Advanced Biodiesel Blending
An interview with Mike Carter, Operations Manager of Allied Renewable Energy, LLC
Q. Thanks for your time today, Mike. Give us your thoughts on the biodiesel industry. What are challenges and opportunities?
A. We walked into the biodiesel production business with the terminal operator and product quality mindset that you have in the petroleum business. We looked at how to integrate and make it low-cost, as efficient as possible and guarantee quality. 
Quality is the No. 1 problem in the biodiesel industry. Your fuel has to be on spec every day. If you send a load of fuel that ends up being used in a tugboat on the Mississippi river and the engine shuts down due to poor quality fuel; that is a real problem. Or you put it in a locomotive and there’s a train stuck in the middle of nowhere, because the fuel is bad. Biodiesel can be extremely successful, but if we don’t fix this quality control issue it could fall flat on its face.
Because we came from the fuel business, we know that you have to provide quality fuel to customers every time…it always has to work. We wanted this plant to operate just like a petroleum refinery operation from a fuel quality standpoint. Besides the plant that’s being built in Houston, we’re the only fuel guys involved with biodiesel in our area (Birmingham, AL.) We understand that the biodiesel needs to be located where the fuel supply is.
Q. Your blending process sounds unique in the industry —can you tell us a little about it?
A. Our biodiesel production process is a continuous process with batch controls on the end. We were the first blending terminal in the U.S. that had been automated. You’re not going to find a terminal that’s more modern than ours. We got the AccuLoad III system that came out and was able to integrate it into the DTN Guardian3. It was kind of just a lucky decision because the rack equipment we put in had a hidden setup for biodiesel that we didn’t even know was there. DTN’s tech guys were able to take the system and integrate it into the new programming that AccuLoad III had. We were able to blend biodiesel automatically through our automation systems at that point. 
We’ve had roughly 600 people through this facility since it’s been up and running. We’ve had every one of the key players in the feedstock industry come through. They all say the same thing when they’re done looking at what we have here. We have the best facility they’ve seen, the best design they’ve seen and the best business plan they’ve seen.
Q: What does the future hold?
A: As we go forward with the biodiesel plants, we’re going to make it modular. We’re going to skid plate the whole thing. We can build them here and ship them out to where they need to go. If there’s a case where the plant doesn’t work for some reason, we can just go back and pick it up and place it at a different location where it might work a little better.
We have this plant here in Birmingham that’s been operating since January 2007 and we began full-scale testing of our plant design. What we wanted to do is operate this plant at full capacity for a certain period of time and make sure all of the bugs are worked out before building someone else a plant. We have made some pretty significant design changes since January. When we first designed the plant there was certain technologies available. Recently, in the last four months, new technologies have become available that makes the plant much more efficient. You don’t have to use water to clean your biodiesel. If you use water to clean your biodiesel, that’s a problem because you’re generating 5,000 or 6,000 gallons of water that’s contaminated. It’s got methanol in it and you have to dispose of it somehow. Here we have the reclamation company associated with Allied Energy, so it’s not a problem to do that but it’s not something you need from a cost standpoint. We’ve changed that now. We’re going to use a dry system for cleaning our biodiesel that does not use water and we’re going to have a pre-treatment system that operates in a similar fashion to condition our oil feedstocks that come in so they all run as efficiently as they can. Any impurity you leave in the feedstock oil causes a problem in the plant.
Right now, we think we’ve made all of the corrections we needed to make on our existing plant and we’re getting real close to the point where we are going to start building additional plants. But we’ve told everyone upfront that we’re in a test mode and want to make sure everything runs smooth so when this plant shows up at your site, there’s a minimum amount of onsite problems for us to deal with. There’s always going to be something, but we want to keep this to a minimum.
Q: What’s the capacity of your plant?
A: This plant that we’ve designed makes 25 million gallons of biodiesel per year. If someone calls us up and asks for a plant that makes 75 million gallons per year, we would build three 25 million gallon plants and stick them in there. That’s another problem with some of the bigger plants around the U.S. is that if something goes down it will affect the entire system. It’s not rocket science with biodiesel production, but it is a science and it has to be managed. When you make it too big, the problems that you would be able to handle in a small plant are not as easy to handle in a bigger plant. Let’s say you want to build a 100 million gallon plant, with our plan you would need four 25 million gallon plants running. Well, you’re never going to be totally down if you have a problem. You may have one of those 25 million gallon plants down for maintenance but the other three are fully operational and producing. You want to have a model where you’re making biodiesel every day and you’re selling it every day. You’ve got to have a little bit of inventory built up, but the idea is not to be sitting on it for very long.
We will duplicate this plant many times over and we will include the DTN Guardian3 automation system because we feel it’s the best automation system out there to use and integrate it into our system here where we live real-time. All the plants we build will be tied right into our Birmingham facility. Or, if we’re traveling we can connect to the site via the Internet.
