December 2013 Ethanol Producer Magazine by BBI International

INSIDE: EFFECTIVE HEAT TRANSFER IMPROVES EFFICIENCY DECEMBER 2013

Moving Distillers US Export Levels Approaching Record Page 32

China Presents Golden Opportunity for Growth Page 40

Protein the Big Story Domestically Page 46

www.ethanolproducer.com

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CONTENTS

DECEMBER ISSUE 2013 VOL. 19 ISSUE 12

FEATURES

DEPARTMENTS

Editor’s Note

Ad Index

The Way I See It

EXPORTS

In Demand Around the Globe

Distillers grains exports pick up, after dip in 2010 and 2011 BY HOLLY JESSEN

CHINA

Destination China

After dropping the antidumping case, the country is again No. 1 DDGS importer BY CHRIS HANSON

DOMESTIC DDGS

Distillers Grains Needle Trends North

Export price pull increases coproducts’ value domestically BY SUSANNE RETKA SCHILL

CONTRIBUTION

Another Banner Year for DDGS Exports BY TOM BRYAN

Fuel vs Fuel: Heading for Divorce Court BY MIKE BRYAN

Events Calendar

Upcoming Conferences & Trade Shows

View From the Hill

New Study Counters Big Oil’s False E15 Claim BY BOB DINNEEN

Drive

Never Underestimate Productivity of the American Farmer BY TOM BUIS

Grassroots Voice

Fuel Source Promoters Promise Great Things BY RON LAMBERTY

Europe Calling

Let’s Go For Simplicity BY ROBERT VIERHOUT

Business Matters

Buying, Selling Ethanol Facilities BY ANDREW ANDERSON, MICHAEL ABBOTT, ADAM HERTZKE

Business Briefs

Commodities Report

Distilled

Marketplace

52 ENERGY EFFICIENCY Efficiency Gains Possible Through Optimal Heat Transfer

Evolving heat exchanger designs feature improved maintenance, performance. BY GEREK FOOTE CORRECTION The “Field-Grown Enzymes” article in the October issue incorrectly referred to energy corn, in one reference, when it should have read Enogen corn. Ethanol Producer Magazine: (USPS No. 023-974) December 2013, Vol. 19, Issue 12. Ethanol Producer Magazine is published monthly by BBI International. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices. POSTMASTER: Send address changes to Ethanol Producer Magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.

ON THE COVER

A ship is docked at the Chinese port of Guangzhou. PHOTO: USGC

4 | Ethanol Producer Magazine | DECEMBER 2013

EDITOR’S NOTE

We find out this month that distillers grains exports are on pace to surpass last year’s numbers and perhaps match or top the record total volume shipped out of the country in 2010. Beating last year’s export figure isn’t surprising given the drought and the

ANOTHER BANNER YEAR FOR DDGS EXPORTS TOM BRYAN, PRESIDENT & EDITOR IN CHIEF TBRYAN@BBIINTERNATIONAL.COM

lower monthly production rates that came with it. Approaching or topping the record export figures of three years ago is a different story, however. If we export 9 million metric tons of DDGS this year, it won’t be the result of just one thing, such as higher grind rates, but rather many things. In our page-32 feature, “In Demand Around the Globe,” EPM Managing Editor Holly Jessen reports that 25 percent of all U.S. distillers grains is now exported, with China taking roughly a third of the total volume—about half a billion dollars’ worth—each year. Jessen points out that distillers grains exports are rising despite drops in shipments to Canada and Mexico. Offsetting losses in one part of the world by increasing sales to other regions is attributable to the diversity of the overseas DDGS market. Today, buyers in 80 different countries buy the coproduct, thanks to the U.S. Grains Council and other groups that educate buyers and break down trade barriers in new and established markets. Traditional export destinations in Europe and elsewhere remain active and important, but the real story is China, the Pacific Rim and Southeast Asia. Buyers in Japan, South Korea, Vietnam and Thailand are importing bigger volumes of distillers grains this year. As EPM Staff Writer Chris Hanson reports in “Destination China,” on page 40, a perfect storm of export inducers are responsible for Asia’s newfound demand for DDGS. In addition to buyer education, the list of drivers includes favorable export economics, the resolution of China’s antidumping case, and growing demand for protein in countries where meat consumption is increasing stepwise with household income. If it weren’t simply enough that distillers grains exports are on the rise, prices—both domestically and abroad—are very strong. Historically, DDGS has been priced around 85 percent the price of corn. But things have changed. In “DDGS Needle Trends North,” on page 46, we learn that DDGS is now priced at par with corn or better. As Senior Editor Sue Retka Schill reports, marketers have their hands full trying to explain these high prices to U.S. livestock producers who are still getting used to the lower oil content of today’s product. The exuberance of our first two features is perhaps grounded by Retka Schill’s piece, which serves as a pragmatic reminder that DDGS still has perennial challenges that demand attention. In addition to the standby issues—composition variability and flowability—new challenges lie ahead. Surprisingly, the industry still lacks solid information about how domestic beef, dairy, swine and poultry producers use distillers grains and view changes to its composition. An industrywide survey is in the works.

FOR INDUSTRY NEWS: WWW.ETHANOLPRODUCER.COM OR FOLLOW US:

6 | Ethanol Producer Magazine | DECEMBER 2013

TWITTER.COM/ETHANOLMAGAZINE

AdIndex

EDITORIAL PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com

VICE PRESIDENT OF CONTENT & EXECUTIVE EDITOR Tim Portz tportz@bbiinternational.com

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45 INTL FCStone Inc.

62 2014 International Fuel Ethanol Workshop & Expo

17 Iowa Economic Development Authority

13 2014 National Advanced Biofuels Conference & Expo

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49 Louis Dreyfus

MANAGING EDITOR Holly Jessen hjessen@bbiinternational.com

SENIOR EDITOR Susanne Retka Schill sretkaschill@bbiinternational.com

NEWS EDITOR Erin Voegele evoegele@bbiinternational.com

STAFF WRITER Chris Hanson chanson@bbiinternational.com

COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

ART

5 ACE American Coalition for Ethanol

ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com

44 Nalco, an Ecolab Company

GRAPHIC DESIGNER Raquel Boushee rboushee@bbiinternational.com

61 BBI Consulting Services

PUBLISHING CHAIRMAN

56-57 BetaTec Hop Products

Mike Bryan mbryan@bbiinternational.com

22 Natwick Associates Appraisal Services 34 Nelson Engineering, Inc.

CEO Joe Bryan jbryan@bbiinternational.com

SALES

27 Bilfinger Water Technologies

28 North American Industrial Services

29 Buckman

21 POET-DSM Advanced Biofuels

38 CHS Renewable Fuels Marketing

54 Premium Plant Services, Inc.

42 CPM Roskamp Champion

37 RPMG, Inc.

15 DuPont Industrial Biosciences

26 Salco Products, Inc.

VICE PRESIDENT OF OPERATIONS Matthew Spoor mspoor@bbiinternational.com

BUSINESS DEVELOPMENT DIRECTOR Howard Brockhouse hbrockhouse@bbiinternational.com

SENIOR ACCOUNT MANAGER Chip Shereck cshereck@bbiinternational.com

ACCOUNT MANAGER Kelsi Brorby kbrorby@bbiinternational.com

ACCOUNT MANAGER Brittany Ruhr bruhr@bbiinternational.com

MARKETING DIRECTOR John Nelson jnelson@bbiinternational.com

CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com

ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com

63 Ethanol Producer Magazine

EDITORIAL BOARD Mike Jerke, Chippewa Valley Ethanol Co. LLLP Jeremy Wilhelm, Cilion Inc. Mick Henderson, Commonwealth Agri-Energy LLC Keith Kor, Pinal Energy LLC Walter Wendland, Golden Grain Energy LLC Neal Jakel Illinois River Energy LLC Eric Mosebey Lincolnland Agri-Energy LLC Steve Roe Little Sioux Corn Processors LP

Customer Service Please call 1-866-746-8385 or email us at service@bbiinternational.com. Subscriptions to Ethanol Producer Magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States, Canada and Mexico. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising Ethanol Producer Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Ethanol Producer Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Ethanol Producer Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to hjessen@bbiinternational. com. Please include your name, address and phone number. Letters may be edited for clarity and/ or space.

Please recycle this magazine and remove inserts or samples before recycling

30-31 Syngenta: Enogen

3 Fagen Inc.

36 Tower Performance, Inc.

2 Growth Energy

64 Trinity Rail

23 Himark bioGas

35 Victory Energy Operations, LLC

11 ICM, Inc.

55 Vogelbusch USA, Inc.

8-9 Inbicon

51 Wabash Power Equipment Co.

43 Indeck Power Equipment Co.

DECEMBER 2013 | Ethanol Producer Magazine | 7

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THE WAY I SEE IT

Fuel vs Fuel: Heading for Divorce Court By Mike Bryan

I know of no other industry where the supplier and the customer are at total odds and continually bash each other with such extreme vitriol. Ethanol and petroleum are unique in that regard and there appears to be very little opportunity to change the dynamics. I have certainly done my fair share of bashing in this column as have others in the ethanol industry. As long as I can remember, the oil industry has tried every conceivable method money could buy to destroy the ethanol industry. So our customer hates us and as a supplier, we have a distain for our customer. A dichotomy indeed! Both industries supply quality products that the general public needs. Both oil and ethanol help to power America, provide a significant boost to our economy and to our energy security. Clearly both play an essential role in helping keep America strong. Interestingly, after all of the insults, all of the bickering and all of the money spent trying to destroy and defend, we do provide an essential service to one another. Oil provides our outlet to millions of customers

10 | Ethanol Producer Magazine | DECEMBER 2013

and we provide a clean fuel extender and clean octane to the oil industry, helping it achieve their environmental obligations. Yet we continue to trash one another publicly and privately. I’m not suggesting that we should ride off into the sunset singing Kumbaya but there must be a better, more productive way for a supplier and a customer to have a working relationship. It’s about market share. Not just the market share for petroleum, but the market share for ethanol as well. We both want a greater share of the market and we both stand in each other’s way of achieving greater market share. As a result we ask Congress to be the arbitrator rather than working together to try and iron out our differences. We continue to point fingers, say nasty things, talk trash about each other, spin stories, some true, some marginally true, some totally false, and in the process make little if any progress in achieving oil and ethanol’s end goals of greater market share, customer satisfaction and a cleaner environment. I don’t know if we can actually call a truce. Both sides would have to give a little and both would have to be willing to

stop the trash talk and cheap shots. It may be a bridge too far, a dream that has no possibility of ever becoming reality. But the problem in not trying to achieve it is a continual stalemate, more name calling, more congressional fights and few real winners. Maybe that’s the way it has to be, but it’s a shame really, because we need each other. Together we could have a great marriage, rather than sitting in front of a congressional judge filing for divorce based on irreconcilable differences. That’s the way I see it.

