanol volume to equal two per cent of total petrol supply. In both states, the required ethanol volumes will mostly be achieved through the sale of E10 blends. Interestingly, Caltex sells as much ethanol in Queensland as it does in NSW even though there’s no mandate legislated yet in the Sunshine State.

Caltex remains committed to the previous federal government’s biofuels action plan and supplying an appropriate share of the target of 350 million litres of neat biofuels in 2010.

“Queensland has been a great supporter of ethanol and understands the benefits,” says Frank Topham. “The federal government currently does not charge excise on ethanol and the previous government made substantial grants to producers and retailers. We are hopeful that state and federal governments will increase support in various ways for the development and sale of biofuels.

“NSW also has a positive, proactive approach to ethanol even though Caltex doesn’t agree with its mandate policies.”

Environmental benefits: hope for a cleaner world

The debate about biofuels and their effect on food production and cost has gathered momentum and the issue of their sustainability is driven by some genuine concerns.

Globally, these include the effect on animals and their habitats, destruction of rainforests, potential displacement of poorer farmers by land clearing (especially in southeast Asia and South America). There is a need to ensure use of crops for biofuels doesn’t compete with food crops.

A measure of how concerned Caltex is about sustainability is that it does not buy biodiesel made from imported feedstocks, including palm oil. Caltex only purchases biofuels made in Australian factories from Australian-sourced feedstocks.

The environmental benefits of sustainably produced biofuels have been well chronicled. “From an environmental perspective, you have to take into account the life-cycle of the product,” says Mabelle Reyes. “The plants that are eventually turned into ethanol absorb the carbon dioxide created when the ethanol is burnt – hence the fuel is ‘renewable’. There are still some carbon dioxide emissions in growing, harvesting and making the ethanol from plant matter but overall the greenhouse gas emissions are less than for petrol produced from crude oil.”

One of the benefits for Australia is that for a portion of its fuel needs, it can offset the cost of imported petroleum with biofuels from Australian agriculture and reduce our reliance on fossil fuels. “Increased security of fuel supply is a big plus for the future,” says Mabelle.

CSIRO study shows benefits
The advantages have been recently supported by a CSIRO study on biodiesel’s life-cycle benefits. It showed that a two per cent biodiesel blend can reduce greenhouse gas (GHG) emissions by 1.5 per cent compared with unblended diesel, assuming the biodiesel is made from tallow (animal fat). The reduction for a five per cent blend is 3.7 per cent and the reduction in GHG for a 20 per cent blend is 15 per cent.

These advantages are confirmed by a Caltex biofuels supplier. “Studies have shown that throughout its life-cycle, sorghum-based ethanol produces less than half the greenhouse gases compared with those emitted by fossil fuels,” says Pauline Brownless, the Safety, Health, Environmental and Community Affairs Manager at the Dalby Bio-Refinery.

The future may be brighter still

For ethanol, new technologies are emerging for “second generation” ethanol, made from any plant material containing cellulose. For biodiesel, algae holds promise as an alternative feedstock.

Because supplies of the traditional ethanol feedstocks will always be limited, much effort is being focused on developing technologies to convert the more plentiful “ligno-cellulosic” materials into biofuel. These can include bagasse waste from sugar mills, timber plantation waste (thinnings, sawdust and so on), stubble from crops and even certain grasses, according to Bruce Harrison, Chief Executive Officer of the Biofuels Association of Australia (BAA).

In Australia, a pilot plant is being built by a New South Wales company, Ethtec, to convert timber waste into sugars for fermentation using a special process to break down the cellulose, says Bruce. In the meantime, the Queensland University of Technology and Syngenta are working on the use of enzymes to break down sugar cane cellulose materials into sugars to ferment into ethanol, and several other local companies are undertaking similarly exciting work.

“These second generation feedstocks and technologies have the potential to contribute significantly – more than 20 per cent – to our transport fuel mix in future, with a start on commercial production likely within the next five years,” says BAA’s Bruce Harrison.

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