Q: What’s involved in the management?
A: Here at the terminal, biodiesel is just like any other product. There will be terminal sites we go to, power company sites we go to, military bases we go to, and some are going to have infrastructure and some are not. The loading rack is the cash register and the tanks are where the money is stored. If you don’t manage those two things in a terminal, you’re out of business. And that’s what DTN does for us. I don’t care if I’m making biodiesel or if I’m selling petroleum diesel or ethanol, I’ve got to manage it. I can’t do it with people only; I have to do it with automation. The DTN Guardian3 terminal automation system will be on every one of the plants we build.
We will tie it all back to Birmingham as we build these additional plants. A lot of these plants will be their own LLC, it will most likely be a joint venture between us and whoever owns the property. We’ll just get a long-term land lease and do a joint venture with them because most of these guys don’t want to run the plant. They just want the benefits of it. We are going to be able to build a plant and have a maintenance agreement, so we will have full management of the plant – we’ll be in charge of securing the feedstock, making sure of the off take agreements are in place to sell it all…just manage the whole system for them. What the DTN Guardian3 system will do is help you manage that process.
When you are making biodiesel, you have more than just soybean oil that you’re using in the process — you’ve got methanol, catalyst, etc. All of it costs money; so all of those tanks need to be managed just like any other liquid terminal, especially if it’s a satellite site where we’re not there all of the time. So we’re going to have automatic tank gauging where we can look real-time at the remote site and see if the operator is using the right amount of methanol, for example. If we can look at the methanol, catalyst and feedstock usage and the production that is made daily, we can basically tell if the plant is being operated properly. And that’s what DTN’s Guardian3 automation system can do for us. Plus, it’s going to be able to generate a Certificate of Analysis (C of A). Every time you sell B100, you have to provide a C of A to complete the sale. The DTN Guardian3 system will print of C of A with each bill of lading. That’s pretty neat to have that because it’s required.
Q: And timelier C of A means faster blending credits…
A: Previously, when I was buying biodiesel from other suppliers, I might not get that C of A for at least one month. So that delayed me when it came time to file for my excise tax and if I have to wait one month to get my C of A; I can’t file for my refund check for my blending. It’s takes four months to get it from the day you send it to them. So if you’re delayed one month, that’s certainly a negative. What DTN’s automation system does for us is give us a modern and effective way to get the right paperwork in our customer’s hands immediately when they load it and they won’t have to wait. At the same time, they will get quality product everyday and they’re going to be able to come in and load it with the diesel at the same time.
It’s going to take away a lot of the problems out there right now where the driver is splash blending and you’re depending on him to perform the job correctly every time. That doesn’t work too well.
Q: How do you control for quality?
A: We run a continuous process. As the biodiesel is produced, we fill up a “Day Tank” and we shut it off and do all of our testing for quality while we’re filling the other day tanks. When an individual day tank is on spec, we transfer that product into the large storage tank. We’re basically doing batch controls on a continuous process.
We’ve got Allen Bradley monitoring on our system. We’ve got a control room that an operator sits in. Everything that goes on at our plant, that operator can control. It’s all variable speed; it’s got sensors all through it. We can fix quality issues while the plant is running. When you walk into our plant control room, it’s just like walking into a refinery’s control room. It’s got the same level of control that you typically see at a petroleum refinery. That’s something that I haven’t seen at any of the other plants I’ve been to. We can also run our plant with a minimum of three people and we run 12-hour shifts. Our main goals when we approached building a biodiesel plant were: 1) low-cost on capital, 2) low-cost labor, and 3) hedge all of our feedstocks on diesel to ensure profitability…and that’s what we’ve done.
Q: Tell us more about hedging your feedstocks. How does that work?
A: You’re going to have to transport your feedstocks in until the industry comes up with some of the alternative feedstocks. You’re basically buying soybean oil from the Midwest and trucking it in or on a railcar. Right now we can store 12 million pounds (roughly 40,000 barrels) of feedstock is the way we set our system up. That way we can buy in large quantities when the price is right. When we produce the biofuel, we just open a valve and it goes into a receiving truck.
In June 2006, when we had high diesel prices and low feedstock prices, if we would have hedged with this 25-million gallon plant, we would have ensured $22 million profit over the next 12 months. That’s what hedging can do.
You know, a terminal is like someone on Social Security. They’re on fixed incomes. You pretty much know your number or volume every month. You’ll have a revenue stream that will be constant, but it’s not going to have any big rainbow on it. Well, if you add a biodiesel plant to your operation and you hedge the feedstocks and diesel fuel properly you can make some significant revenue. The return on investment on the biodiesel plants, if you hedge properly, is less than 7 years.
Contact Mike Carter
mrcarter@mindspring.com
Phone: 205-925-3994
Allied Renewable Energy LLC is a member of the National Biodiesel Board.
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