Author: Mike Bryan Chairman, BBI International mbryan@bbiinternational.com

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VIEW FROM THE HILL

NREL Report Counters Big Oil’s False E15 Claim By Bob Dinneen

There are legal and economical ways for refiners to meet their renewable fuel blending obligations. Instead, Big Oil is using all its energy and power to push the U.S. EPA to decrease the renewable fuels portion of the renewable fuel standard (RFS) to protect its monopoly. The petroleum industry claims its hitting a “blend wall” and is unable to blend higher levels of ethanol. They base this assertion on a controversial study by the Coordinating Research Council falsely concluding that E15 will damage vehicle engines. The National Renewable Energy Laboratory delved deeper and unveiled the many inconsistencies and problems with the CRC study, ultimately disputing any evidence that E15 caused engine damage. Therefore, no such change is needed to the RFS blending levels because the easiest and most sensible way around the blend wall is to blend more ethanol, specifically E15, which has been tested and approved by the EPA for vehicles 2001 and newer. NREL carefully reviewed 43 studies on the effects of E15 on engine durability, emissions and other factors and issued a report finding that the available literature “did not show meaningful differences between E15 and E10 in any performance category.” In specifically evaluating the CRC’s controversial engine durability study, NREL found “the conclusion that engines will experience mechanical engine failure when operating on E15 is not supported by the data.” The NREL report identified numerous flaws with the CRC engine durability study, including:

12 | Ethanol Producer Magazine | DECEMBER 2013

Failure to use E10 as a control fuel. Engines that “failed” on E20 or E15 were subsequently tested on E0, but not on E10 (despite the fact that E10 is the predominant in-use fuel today). This approach presumes that failures were related to ethanol content, rather than any number of other factors that could have caused the failure. One of the engines that “failed” on E15 also failed the test on E0. Quite obviously, ethanol content had nothing to do with the failure for this engine. Yet, CRC discarded the data from this vehicle for the study’s statistical analysis. Cherry-picked engine sample. Despite the fact that most modern engines employ technologies that improve valve and valve set performance, CRC chose engines that do not use these technologies and, thus, were “most likely to have valve problems.” According to NREL, the vehicles chosen “included several engines already known to have durability issues, including one that was subject to a recall involving valve problems when running on E0 and E10.” Lack of transparency in test cycle schematic. According to NREL, “the durability test cycle schematic published in CRC’s report does not contain enough detail to allow it to be independently reproduced.” Test cycle’s maximum speed limit increased likelihood of valve damage. The CRC test cycle enforced a low maximum engine speed, which “had the effect of increasing the likelihood of valve damage, because low speed operation may decrease valve rotation rates.” Faulty leakdown failure criteria. Most of the “failures” on E15 and E20

were related to engines that did not pass an arbitrary cylinder “leakdown” test. While other tests in the CRC study used established standards from OEMs and EPA, the leakdown test utilized arbitrary criteria with no scientific basis. According to NREL, “CRC selected a 10 percent leakdown failure limit, more restrictive (50 percent below) than that of the lowest value specified by OEMs for engines in the study.” Incorrect use of leakage tester tool. The manufacturer of the leakage tester used states that “no cylinder will maintain 0 percent leakage” and that “this tool is best used to compare a suspect cylinder to a known good cylinder on the same engine.” However, the CRC test used the tool to measure leakage compared to an arbitrary failure criterion of 10 percent. Inappropriate statistical analysis. The CRC study used assumed values, i.e., dummy data, for vehicles that were not actually tested. These dummy values demonstrated consistent bias in relation to the question that the analysis was intended to determine. The one leg Big Oil tried to stand on regarding E15 has now been knocked out from under it. The NREL study is the next step in expanding the use of E15. It’s time for Big Oil to get out of the way so we can get back on track to continue making America a truly energy independent nation. Author: Bob Dinneen President and CEO, Renewable Fuels Association 202-289-3835

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DRIVE

Never Underestimate Productivity of the American Farmer By Tom Buis

The holidays are a special time in this country. It’s a time to gather as a family, count blessings and make memories. It is also a time traditionally marked by great meals. These feasts come from the farmers of America. Farmers are the backbone of our country. They are what make our nation strong, united and prosperous. Not only do they put food on our tables, but they are leaders in providing direct and indirect domestic jobs, technical advancements and, yes, energy for our needs. Too often our farmers are at the wrong end of criticism. They are blamed, unfairly and inaccurately, for turning food into fuel. Just last year, amid a devastating drought that adversely impacted crop production throughout much of the United States, corn farmers were scorned for diverting cropland for ethanol. Nothing could be further from the truth. Blatant misstatements were tossed around as facts. For example, exaggerated claims that 40 percent of the corn crop is utilized to produce ethanol have been stated as gospel. Reality tells a different story. Once the real facts emerged it became apparent—after accounting for coproducts, production efficiencies and new technologies—only 17 percent of U.S. corn acreage is actually required to produce the ethanol feedstock. One year later and American farmers’ hard work, sacrifices, ingenuity

14 | Ethanol Producer Magazine | DECEMBER 2013

and, yes, a return to more normal weather, has resulted in a gigantic corn harvest. Now, corn prices are down to lows not seen in years. Such a harvest reaffirms what we in the ethanol industry have known all along: American farmers are more than capable of producing abundant supplies of food, feed, fiber and fuel. Yet despite such accomplishments by our farmers that have resulted in greater supplies and lower market prices, the cost of the food we eat over the holiday season is unlikely to reflect anything close to the discounted prices our farmers are experiencing. In fact, prices for the food staples we all love and enjoy throughout the year haven’t gone down with the corn price. How could that be? Simple. The driving cost of food isn’t actually tied to the price of farm commodities, such as corn. And certainly isn’t tied to ethanol. The biggest driver of food costs is oil. Researchers from the World Bank identified crude oil as the No. 1 determinant of global food prices. When the price of oil goes up, so do food prices. Additionally when one looks at the actual food dollar and breaks it down into shares of the pie, you can see clearly that agriculture is only a small contributor to the overall price. In fact, only 16 percent of what you pay at a store can be tied to the farm. The rest are costs like energy, transportation, packaging and marketing. Of course, one of the biggest reasons behind food prices remaining high might be the least surprising, profits. Food conglomerates have enjoyed increased profit margins thanks to rising retail prices that are

outpacing rising farm costs. During the 2012 drought, the farm value of chicken increased about 2 cents per pound compared to 2011. Wholesalers and retailers, such as fast food restaurants, increased their prices by about 13 cents per pound. Consumers paid an additional 8 percent, leading to higher profit margins for the food industry. For instance, Tyson Foods, the largest U.S. meat processor, is predicted to report a 37 percent gain in profit to $797.6 million in 2013. If we really want to reduce prices at the grocery store then we must lean on our farmers even more. We must turn to them to continue to produce more food and more fuel, so that we can end our oil dependence and the stranglehold Big Oil and Big Food have over our household budgets. Farmers can produce what we need. This harvest certainly proves that. It’s up to consumers and Washington to realize the contribution American agriculture makes to our economy and society and to do what is right. We must continue to protect American agriculture, protect the RFS and ensure there are no changes made to this vital program. Furthermore, we must break through the blend wall and promote higher blends of renewable fuels in the marketplace, such as E15, to protect the biofuels industry and ultimately, American agriculture and food from the farm. Remember that as you enjoy your holiday feast. Author: Tom Buis CEO, Growth Energy 202-545-4000 tbuis@growthenergy.org

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Fuel Source Promoters Promise Great Things By Ron Lamberty

What if I told you there were a source of fuel out there that can replace nearly all of the oil the United States imports each year? Now, that may a tad bit of hyperbole, but many indicators suggest this fuel source may be the one that frees the U.S. from imported oil, at very least, from the need to rely on oil from the Middle East. It would create many new, high-paying jobs, too. Who wouldn’t be interested in that? Early estimates of the available quantity of this fuel source vary wildly. Some peg its potential volume so large that it sounds unbelievable, like some sort of Internet stock scam. Others (opponents, mostly) say it will be so small that it barely merits consideration. When it comes to actual production of physical gallons, this fuel source is something that is technically possible—even being done already on a small scale—but currently too expensive to compete in the marketplace. Those who promote this fuel source say that it could compete, and could be developed to a massive size, if it could receive some government help. Would that rule it out? Developing this fuel would probably require tax credits on new equipment and infrastructure. A production credit of some kind, or a tax break that allowed income to be offset with some sort of credit would be helpful. And maybe there should be a requirement that a certain

16 | Ethanol Producer Magazine | DECEMBER 2013

amount of fuel made from this source would be required in the fuel supply. Or, at very least, any competing fuels should be severely limited, to assure this new, abundant fuel has its place in the market. We will also likely find out that although the naysayers were too pessimistic about quantities, the reality is that at its peak, the most optimistic estimates say this fuel source will replace less than 8 percent of the nation’s gasoline. It isn’t something that could be produced just anywhere, but it requires such a large land area that even if the entire continental United States were able to produce this fuel at the same rates as the current area could at its peak, it would only replace half of our transportation fuel. And then there is one more huge challenge: Even with some government assistance, pump prices would have to nearly triple to make the economics workable. Americans would end up doubling the total amount of money they spend on transportation fuel every year. If you hadn’t given up before this point, you will probably see the futility now. It’ll never happen, right? Well, actually, it already has. Many of you are probably wondering why I would paint such an unflattering picture of ethanol, a fuel I promote. I am not. The preceding narrative is not about ethanol. It is a description of the development of the Bakken formation in North Dakota and Montana. Naturally, however, I hope you will recall this article the next time someone wants to bemoan programs for next generation biofuels.

Just over 10 years ago, the retail price of gas was close to $1, and the Bakken formation was producing next to nothing. Special oil industry tax credits, coupled with pump prices that are nearly triple what they were in 2002, have led to a “tight oil” boom. The oil industry is hoping everyone will ignore those realities as they advertise and lobby to maintain the 90 percent gasoline mandate that supports even ridiculously high-priced gasoline, with “greater oil production” as one of their key talking points. But American families spent 8 percent of their income on transportation fuel in 2012, compared to 4 percent 10 years earlier, standing the law of supply and demand on its head. There is really only one reason Big Oil doesn’t want the RFS to survive. It has to have full control of motor fuels and motor fuel pricing to make the preceding scenario seem like a good deal. Ninety percent is even too little control for them. More ethanol in the fuel supply means more fuel in the fuel supply, and that means more competition and less profit for Big Oil. More importantly, if advanced and cellulosic ethanol are allowed the same benefits guaranteed to oil, competition will get even tougher. And Big Oil wants none of that. Author: Ron Lamberty Senior Vice President American Coalition for Ethanol 605-334-3381 rlamberty@ethanol.org

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EUROPE CALLING

Let’s Go For Simplicity By Rob Vierhout

At every event I have been to where the European Union sustainability certification policy is discussed, the level of agreement amazes me. Market operators and those who do the independent auditing agree that what EU regulators have come up with doesn't work well. It seems that it is time to revisit the policy. Under the EU rules, there are three ways to demonstrate that a biofuel is sustainable. The most common way is by using a voluntary scheme that has been approved by the European Commission. Another option is to prove compliance under the system set by an EU member state. Finally, by producing a biofuel in a country that has a “sustainability agreement” with the EU. As far as the latter is concerned, international agreements, there aren't any (yet) so that certainly cannot lead to complications. When we go to the national level, the system already becomes less easy to understand. First of all, there is no clarity how many member states have a national system in place. If one asks the European Commission how many there are, it doesn’t know. But it is not relevant, the Commission says: member states have the obligation to make sure (check) that the market operators are complying with the law. So, if the national authorities declare a biofuel sustainable, the Commission is happy too. Unlike voluntary schemes that are valid in the 28 member states of the EU, national recognition does not mean that

18 | Ethanol Producer Magazine | DECEMBER 2013

a biofuel supplier can use this “ticket of compliance” outside the country where the ticket was issued. At this point the EU law becomes complicated and actually deviant from basic community principles. One of the main objectives of the European integration process is to take away internal border obstacles to obtain a single, internal market in which the free flow of goods, persons and capital is guaranteed. Harmonizing rules and regulations is one way to get there. The other way is by mutually recognizing what is common practice. Unfortunately that doesn't apply to the national biofuel sustainability schemes: a biofuel recognized as sustainable in Austria (based on the Austrian scheme) cannot automatically be used outside Austria unless the other member state(s) explicitly recognizes the Austrian scheme. The third way to get biofuel accredited is by using a voluntary scheme, provided the European Commission recognized it. There are now 14 voluntary schemes recognized and some others still under consideration. The stamp of such a voluntary scheme works like a passport ideally, but unfortunately sometimes you need a different or an additional passport to cross the border. Some schemes cover the full supply chain others don't, sometimes certification applies to only a single feedstock or a single region; some schemes cover all sustainability criteria while other cover them partly; combining two schemes to get enough stamps in your passport might not do the trick because there is no automatic mutual recognition between these schemes. Germany has added an extra layer of complexity. It has tougher standards

than the EU law and this requires a special audit to earn a certificate that is not recognized by the Commission and cannot be used outside Germany. The next complexity that is going to be added to an already too complex system is when certification is introduced for double counting biofuels. The serious risk of fraud leaves no other option but to go for a track and trace certification, which makes the operation more bureaucratic and expensive. Very likely we will also see a call for a certification scheme for advanced biofuels. If we want to keep the sustainability certification affordable, understandable, efficient and effective, some sort of harmonization and simplification is key. Adding more schemes and more rules will achieve the opposite of what is intended: the more detailed it gets the more loopholes will be created. The EU biofuel sustainability certification scheme is the first of its kind globally. It is going to be an important test case for other parts of the agricultural sector. We better get it right if we want to keep using it. Therefore, the Commission should get its act together and rely less on the fact that the industry and the member states have to figure it out. The review of the Renewable Energy Directive is foreseen next year. It is the best opportunity to go for a harmonization and simplification of the EU policy on the biofuels sustainability certification scheme. Author: Robert Vierhout Secretary-general, ePURE Vierhout@epure.org

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BUSINESS MATTERS

Buying, Selling Ethanol Facilities By Andrew Anderson, Michael Abbott and Adam Hertzke

It is no secret that consolidation has been and will continue to be a trend in the ethanol industry. Producers who have not already considered buying or selling a production facility will probably face that prospect in the near future. Those unfamiliar with the process might be surprised by some aspects of the process and, in hindsight, may have wished they would have done certain things differently or prepared otherwise. In the experience of Faegre Baker Daniels in buying and selling ethanol facilities, some general issues move to the forefront and may warrant consideration in advance of the buying or selling process. Consensus among Stakeholders. During the decision to buy or sell, it is important that all (or a significant majority) of shareholders support the transaction. In some negotiations, items are eventually discovered that may warrant price or term adjustments. While internal debate among owners and operators may be healthy when facing that prospect, it is important that a unified front is always projected to the potential counterparty. The same holds true for the relationship between the company and its advisors. All parties should be on the same page with respect to messaging and strategy. The seller’s lender may also be very important to the process, especially if the lender faces the prospect of not being paid in full. The lender will want to maximize return and will likely be very interested in the price, the appraised value and the sale process. The process of getting lender approval in this instance can be difficult and time consuming. It is 20 | Ethanol Producer Magazine | DECEMBER 2013

not uncommon for a lender to need a number of months to approve a sale that does not result in its full payment. Sellers in that instance should consider communicating intentions to the lender early so as to avoid delay in closing the transaction. Governmental Approvals. Obviously, ethanol producers must comply with numerous governmental regulations and programs, including state grain buyer regulations, state incentive programs, state and federal utilities permits and federal alcohol permitting. In many instances, the time required to get governmental approval to assign benefits and permits and the time necessary for buyers to get new approvals and permits can be significant. Buyers and sellers alike should keep this in mind when considering a transaction. It’s not necessarily an issue that prevents a deal from closing, but it can certainly affect timing. It is quite common for a buyer of production facilities to require state incentive packages be assigned to the buyer as an asset of the business. Determining whether such packages can, in fact, be assigned is an action that should be undertaken early in the transaction. The outcome of the analysis can have a dramatic effect on pricing and the parties’ willingness to move forward. New Industry Participants. Consolidation in the ethanol industry has garnered the attention of businesses and private equity funds that do not have significant history operating ethanol production assets. Whether these new entrants are ideal for the market is subject to some

debate, an issue that is beyond the scope of this article. Relevant to this discussion is the fact that some transactions are slowed down while a buyer without operational experience learns the business. While there are certainly businesses and private equity funds familiar with the industry and its operation, some new operators are learning the business while trying to buy the business. Buyers in this instance often have much more detailed diligence requests. Again, this is not necessarily an issue that prevents a deal from closing, but sellers should keep in mind that their diligence burden may be higher and the deal could take longer to close. Also, certain entities may enter the pool of potential buyers for the sole purpose of looking at the assets and business, but have no serious intention of actually purchasing. It will be the role of the seller’s advisors to help separate those potential buyers from serious buyers. In this instance, sellers and their advisors should consider requiring proof of buyer financing and shorter exclusivity periods (i.e., the period of time that the seller must negotiate with this buyer and cannot consider other offers from third parties). These are just two protections that help protect sellers from less serious buyers. Authors: Andrew Anderson Partner, Faegre Baker Daniels 515-248-9000 Michael Abbott Partner, Faegre Baker Daniels Adam Hertzke Attorney, Faegre Baker Daniels

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The Renewable Fuels Association has re-elected Neill McKinstray to his second year as chairman of its board of directors. He currently serves as the president of the ethanol group at The Andersons Inc. McKinstray He has also served as vice chairman of the association. The RFA also elected Randall Doyal, CEO of AlCorn Clean Fuel, as vice chairman; Walter Wendland, CEO of Golden Grain Energy, as treasurer; Mick Henderson, general manager of Commonwealth Agri-Energy, as secretary; and Bob Dinneen as CEO.

addition, he spent two decades with Hartsburg Grain Co. as general manager and treasurer.

Stoel Rives LLP has announced that Jon Wellinghoff will join the firm upon completion of his service as chair of the Federal Energy Regulatory Commission. Wellinghoff submitted his resigWellinghoff nation to President Obama on May 28, but no date has been announced for his departure. Wellinghoff was appointed as FERC commissioner in 2006 and named chairman in 2009. Prior to joining the FERC, he was an energy law attorney focused on client matters related to renewable energy, energy efficiency and distributed generation.

Genera Energy Inc., a biomass feedstock supplier, has promoted Keith Brazzell to chief operating officer. Brazzell previously served as Genera’s vice president of operations and technology and Brazzell brings strong management and operational experience to Genera’s team. In his new role, Brazzell will ramp up operational capability, positioning Genera to continue to improve and expand the systems, processes, and resource Jackson base required to create a complete and fully integrated biomass system, with the goal of delivering every possible link in the supply chain. Brazzell has more than 25 years of experience in food and industrial chemical processing. He previously served as plant manager at the DuPont Danisco Cellulosic Ethanol biorefinery in Vonore, Tenn. Genera has also named Sam Jackson as vice president of business development. Jackson is a founder of Genera, and has served as vice president of biomass feedstock development and supply since March 2012. He began his career as a faculty researcher at the University of Ten-

Aventine Renewable Energy Inc. has named Jeff Duckworth corn procurement manager for its 165 MMgy wet mill and dry mill plants in Pekin, Ill. Duckworth was most recently emDuckworth ployed by Cargill, where he served as a grain origination specialist in Springfield, Ill., and as a specialty merchant in Bloomington. He was also previously employed by Bunge North America in Louisiana, Mo., where he served as manager. In

BioProcess Algae has announced the addition of Leslie van der Meulen to its team as vice president of business development. In his new position, van der Meulen will oversee business and corporate development activities. Prior to joining BioProcess Algae, he was vice president of business development for Aurora Algae. He has also served as director of sales and marketing at Originates/Naturmega, a fish oil concentrate manufacturer. BioProcess Algae is a joint venture of ethanol producer Green Plains Renewable Energy Inc., Clarcor Inc., and BioHoldings Ltd.

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nessee and has received national recognition for his work in developing feedstock supply systems. Jackson is also a founding member of the Council on Sustainable Biomass Production. Tharaldson Ethanol has joined the U.S. Grain Council. The 150 MMgy facility is located near Casselton, N.D., and takes in approximately 1.37 million metric tons (54 million bushels) of corn annually. In addition to ethanol, the plant also produces about 450,000 tons of dried distillers grains with solubles each year. The facility contains innovative and energy efficient technologies. Highlights include recycling wastewater operations, and extensive grain storage infrastructure, including a grain dryer to accommodate wet corn. Proterro Inc. has named Timothy Cooper as vice president of engineering. Cooper has more than two decades of experience in bioprocessing. Prior to joining Proterro, he was responsible for East Chemical Co.’s biotechnology effort, managed genetic engineering and fermentation development programs and driving generation of intellectual property. He has also previously served as fermentation Barber research leader at Dow AgroSciences LLC, where he was responsible for development of scale-up of new fermentation processes. He also directed fermentation and recovery development efforts at Wyeth Pharmaceuticals Inc. Proterro also recently expanded its advisory board with the addition of James Barber, principal of Barber Advisors LLC. He served as president and CEO of Metabolix Inc. from January 2000 through May 2007 and is an advisor to Solazyme Inc., Itaconix Corp., and P2 Science Inc. He sits on the boards of Agrivida Inc., Allylix Inc., Graham Corp. and Segetis Inc. Stinson Morrison Hecker and Leonard, Street and Deinard have announced they will merge, becoming one of

SHARE YOUR INDUSTRY BRIEFS To be included in Business Briefs, send information (including photos and logos if available) to: Business Briefs, Ethanol Producer Magazine, 308 Second Ave. N., Suite 304, Grand Forks ND 58203. You may also fax information to 701-746-8385, or email it to evoegele@ bbiinternational.com. Please include your name and telephone number in all correspondence.

the largest law firms in the U.S. The combined firm will operate as Stinson Leonard Street LLP, beginning Jan. 1. Mark Hinderks and Lowell Strortz will serve as co-managing partners and Allison Murdock will be the deputy managing partner. The new firm will have more than 525 attorneys in offices in 14 cities, with substantial coverage in the Midwest, a presence in the Mountain West and Southwest and an office in Washington, D.C. The firm will offer regional and national practices in several areas, including corporate finance, banking and financial services, energy, environment, mining and natural resources, real estate and construction, and litigation. Edeniq Inc. has announced that Flint Hills Resources Renewables LLC will expand its use of Edeniq’s Cellunator technology through the installation of Cellunators at two additional ethanol plants it owns. The technology is already in operation at Flint Hills’ Fairbank, Iowa, plant. Edeniq’s Cellunator technology enables ethanol plants to mill corn and other plant material into a well-mixed slurry of small, uniformly sized feedstock that can more easily be converted into sugars needed to produce biofuels and other biochemicals. Flint Hills has been an investor in Edeniq since April 2012 and a customer since July 2011. ICM Inc. has announced Patriot Renewable Fuels LLC of Annawan, Ill., and Lincolnway Energy LLC of Nevada, Iowa, have purchased its patent-pending Selective Milling Technology. SMT is a valueadded ICM platform technology investment that increases ethanol yield, reduces viscosity and increases oil recovery for its customers. Greenbelt Resources Corp. and its wholly owned subsidiary Diversified Ethanol Corp. have announced the delivery of a distillation module to the University of Florida. The distillation module was installed as part of the $20 million Stan Mayfield Bio Refinery Pilot Plant at the University of Florida Institute of Food and Agricultural Sciences laboratory at the Buckeye Technology facility in Taylor County, Fla.

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DECEMBER 2013 | Ethanol Producer Magazine | 23

COMMODITIES Natural Gas Report

Winter natural gas prices likely to stay consistent Oct. 25—Over the past four years, the natural gas market has shown a remarkable level of consistency when it comes to pricing the winter strip, the five futures contracts for delivery November through March. From 2010 through 2012, winter strip pricing closed on the final trading day at $3.83, $3.80 and $3.81. Interestingly, 2013 appears to be headed to a very similar destination, with winter strip trading at just under $3.70, with three trading days remaining. Winter natural gas prices are subject to many drivers, but a few key ones have been remarkably consistent over the past few years. First is the weather outlook for the upcoming heating season. Before entering the winter heating season, analysts and market participants tend to model future consumption based on historical patterns. A second driver is inventory level. From 2010 through 2012, natural gas storage injections set progressively higher “record” levels of inventory at 3,840 billion cubic feet (Bcf), 3,852 Bcf and 3,929 Bcf. Although 2013 will fall short of the 2012 record, inventory is likely to be above 3,800 Bcf by Nov. 8. Although the shortfall for 2013 might appear to be a large divergence, the five-year average inventory level is 3,750 Bcf and yearover-year gains in production growth of more than 1 Bcf per day project to a higher level of deliverability than last year. Between consistent

BY BEN STRAUS

expectations for winter demand and consistent outlooks for winter supply, it only seems logical that winter prices would show a high degree of consistency at this point on the calendar over the past three years.

Corn Report

Positive corn, soybean yield reports add market pressure

BY JASON SAGEBIEL

Oct. 25—Despite the government shutdown and delayed USDA reports, continued news of better-than-expected corn and soybean yields have been circulating, adding pressure to an already pressured market. The assumed additional yield is adding to total U.S. supply, approaching a 14 billion bushel production mark. December corn futures have traded to a low of $4.30, prices not seen since August 2010. As prices weakened, the opposite has happened to the cash market. Producers have storage and are expected to hold onto bushels. This has kept the cash market (basis) firmer this fall than originally anticipated. However, the key to increasing demand going forward will be the export sector, with lower prices encouraging that demand. With the firmer cash corn and soy complex, distillers grains has garnered attention both globally and domestically. Coproduct prices have remained at high values relative to corn. Coproduct revenue will become a greater percentage of ethanol production profitability this fall. The chart offers an illustration of a 2 billion bushel corn carryout. The carry-to-use ratio would then escalate to plus or minus15 percent, not seen since 2005-’06. This would support lower prices and encourage weather have on Argentina and Brazil corn and soy production? That demand, most likely from the export sector. After U.S. harvest is comimpact will spill over to U.S. markets. plete, attention will turn to South American weather. What impact will 24 | Ethanol Producer Magazine | DECEMBER 2013

REPORT

Regional Ethanol Prices Front Month Futures (AC) $1.861

($/gallon)

REGION

SPOT

RACK

West Coast

2.200

2.850

Midwest

2.060

2.620

East Coast

2.130

2.624 SOURCE: DTN

Regional Gasoline Prices

DDGS Report

DDGS prices under high export demand, price appreciation BY SEAN BRODERICK Oct. 25â&#x20AC;&#x201D;With Halloween right around the corner, the dynamics of the export DDGS market are still driving prices, but export logistics are the real story. Truck bids delivered to the container yards are well above the rail bids, but (additional) trucks have been extremely difficult to find. Barge bids are elevated in the nearby as sales that were made earlier based on the implied size of the corn crop are now coming to bear, but the corn harvest is not yet pressuring DDGS prices. All of the export demand and the price appreciation hurts domestic DDGS demand. Hog producers who were using DDGS at a 40 percent inclusion rate are dropping their usage down to 10 percent.

Cattle producers, who comprise a much larger part for the overall market, are actively looking for a replacement, which might be difficult for the next couple of weeks, but possible on a longer term than that. Since cattle feeding is 60 to 80 percent of the 28 to 30 million tons in the domestic market, even a medium-sized drop in usage will ripple through pricing and the export market is not enough to offset that. Going ahead, it looks as though export strength will continue for a while. Sales are being made now out through the third quarter. Watching to see how the domestic market reacts is what will drive things.

($/gallon) Front Month Futures Price (RBOB) $2.5871

REGION

SPOT

RACK

West Coast

2.642

2.805

Midwest

2.456

3.853

East Coast

2.595

2.837 SOURCE: DTN

DDGS Prices ($/ton) LOCATION

DEC 2013

NOV 2013

Minnesota

210

215

DEC 2012 260

Chicago

236

242

278

Buffalo, N.Y.

208

285

Central Calif.

273

268

324

Central Fla.

267

305 SOURCE: CHS Inc.

Corn Futures Prices DATE

(Dec. Futures, $/bushel)

HIGH

LOW

OCT 28, 2013

4.40

4.30 1/4

4.30 3/4

SEPT 27, 2013

4.59

4.53

4.54

OCT 29, 2012

7.46

7.32 1/2

7.37 SOURCE: FCStone

Cash Sorghum Prices ($/bushel) LOCATION

Ethanol Report

Investment traders cautious about energy markets BY RICK KMENT Oct. 25â&#x20AC;&#x201D;Following the partial government shutdown in October, commercial and noncommercial (investment) traders took varied approaches to the lack of government activity and uncertainty surrounding the potential default on the national debt. RBOB (reformulated blendstock for oxygen blending) gasoline prices, for example, rallied 10 cents per gallon through the first half of October. But in the time since the debt ceiling and short-term funding agreement was reached, prices have fallen 15 cents per gallon. This added some much-needed volatility back into the commodity market. On the other hand, crude oil has remained choppy over the past month, and not until after the government shut-

down ended did active pressure develop through the complex. Crude oil prices are trading at lows not seen since June and a break below $100 per hundredweight may be creating some psychological pressure on the overall energy markets. Ethanol prices have taken an interesting ride over the past month, with markets focusing on overall energy market direction rather than the shifts in corn markets. But to the credit of traders who need volatility and price shifts to maintain expected returns, the corn market has nearly flatlined over the past month, barely able to break out of a 10-cent-perbushel trading range. In late October, prices closed fractionally lower through the whole complex and only changed 1 cent per bushel for the week.

OCT 25, 2013

SEPT 27, 2013

OCT 19, 2012

Superior, Neb.

4.30

4.24

7.27

Beatrice, Neb.

4.00

4.14

7.21

Sublette, Kan.

4.20

4.24

7.31

Salina, Kan.

4.40

4.42

7.39

Triangle, Texas

4.23

4.37

7.19

Gulf, Texas

5.38

5.39

7.24

SOURCE: Sorghum Synergies

Natural Gas Prices LOCATION

($/MMBtu)

OCT 28, 2013

SEP 30, 2013

OCT 29, 2012

NYMEX

3.57

3.56

3.47

NNG Ventura

3.87

3.43

3.62

CA Citygate

3.96

3.62

3.61

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production

(1,000 barrels)

PER DAY

MONTH

END STOCKS

849

26,320

16,971

JUL 2013

868

26,923

16,395

AUG 2012

842

26,092

19,180

AUG 2013

SOURCE: U.S. Energy Information Administration

DECEMBER 2013 | Ethanol Producer Magazine | 25

DISTILLED ASTM publishes butanol standard

BlueFire adds pellet production to proposed cellulosic ethanol plant plan BlueFire Renewables Inc. has announced plans to reconfigure its proposed Fulton, Miss., plant to integrate wood pellet production capabilities. The new design includes a 9 MMgy cellulosic ethanol plant along with 400,000 tons of annual pellet production capacity. The company’s original plan for the site called for a 19 MMgy cellulosic ethanol biorefinery. "This restructure provides a more robust economic model for the Fulton facility with a significant increase in projected revenues. It has become apparent in our attempts to obtain fi-

September 2010: Signs 15-year feedstock supply contract with Cooper Marine & Timberlands, signs 15-year offtake agreement with Tenaska BioFuels LLC for Fulton project

October 2013: Reconfigures project; new capacity 400,000 tons of wood pellets, 9 MMgy cellulosic ethanol

11 20

nancing for the project that the right synergies and revenue model would be needed to build this first-of-a-kind facility," said Arnold Klann, president and CEO of BlueFire. "The optimum use of biomass in the integrated facility strikes a much better balance of revenue with costs and a better utilization of resources. The more profitable use of capital and the enhanced security of projected revenue streams more closely match what the banks have been requiring in the very conservative and restricted credit markets.”

June 2011: Completes initial site preparation for 19 MMgy Fulton project

November 2010: Receives construction permits for Fulton project

ASTM International has published a new standard for butanol. The standard is intended for gasoline fuel blends containing 1 to 12.5 percent butanol that are used as an automotive spark-ignition fuel. The new standard, ASTM D7862, includes performance requirements as well as test methods for determining butanol content, water content, acidity, inorganic chloride, solvent-washed gum, sulfur content and total sulfate. The new specification covers three butanol isomers: 1-butanol, 2-methyl-1-propanol, and 2-butanol. The standard excludes 2-methyl-2-propanol, or tert-butyl alcohol, which has different physical properties. The isomer 1-butanol, commonly known as N-butanol, is being developed commercially by Cobalt Technologies Inc. The isomer 2-methyl-1-propanol, commonly known as isobutanol, is being developed by Gevo Inc. and Butamax Advanced Biofuels LLC. The new specification will be used by biofuel producers, petroleum refiners, gasoline blenders, government agencies, inspection laboratories, and manufacturers of motor vehicles, marine engines and outdoor power equipment.

Ethanol News & Trends

November 2011: Signs MOU with China Huadian Engineering Co. Ltd. to financing Fulton project

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Canadian government funds Enerkem joint venture project The Canadian government has announced a $734,500 investment in a cellulosic ethanol plant under development by Vanerco, a joint venture of Enerkem and GreenField. The funding will be awarded through Sustainable Development Technology Canada’s Next Gen Biofuels Fund. According to Natural Resources Canada, ADTC’s funding could reach up to $39.8 million, based on project milestones and required approvals. The proposed 38 MMly (10 MMgy) plant will be located at the site of GreenField’s existing 120 MMly corn ethanol plant in Varennes, Quebec. The facility is expected to break ground next year and will feature Enerkem’s proprietary waste-to-biofuels technology, which is currently demonstrated in Westbury Quebec. Once fully operational, the plant is expected to take in 100,000 metric tons of feedstock per year from a variety of sources, including institutional, commercial and industrial sectors. Feedstock will also be sourced from construction and demolition debris.

Brazil predicts higher output, exports Brazil’s Agricultural Trade Office recently filed its annual biofuels report with the USDA Foreign Agricultural Service’s Global Agricultural Information Network, predicting increased 2014 ethanol production and exports. According to the report, Brazil is expected to produce 23.72 billion liters (6.27 billion gallons) of ethanol for fuel use this year, up from 20.74 billion liters last year. In 2014, Brazil is expected to produce 25.91 billion liters of ethanol for fuel.

This year, Brazil is expected to import 200 million liters of ethanol and export 2.8 billion liters. Next year, exports are expected to increase to 3 billion liters. Consumption is also expected to increase. In 2012, the nation consumed 18.59 billion liters of ethanol. That volume is expected to increase to 21.53 billion liters this year, and reach 23.68 billion liters next year.

Brazilian Fuel Ethanol Statistics 2010 Production* 24.52 Imports* 0.074 Exports* 0.56 Consuption* 22.16 Nameplate Capacity* 41.3 Number of Refineries 430

(*in billion liters) 2011 2012 20.21 20.74 1.1 0.055 1.08 2.5 19.59 18.59

2013 23.72 0.2 2.8 21.53

2014 25.91 0.24 3 23.68

42.8

41.6

40.7

418

408

399

SOURCE: USDA FAS GAIN, BRAZIL BIOFUELS ANNUAL REPORT

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DuPont hosts community meeting DuPont hosted its first Community Advisory Panel meeting in October for its cellulosic ethanol plant under construction in Nevada, Iowa. The company expects to hold the meetings quarterly. The inaugural meeting was attended by approximately 50 people, including local government officials, economic development and business representatives, area residents, emergency service workers, corn producers and those with environmental interests. According to Mark Edelman, meeting facilitator, the purpose of the CAP is to serve as a sounding board for the 30 MMgy cellulosic facility, which is scheduled to be complete at the end of next year. Steven Mirshak, business director for cellulosic ethanol at DuPont, said the meeting went well and included vigorous discussion. “They had excellent questions about our stover collection and storage process as well as the future plant operations,” he said. “It's apparent this group is interested and engaged with our cellulosic ethanol technology and we look forward to many more conversations with the community.”

Report reveals increasing revenue in 2013 Christianson & Associates PLLP recently published its Biofuels Benchmarking Annual Industry Report. The analysis shows that following the 2012 drought, ethanol producers saw a strong increase in grind margins, better ethanol netbacks and decreased feedstock costs during the first two quarters of 2013. The new report focuses on data and analysis from July 1, 2012 through June 30 of this year. To complete the report, Christianson & Associates compiled information from 52 ethanol plants. Participating facilities had an average capacity of 75 MMgy.

The report highlights several trends related to coproduct production. Since 2010, the number of facilities that produced primary dried distillers grains with solubles increased from 52 percent to 67.31 percent. Corn oil production also increases, from 44 percent of plants in 2010 to 67 percent currently. Only 19 percent of ethanol producers captured carbon dioxide in 2012. That number has now risen to 36 percent.

Increasing Importance of Coproducts Coproducts as a Percentage of Grind Revenue 2009 2010 2011 2012 Ethanol Netback Coproducts

83% 17%

84% 16%

82% 18%

2013

Jan-June

76% 24%

75% 25%

Feedstock as a Percentage of Grind Expense

Feedstock Energy

2009

2010

2011

2012

89% 11%

93% 7%

95% 5%

2013

Jan-June

94% 6%

SOURCE: CHRISTIANSON & ASSOCIATES PLLP, BIOFUELS BENCHMARKING ANNUAL INDUSTRY REPORT

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Highwater installs Butamax corn oil extraction technology Butamax Advanced Biofuels LLC and Highwater Ethanol LLC have taken an initial step to retrofit Highwater’s Lamberton, Minn., ethanol plant for production of biobased butanol with the installation of a novel corn oil separation technology. The two companies have entered into definitive agreements to license Butamax’s patented corn oil separation technology, which is an integrated part of a full retrofit. However, the technology can also be installed independently as a first phase of conversion. Installation of the corn oil extraction technology is expected to be complete this winter, with corn oil production scheduled to commence during the first quarter of next year. Highwater and Butamax will enter negotiations on a possible agreement for the second phase of a butanol retrofit after the corn oil separation technology is installed and operational. In December 2011, Highwater became the first ethanol plant to sign on as part of Butamax’s early adopters’ group of facilities investigating the possibility of retrofitting for butanol production.

NREL: no engine durability issues with E15 The National Renewable Energy Labora- E15 causes increased metal corrosion or elastotory recently released a report that determined mer swell when compared to E10. In addition, there are no meaningful differences between emissions studies revealed that engine control E10 and E15 on engine durability, emissions and units can compensate adequately for the lower other categories. The study was sponsored by the energy and higher oxygen content of E15. Renewable Fuels Association. To complete the report, NREL reviewed 43 studies on E15 use in vehicles model year Number of states offering E15 9 2001 and newer. The analysis did Number of stations offering E15 ~40 not address vehicles the U.S. EPA Known cases of engine has not approved for use with E15, such as pre-2011 vehicles, damage from E15 0 boats, snowmobiles, motorcycles Known cases of E15 misfueling 0 and other types of equipment that E15 liability claims against utilize small, off-road engines. retailers, blenders, etc. 0 NREL concluded that the Average per-gallon discount, $0.10resulting data unveiled no evidence compared to E0 $0.15 of deterioration in engine durabilNew vehicles sold in 2014 ity or maintenance issues for either warrantied for E15 ~45% E15 or E20 when compared to Vehicles on the road today straight gas and E10. Studies that approved for E15 77% examined materials compatibility testing showed no evidence that SOURCE: RENEWABLE FUELS ASSOCIATION

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1 Based on 2007–2012 Syngenta Trials. © 2013 Syngenta. Enogen,® the Alliance Frame, the Purpose Icon and the Syngenta logo are trademarks of a Syngenta Group Company. Syngenta Customer Center: 1-866-SYNGENT(A) (796-4368). www.FarmAssist.com MW 11CR3009-SS-R 5/13

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“I think Enogen has the potential to change the face of the ethanol industry.” —Joe Williams, Lab Manager Quad County Corn Processors

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EXPORTS

Hot Markets The U.S. Grains Council identifies China and Southeast Asia as the most important distillers grains markets. Thailand, Japan South Korea, Vietnam and Indonesia are all examples of small but growing markets.

32 | Ethanol Producer Magazine | DECEMBER 2013

EXPORTS

In Demand Around the

GLOBE

Although China is the big story in distillers grains exports this year, many other growing markets are helping support this crucial outlet for U.S. producers. BY HOLLY JESSEN

U.S. distillers grains is in demand all over the world, with export figures shaping up for a possible comeback, possibly even reaching record numbers. After hitting a high of 9 million metric tons (mmt) of distillers grains exported in 2010, the numbers dropped to 7.64 mmt in 2011 and 7.42 mmt in 2012. By mid-October, with data available for only the first seven months of the year, it's looking like another good year with 4.87 mmt of distillers grains exported year-to-date. In the month of July alone, nearly 1 mmt had been exported, the highest level of the year and the second-highest monthly total on record. “I think it’s definitely safe to say that, at a minimum 2013 will be the second highest export year on record for distillers grains,” says Geoff Cooper, vice president of research and analysis for the Renewable Fuels Association, adding that it’s not implausible that the total

DECEMBER 2013 | Ethanol Producer Magazine | 33

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could reach the same level or higher than last year. Alvaro Cordero, manager of global trade for the U.S. Grains Council, says he believes exports will top last year’s total. After all, through Alvaro Cordero, manager of global July of this year 6 trade for USGC, says percent more distillthe council’s efforts ers grains had been to expand distillers exported compared to grains markets internationally the same period last include an emphasis year. (By press time, on educating end in late October, the users. numbers for August were still delayed due to the partial government shutdown earlier in the month.) And, Cordero adds, the future for distillers grains exports looks bright. “It’s very likely that next year we will enjoy possibly a little bigger marketplace,” he says. There are reasons exports were down in 2011 and 2012. The first hit was the Chinese antidumping case, which was resolved favorably, opening the way for exports to that country to shoot back up. In addition, the 2012 drought did have an impact. “We had reduced grind rates at ethanol plants, so we had less distillers grains production than we had on 2010 and 2011,” Cooper says. “So we had less distillers grains available, so it made sense that we would be exporting slightly less as well.” Exports are a tremendously important market for distillers grains, supporting profitability for ethanol producers. Prior to 2006, less than 10 percent of U.S. distillers grains, or only about a million tons annually, were exported, he says. Then in 2010, the number ramped up to about 25 percent and has stayed relatively stable year after year. “That’s huge,” he says. “As with any commodity, it’s that export demand that really sets your price and supports domestic pricing as well. So export demand for distillers grains has been crucial.” Cordero agrees. “There’s no question that exports maintain prices, that exports provide revenue, that exports are crucial,” he says. “Exports will allow us to maintain

34 | Ethanol Producer Magazine | DECEMBER 2013

a healthy balance sheet in our ethanol industry.” Every year, USGC advisory groups are asked if the council should continue its work in promoting distillers grains exports to international markets, and every year the participating industry answers yes. “It shows not only that we’ve been very successful but also the importance that we have to maintain our markets internationally, abreast of changes,” he says. USGC’s efforts to expand international distillers grains markets aren’t just about sell, sell, sell, Cordero says. Education is a key factor. For one thing, the ethanol industry is still evolving and the way coproducts are produced has changed in many ways over the years, including the impact of reducedoil distillers grains due to the fact that the majority of U.S. ethanol producers now ex-

‘In Southeast Asia, (distillers grains) is a beachhead export commodity for the United States.’ —Adel Yusupov, USGS regional director in Southeast Asia

tract corn oil as another coproduct. “Our products are high-quality, but they evolve,” he says. “It’s so important to educate the market so they can effectively buy, in an intelligent way, the products they are sourcing out of the U.S.”

Important Markets

According to USGC’s 2012 annual report, China imported a total of 29.6 percent of all exported distillers grains in 2012, putting it in the No. 1 slot. Next came Mexico at 20.3 percent. Canada, Vietnam and Korea came next, at 8.5 percent, 6 percent and 4.5 percent of exports. The line-up in 2013 is similar, with China, Mexico and Canada again in the top three spots so far this year. Growing exports to China is the main reason total distillers grains export numbers could hit a record in 2013. Since February, China has been the No. 1 destination for the domestically produced coproduct, Cooper says. Cordero points out that, through July, distillers grains exports to China are up 16 percent compared to last year. (For more

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Big Appetite U.S. distillers grains are being exported to China, such as the port of Guangzhou, in increasing numbers. Through July, a total of 1.72 million metric tons (mmt) of distillers grains was exported to that country.

THINK

information about distillers grains exports to China, see “Destination China” by Chris Hanson, starting on page 40.) On the other hand, while Mexico and Canada are still what Cooper calls bread and butter distillers grains markets, both are down significantly, while remaining in the top two positions for distillers grains exports. Due to higher distillers grains prices earlier this year, both countries cut back on buying, with exports to Mexico dropping 26 percent and Canada 16 percent in the first part of the year, Cordero says. All in all, with China’s appetite for distillers grains only increasing, decreased exports to these other two major markets are nearly offset, Cordero says. Again, looking at the first seven months of 2013, Mexico imported 246,000 metric tons less than it did in the same period last year and Canada reduced its imports by 59,000 metric tons while China ramped up its imports by 244,000 metric tons. Cordero expects the numbers for Mexico for the second half of the year to be more favorable, however. “My expectations are that probably it’s going to pick up a little bit more,” he says. Although China is certainly a growing and important market, it’s not the only interesting story. A very large portfolio of countries—nearly 80 in all—import distill-

Plan with the best and be prepared for anything.

PHOTO: USGC

ers grains produced at U.S. ethanol plants. “That allows us to mitigate countries that are very important to us, like Mexico and Canada, when they have reduced their importations,” Cordero says. Cooper points to other Pacific Rim countries that have been importing growing amounts of distillers grains. “We have seen Japan and Vietnam really ramp up imports of distillers grains in the last couple years,” he says. “Thailand is a market that is emerging. We are starting to see a fair amount of distillers grains being sent to Thailand. South Korea is another very promising export market on the Pacific Rim. Those are all markets where I think we should expect to see continued growth.” Cordero talked about growth in some of the same countries, adding that the USGC considers China and Southeast Asia its most important distillers grains markets. For Southeast Asia, growth was up 9 percent through July, compared to the same period last year. Specifically, Thailand imported 53 percent more distillers grains and Indonesia wasn’t far behind, up 42 percent. “In Southeast Asia, (distillers grains) is a beachhead export commodity for the United States,” said Adel Yusupov, USGS regional director in Southeast Asia, in an October USGS Global Update newsletter.

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Open Door A three and one-half year effort by USGS and the USDA resulted in the removal of Algeria’s high taxes on feed imports such as distillers grains. In September, the first load of distillers grains arrived in the African country and more are expected. PHOTO: USGC

Cordero also mentioned Ireland and Turkey as hot markets. Turkey, which used to import close to half a million metric tons of distillers grains yearly, cut back dramatically due to that country’s restriction against genetically modified organisms (GMO). Still, exports to that country have been increasing again lately, despite GMO restrictions. By the end of July, Turkey had imported more than 223,000 metric tons of U.S. distillers grains, on track to possibly even reach its former export level of 36 | Ethanol Producer Magazine | DECEMBER 2013

500,000 metric tons again this year. “That’s a big number,” he says. “That’s a bigger number than Canada.” USGC is also working to increase distillers grains sales in Latin American countries such as Columbia, Costa Rica and Guatemala. For a while, South America was not purchasing U.S. grains, which meant that the opportunities for combination cargo shipments of beans, distillers grains and other grain products to Latin America were decreased. As a result, Latin American

EXPORT

Distillers Grains Export History Export numbers hit a record high in 2010 before going back down due to various factors. According to year-to-date numbers, experts believe 2013 could be another banner year for distillers grains exports.

2010

2011

2012

Jan.-July 2013

9mmt 7.64mmt 7.42mmt 4.87mmt SOURCE: RFA

countries were buying more coarse grains and soybean meal out of South America and distillers grains sales were down, Cordero explains. Last year, Chili purchased 60 percent less distillers grains, Guatemala 43 percent less, El Salvador 23 percent less and Costa Rica 15 percent less. But, with South America again purchasing more grain from the U.S., there’s opportunity for growth. The USGC has been working hard to remind buyers in Latin American countries about distillers grains and the advantages of the coproduct. “We hope to regain that market and increase our sales,” he says. Another highlight was USGC’s successful efforts to remove a value-added tax and custom tax on all feed imports, including distillers grains, to Algeria in September 2012. That opened the way for the first purchase of U.S. distillers grains going into the African country a year later, in September 2013. Since then, additional Algerian feed millers have made purchases and USGC expects those to grow into regular purchases. “The Council still sees more opportunities for U.S. corn coproducts like DDGS and (corn gluten feed) in the future as the market continues to develop,” Cary Sifferath, USGS director for the Middle East and Africa, said in an October USGC newsletter. Author: Holly Jessen Managing Editor, Ethanol Producer Magazine 701-738-4946 hjessen@bbiinternational.com

DECEMBER 2013 | Ethanol Producer Magazine | 37

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CHINA

Top Importer Through July, China had imported 1.72 million metric tons of distillers grains, with a record 468,000 metric tons imported in July alone. PHOTO: USGC

40 | Ethanol Producer Magazine | DECEMBER 2013

CHINA

Destination

CHINA

China has quickly recovered its place as the top importer of U.S. distillers grains after dropping the dumping investigation in May 2012. BY CHRIS HANSON

Against the backdrop of the South China Sea, another yellowdusted truck rumbles underneath the loader to be filled with U.S.produced distillers grains. Machines and cranes whir to life as men in white masks bark orders over walkie-talkies. One of the giant cranes, with its arms webbed in ladders and cables, swings back from the adjacent ship, spilling its contents inside a blue bin. The truck is quickly filled and, after giving a brief belch of exhaust, rumbles away before another one takes its place. Prior to 2009, there was relatively low distillers grains activity in China. During the first six months of 2008, the U.S. only exported 261 metric tons of the feed to the country. Although the imports were relatively unremarkable, the following year marked the beginning of the country’s leading role in distillers grains imports. “It hasn’t been until recent years that China has really started to buy DDGs (dried distillers grains),” explains Alvaro Cordero, manager of global trade at U.S. Grains Council. During April 2009, China’s imports broke the 3,000 metric ton barrier and never looked back. What followed was month after month of growth, which peaked in October at 144,982 metric tons purchased

DECEMBER 2013 | Ethanol Producer Magazine | 41

CHINA

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DG Consumers Swine are transported at a Chinese breeding facility in Guangzhou. Demand for distillers grains in China is increasing due to a growing middle class pushing the demand for protein up, and several other factors.. PHOTO: USGC

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Sales@CPMRoskamp.com 42 | Ethanol Producer Magazine | DECEMBER 2013

from the U.S. at a price tag of $25.5 million. The following months saw a slight decrease in exports, followed by yet another surge, beginning in February 2010, of U.S. imports topping to a then all-time high of 346,612 metric tons in July 2010. When the year concluded, Chinese buyers had spent $500 million on 2.52 million metric tons (mmt) of distillers grains. Although it was a record year for distillers grains imports, December also marked the beginning of the antidumping investigation by China’s Ministry of Commerce, which was spurred by three Chinese companies. During the 18 months of investigation, the ministry investigated whether imports of distillers grains were hurting Chinese production of the product. What followed was a decline in distillers grains imports in 2011, falling to as low as 63,767 metric tons in April. After the decline, distillers grains imports did not break the 200,000 mark until spring 2012. By that March, China imported more than 189,000 metric tons and reached its annual peak in April 2012 with 267,473 metric tons of distillers grains imports with three succeeding months of 200,000 plus figures after the antidumping case was dropped when the Chinese plants withdrew their petition in May 2012. Fast forward to 2013, China is now the top importer once again. At press time in late October, with only the data through

July available, China had imported 1.72 mmt of distillers grains in the first six months of the year, surpassing its 2011 total by more than 350,000 metric tons with only more room to grow. According to the USDA, July 2013 was one of the record-breaking months with more than 468,000 metric tons of distillers grains being imported into China. “With the latest information that we have, they’re 16 percent higher than the entire year by July,” Cordero says.

‘There’s the same number or more people in China that have middle incomes than the whole total population of the United States.’ —Dennis Conley, director of University of Nebraska-Lincoln’s agribusiness graduate program

Driving the Market

Like most economic information, China’s steady demand for distillers grains is driven by multiple factors, such as U.S. monetary policy, progressive livestock operations, a growing middle class in China and efficient logistic methods. U.S. monetary policy––quantitative easing from the Federal Reserve during the recession––is one of factors affecting distillers grains demand. The reserve is put-

CHINA ting $85 billion each month into the U.S., and essentially world economy, explains Dennis Conley, director of University of Nebraska-Lincoln’s agribusiness graduate program. “That’s a lot of money,” he says. “In relative terms, it is much higher than it has been historically.” By adding the extra money into the economy, interest rates are kept very low but devaluate the U.S. dollar when compared to other international currencies, says Conley. He has been researching the tradeweighted exchange rate for corn, due to its similarity as a feed ingredient and market trends. “I looked at the trade-weighted exchange rate for corn, and over the last five years, it’s been going down. The inference I make from that is the cost of buying corn, and therefore the cost of buying distillers grains, by foreign countries is getting lower and lower.” It’s difficult to determine if that factor is a direct cause for higher consumption of distillers grains from China, but it is one of the economic factors that come into play. U.S. livestock producers incorporating distillers grains into feed may have also had a significant impact on China’s demand. In an effort to address elevated corn prices in 2006, U.S. livestock producers had to discover how to efficiently utilize distillers grains in feed rations, says Conley. The growing trend of distillers grains users in

the U.S. leads to greater interest in other foreign countries that are more dependent on corn imports as a livestock feed. “So they’re importing corn, and they see what’s going on in the U.S., and they’re saying to themselves, ‘Well, why don’t we start feeding some distillers grains?” Conley hypothesizes. “And so they do, and China has done the same thing.” An emerging middle-class society is also a major driver in demand. Roughly 300 million people are now projected to be considered middle class income, says Conley. “There’s the same number or more people in China that have middle incomes than the whole total population of the United States,” he says. With an increasing middle-class population, the demand for protein increases along with it. “From that demand for protein is a drive in demand for feed ingredients, which means there is a drive in demand for distillers grains,” Conley says. The greater demand for protein from the growing middle-class has also spurred growth and modernization of China’s livestock operations. “They’re expanding very rapidly,” said Bryan Lohmar, USGC director in China. “Poultry is much further along than swine, but swine is expanding very rapidly.” He adds the dairy industry still lags behind swine production, but is also rapidly expanding and modernizing.

Arrival Point U.S. grain products, such as sorghum and distillers grains, are unloaded at the Chinese port of Guangzhou. PHOTO: USGC

DECEMBER 2013 | Ethanol Producer Magazine | 43

CHINA Livestock producers, particularly in southeast China, are a key part of the expansion in distillers grains demand. “They are starving for feeds to cover their demands,” Cordero says. “Even though China produces an important volume of corn, it is expensive and is also more treacherous to distribute from the northern part of China to the southern part of China.” He adds import quotas that apply to corn do not apply to distillers grains, which make it a more affordable, protein-rich feed additive than corn and soybean meal. Economical logistic solutions also con-

tribute to China’s growing demand, Conley says. China ships many products, such as clothing and electronics, to the U.S. in large, steel shipping containers that can stacked on ships, trains and trucks. “What they figured out,” explains Conley, “is that rather than to backhaul those things back empty, they fill them up with dried distillers grains and ship them back to China.” Some Nebraska ethanol producers will dry the surplus distillers grains and send it to shipping areas, such as Kansas City, to be loaded into the containers destined to China, he says.

Getting From There to Here China’s imports of U.S. distillers grains went from nearly nonexistent prior to 2009 to record numbers in recent years. Total export numbers for the past three years and year-to-date are:

2010: 2.52 mmt

2011: 1.3 mmt

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44 | Ethanol Producer Magazine | DECEMBER 2013

CHINA

In Transit Distillers grains are unloaded near a bagging operation in China prior to being loaded on a trailer. PHOTO: USGC

Future Trends

China’s consumption has landed the country back at the top of the charts as the major distillers grains consumer, and experts believe its consumption will remain relatively stable or increase. “I think there is a lot of capacity for growth but a lot will depend on supply out of the United States,” says Lohmar. He notes China has been able to outbid a lot producers for distillers grains due to China’s remaining high corn prices. “The trend is staying the same or some slight increase,” says Conley. “It’s not the big jumps when you talk about going from 2009 to 2010.” From September 2012 through July 2013, the quantity of distillers grains exported to China are more than 9 percent higher than they were a year ago. “It’ll be higher than 2012 and maybe equal, if not higher, than 2010 when they imported 2.5 million,” says Cordero. “We should expect China to grow.” Author: Chris Hanson Staff Writer, Ethanol Producer Magazine 701-738-4970 chanson@bbiinternational.com

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DOMESTIC DDGS

46 | Ethanol Producer Magazine | DECEMBER 2013

DOMESTIC DDGS

DDGS

Needle Trends North The domestic market adjusts to lower oil levels, higher prices and protein demand as it anticipates lower fiber content ahead. BY SUSANNE RETKA SCHILL

The domestic distillers grains market is expecting another unusual year. In 2012, it was high corn prices, drought-reduced supplies and spotty aflatoxin issues. This year, the story is protein. “The world is short of protein,” says Randy Ives, director of ethanol services at Gavilon LLC. In addition to supplying energy in rations, distillers grains is a good midlevel protein source increasingly sought out by foreign buyers. “It’s changing production flows, availability and pricing,” he explains. In the past, dried distillers grains with solubles (DDGS) was generally priced around 85 percent the price of corn. “Right now, dried distillers is worth somewhere north of 100 percent the price of corn, and there’s some transactions recently that were 120 to 130 percent the price of corn. Those kinds of numbers are needle movers.”

DECEMBER 2013 | Ethanol Producer Magazine | 47

DOMESTIC DDGS

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With that sort of export price pull, U.S. buyers are taken aback. “Our domestic market consumers are going, ‘Whoa, what’s going on, this isn’t normal, why are you priced so high?” Ives says. But there aren’t many substitutes in rations for domestic livestock feeders, either, he points out. “Soybean meal is at $410 today in the futures market. We’re looking at distillers at 50 percent of that on a flat price basis.” While the midlevel protein levels in DDGS work to substitute for some high-priced soybean meal in swine and poultry rations, beef producers are the most troubled by the market shifts. “They aren’t feeding distillers for protein, they’re feeding it for energy,” Ives points out. With the vast majority of ethanol plants now spinning out corn oil, cattle feeders are left with lower-energy DDGS that in this year’s market is priced higher than corn. As a result, the beef industry is adjusting by feeding less distillers, Ives says, which in turn means more ethanol plants in the Beef Belt—Nebraska, Kansas, Texas, Oklahoma— are turning their dryers on. With a tight situation for containers and bulk vessels, he continues, “The product leaving the U.S. is going at a premium to anything we’re trading in the domestic. Typically we ship 25 percent to exports; that number’s going to go up. What the domestic consumers don’t want, we’ll put in the export market and get a premium, but there’s no way that we can logistically ship everything out. That should be reassuring for our domestic customers.”

Oil Adjustments By far the biggest adjustment in the distillers grains market in recent years has been for reduced-fat DDGS. Feed rations have been adjusted to the new norm of 7.5 percent residual fat, compared to the full-fat traditional distillers from a few years ago that came in at 10.5 to 11 percent residual corn oil. “We haven’t seen negative financial impacts of pulling that corn oil out,” Ives says. Ethanol plants are able to sell the oil at 30 to 35 cents a pound, which would amount to $600 to $700 per ton, with the reduced-fat distillers still selling at a reasonable value, he adds, saying that leaves the livestock guys scratching

DOMESTIC DDGS LDCommodities.com their heads. “We’re taking something of value away and charging more, but that’s because we’re in a protein year.”

Product Evolution The market adjustments to de-oiled distillers and its value as a midlevel protein source are just the latest developments in the ethanol coproduct story. Distillers grains is, after all, a relatively new feed ingredient that continues to change as the ethanol industry evolves. Charles Staff, executive director of the Distillers Grains Technology Council, ticks off the issues that have come up in recent years: sulfur content, E. coli, mycotoxins, antibiotics, composition variability and flowability. “Most of them are not completely put to bed, and they may raise their heads in the future,” he says. The sulfur issue, for example, popped up in two states this past year, with distillers grains quickly being ruled out as a possible source in both cases. High sulfur levels can cause cattle deaths from a condition commonly called polio, explains Staff. A few years back, ethanol producers learned that sulfuric acid used for cleaning was sometimes concentrating in the coproduct

Companies are getting better at segregating DDGS with flowablity issues for separate shipping, according to Kurt Rosentrater, Iowa State University assistant professor. and adjusted accordingly. E coli became a concern when studies found elevated levels in cattle that were fed distillers grains, but further investigations couldn’t recreate the buildup, so it remains inconclusive, Staff says. Mycotoxins are now better understood as weather-dependent, geographically spotty issues, followed closely in each state by university feed and livestock specialists. The antibiotic residue issue arose five to eight years ago over concerns that antibiotics could end up in eggs, and thus directly impact human food. The use of alternative measures has grown and more care is being taken, quieting those concerns somewhat. “These are issues where we’ve got to maintain vigilance to avoid having them arise again,” Staff says. He urges ethanol producers to become knowledgeable, “know what these issues are about so if they pop up with your customers, you know how to respond.” The current regulatory issue being worked through with the U.S. Food and Drug Administration’s Center for Veterinary Medicine, Staff adds, is a new definition for distillers grains to

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DECEMBER 2013 | Ethanol Producer Magazine | 49

DOMESTIC DDGS

Survey Seeks Input Ethanol producers are encouraged to prompt their distillers grains customers to fill out the Iowa State University livestock survey at: http://humansciences.ethanolcoproducts.sgizmo.com/s3/ The number of coproduct choices in the survey is indicative of the changes that have occurred in the industry. They include: DDGS dried distillers grains with solubles. DDG dried distillers grains. DWG distillers wet grains (typically 65 to 70 percent wet). CDS condensed distillers with solubles.

replace the first one that dates back to 1915. “There’s been some minor changes over the years,” Staff says, “but now they’re saying, ‘We don’t think it reflects all the changes out there. We have people coming in and applying for variations.’” One issue, for example, is the proper labeling of the new variations of de-oiled distillers. Staff expects the new ingredient definitions will be ready in midwinter. Flowability is another issue that hasn’t totally gone away, says Kurt Rosentrater, assistant professor in biological and process engineering and technology at Iowa State University. “The ethanol plants and the marketers are getting much better at identifying the loads that may have problems and sending them to facilities that have specialized unloading equipment.” While some report they’ve seen a big reduction in flowability problems with lowoil distillers, Rosentrater says his research hasn’t. “Oil content isn’t it,” he explains. “And, most plants do a great job of drying,

DDS dried distillers with solubles reduced-fat DDGS. HPDDGS high protein DDGS. MDWG modified distillers wet grains (partially dried to 45 to 55 percent moisture).

so it’s not really a moisture issue.” The three big factors contributing to sticky particles, he says, are inconsistent soluble levels, incomplete fermentations and too-wide a range of particle sizes. While it’s not easy to segregate problematic DDGS for separate shipping, “companies are getting better at being able to do that," he says.”

Up Next: Fiber Removal The next market changer will be fiber removal, either from enzymatic conversion to cellulosic ethanol or through fractionation to remove the fiber as a separate coproduct. “There’s a lot of value in the fiber for the ruminant market but also some nutrient value for monogastrics,” Rosentrater says. “If we pull fiber out we’re going to see differences in how poultry and swine respond.” Inclusion rates and substitution values will shift as a result. As an example of the possible impact, Rosentrater notes that removing some of the fat has made a big difference, with swine feeders in the

50 | Ethanol Producer Magazine | DECEMBER 2013

Midwest constantly increasing the amount of distillers being fed. Some inclusion rates are now at 20, 30 or even 40 percent in certain rations for specific age ranges. Ives estimates that the swine industry’s share of the distillers grains market has grown from an estimated 12 percent several years ago to approximately 18 percent. Poultry has grown from about 8 percent to closer to 10. And, where ruminants used to take up to 80 percent of the total distillers grains supply, beef is now about 45 percent and dairy around 26 percent. Solid information about distillers use in the domestic market is lacking, Rosentrater says. He’s initiated a survey of beef, dairy, swine and poultry producers, asking what coproducts are fed and inclusion rates, what the distillers is displacing and about any problems encountered. He expects to close that survey and begin the analysis by the end of the year. That will be followed by a nationwide survey of ethanol producers to get a better picture of the flip side, asking

DOMESTIC DDGS

Randy Ives, director of ethanol services at Gavilon LLC, points to a variety of new coproducts for ethanol producers, saying when individual plants are more profitable it makes the industry stronger. what coproducts are being produced, whether they are de-oiling and how, customer acceptance and any problems or issues they’ve discovered. That survey is being tested in Iowa before the national release. The results should inform researchers and marketers where to focus their efforts. Ives describes the growing diversity in distillers coproducts on the market, as different flavors, pointing out that distillers grains is far from being a uniform commodity. Every time the industry does something new, he says, the resulting coproduct virtually requires identity preservation. A Minnesota swine producer, he gives as an example, is wise to “know what every plant is doing. Know the prices. They can put it in the computer and see what is the best buy for next week.” More issues arise, he adds, from distant feeders who may buy truckloads through the reseller chain, without knowing the plant specifications. That isn’t as big an issue in ruminant feeds as for poultry or swine, he adds.

Future Options Looking ahead, Staff mentions other possibilities for distillers grains use. A Nebraska firm recently built a facility to process distillers grains as a component of plastics, which he adds is likely to raise the question of sustainability. And, with his experience in the food industry, he believes there are potential food uses for distillers grains. There’s also a growing market that could be tapped in fish feed. “Nobody’s

doing it commercially, but we know it works well,” he says, adding that inclusion rates for some species can be as high as 40 percent of the ration. High-protein products are another possibility, Ives says. If the corn fiber is removed entirely, and not just fermented, they are seeing 48 or 52 percent protein levels in the distillers. “That is unique, it’s more than soybean. And it kind of looks like corn gluten meal,” he says. Corn gluten meal gets a premium from poultry producers because the xanthophyll content keeps egg yolks yellow. “People are talking about extracting xanthophyll in the dry mill process,” Ives adds. “There’s a whole variety of products like that. Is it going to move the needle for the whole industry? No. But if it helps 4 percent or 8 percent of the industry be stronger, where we know that those plants are going to thrive, the whole industry will be stronger. Other plants will look at other methods. Not everybody’s going to take the same pathway.” Author: Susanne Retka Schill Senior Editor, Ethanol Producer Magazine 701-738-4922

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EFFICIENCY

CONTRIBUTION

Maintaining Flow No heat exchanger will function properly if the surface area gets clogged. This free flow plate pack is being serviced in-house. PHOTO: GEA

Efficiency Gains Possible Through Optimal Heat Transfer New and innovative technologies can mean significant energy, labor and parts savings. BY GEREK FOOTE

Todayâ&#x20AC;&#x2122;s ethanol plant objectives are far different from what they were even just a few years ago. With Big Oil attacks and decreased margins, todayâ&#x20AC;&#x2122;s plants must find ways to cut costs and find innovative ways to increase profit margins. Unfortunately, these costs are often accomplished by cutting maintenance budgets and

shortening manpower lists. One costly area in the maintenance budget is the effective operation of plate heat exchangers. Many plants still spend tens of thousands of dollars on maintaining efficient heat transfer. However, this cost in itself is inefficient. Plate heat exchanger maintenance needs can vary by location,

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s). 52 | Ethanol Producer Magazine | DECEMBER 2013

EFFICIENCY

CONTRIBUTION

however it is still necessary. Many plants rarely open the units and Options for Consideration thus save cost. These plants are typically located in areas with soft, As heat exchanger designs evolve, the added value of a gasketclean water sources. Other plants must service units every year due free option is becoming increasingly popular. Today’s plants have a to hard water or plate erosion or dirty cooling towers. Hard water is number of factors to consider when looking into welded-plate heat not an easy problem to fix, however plate erosion can be remedied. exchangers: Is the unit cleanable? Is the unit cleanable on both sides, It has been said that a plate heat exchanger makes a great filter. This for both fluids? Are there pressure limitations? And last, what is the may be true if the particulates in the fluid are of a size that exceeds a cost? significant portion—about 60 percent—of the channel spacing. No Welded heat exchangers are becoming more prevalent in today’s heat exchanger will function properly if the majority of the available market as footprints get smaller and greater efficiency is needed. In cross section and heat transfer surface is clogged, either due to the the past, the only acceptable and viable option was a shell-and-tube size of solid particulates or from scaling from precipitates. unit. However, shell-and-tube exchangers can be costly and become Plate erosion, especially in the fermenter coolers, is caused by very large, depending on the application. Finding the right welded high port velocities. Several plants have been fighting erosion of the exchanger for each specific application is critical to the successful opfermenter cooler plates since opening. The sad fact is that the plants know and understand the root cause of this costly problem. Typical process designs call for 12inch piping on the fermenter coolers; however, the heat exchangers are equipped with 8-inch ports. This drastic For several designs of plate and shell-and-tube heat exchangers reduction causes a spike in the port velocity and thus Design shortens the life span of the plate pack through excessive Gasketed Brazed Welded Shell & erosion in the high velocity field. Parameter PHE PHE PHE Tube HE Average costs of these plate packs range from 600 650 360 Pressure >1,000 $30,000 to $50,000. When a plant is forced to replace one psig psig psig Limit psig or two plate packs just in the fermenter cooler per year, it becomes a major cost against the maintenance budget -20°F -320°F -40°F Lower Temp > -150°F at $30,000 to $100,000 per year. This price is just for the Limit new plate pack and does not include installation charges. In addition, onsite service can cost almost as much as the 700°F 1000°F > +1650°F +410°F Upper Temp plate pack itself. Limit The solution is to replace the fermenter cooler heat exchanger with a 14-inch port exchanger and thus lower ~30,000 800 ~20,000 Liquid Flow No Limit the inlet port velocity. In some cases, the port velocity can gpm gpm gpm Limit be lowered from 50 to about 16 feet per second. This will exponentially lengthen the life of the plate packs. Plants Difficult Medium CIP Only Easy Cleanability should do their research to find the proper units to fit the Difficult Medium None needs of the plant. A few manufacturers have units that Easy Part are easily serviced by the plant maintenance team without Replacement hiring outside labor teams. Training can also be provided Large Small Small Small Footprints by many manufacturers, if needed, increasing the maintenance team’s value to the plant by saving potentially sigLarge Small Small Small “Charge” nificant maintenance costs. The same approach can also Size be adapted to other less-demanding plate heat exchanger systems in the plant, as well as those that require frequent High Medium Low Low Weight maintenance.

Parameter Comparison

Cost

Lower

Medium

Lower

Higher

DECEMBER 2013 | Ethanol Producer Magazine | 53

EFFICIENCY

eration of a plant. These units can be costly, and choosing the proper technology for the application is essential to maintain proper efficiency and longevity. Welded units, however, also require few parts with the lack of gaskets between plates. The accompanying chart illustrates different available technologies and their range parameters. When regular cleaning is necessary, the frequency depends on the application. These units can be cleaned using CIP (clean in place) or manually pressure washed, if they contain a removable core or are block style. Manual pressure washing may be enhanced by the type of geometry. For example, utilizing a double-dimple, block-style exchanger allows the user to directly hydroblast straight through the channel instead of at a reduced

angle, making cleaning more effective and time-saving. Select models may even be cleaned using a brush when mechanically accessible with sufficient clearance. Some designs of welded units can only be cleaned from one side of the exchanger while a few designs allow access on both sides for thorough cleaning to maintain proper efficiency.

information (specific heat, viscosity, specific gravity, etc.) are critical information needed to properly size an exchanger. For instance, if the design specification is off a few percentage points on a thermal property such as specific heat or dynamic viscosity, it can have detrimental effects on the actual perfor-

Efficiency Follows Design

Proper heat exchanger design is the key to maximum efficiency. This is especially true regarding compact or plate-style heat exchangers. Plate-style exchangers are efficient heat transfer tools and also very sensitive to fouling. Heat exchangers are designed for specific applications with specific design criteria in mind. Flows, temperatures and media

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EFFICIENCY

mance of the heat exchanger once installed. Plate-and-frame exchangers have the benefit of being expanded or reduced in the field to maximize efficiency. This is also a benefit when a plant is designed with a possible future expansion in mind. Welded and shell-and-tube heat exchangers do not have this benefit, so getting the design correct from the start is imperative. When considering design parameters to allow for fouling, it is very important to avoid using “canned” fouling factors such as those recommended by the Tubular Exchanger Manufacturers Association, as this can lead to seriously over-dimensioned compact heat exchangers. They may end up performing at a higher fouling rate due to reduced wall shear stress as a result of this requirement. An improved approach to this dilemma is to use a design margin that incorporates all uncertainties in the thermal properties as well as process parameters. There are several issues with using prescribed fouling factors: 1) Published factors do not always reflect true service experience and are sometimes too high, sometimes too low. 2) The factors are reported as static val-

ues, but in reality, they are dynamic, based on the mechanisms involved. 3) Temperature and velocity of fluids most likely influence the level of fouling, but published fouling factors have limited at best accountability for these effects. 4) Fouling factors often implicitly account for uncertainty in heat transfer methods, which can result in duplication of uncertainty effects. Ethanol processes are continually evolving and increasingly involve different feedstocks and new technologies. A similar flexible approach should be used regarding heat transfer. Looking into waste heat/cooling recovery can save significant expense over time with minimal costs and quick return on investment. One product that is excellent for heat recovery is an inflated, platetype exchanger. This product is a simple design that can be bolted to any vessel, tank or piping, providing a cost-efficient way to recover latent heat from waste (low pressure) steam or to heat a fluid inside a tank. The possibilities with this type of exchanger are virtually endless as it is readily customizable. A little creativity can bring large return on

investment in a short time. Today’s modern heat exchanger manufacturers have produced innovative, maintenance-friendly products to ease the costs of the maintenance department at the plant level. Maintenance and plant managers should research and continue to explore the vast technologies available today. The ethanol industry is all about energy savings and advanced technologies. Heat transfer technologies follow the trend by continually evolving to improve methods and efficiencies. Utilizing and maintaining the same tired equipment can be costly; a little research into new and innovative technologies can mean significant energy, labor and parts savings. Author: Gerek Foote Segment Sales Representative GEA Heat Exchangers Inc., PHE Division 717-880-0839 gerek.foote@gea.com

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DECEMBER 2013 | Ethanol Producer Magazine | 55

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