Biodiesel Sets Sail

BIODIESEL SETS SAIL

U.N. RULE COULD IMPROVE MARKET DEMAND

BY KATIE JAMES

“A vast, ye landlubber” might not be what the average soybean farmer thinks as they finish the last few rows of harvest. But with a new U.N.-imposed rule, those soybeans might end up fueling an ocean vessel across the sea.

Starting Jan 1, 2020, all ocean vessels are required to reduce sulfur emissions from the current 3.5% to 0.5%. This rule is set by the International Maritime Organization (IMO) — the U.N.’s specialized agency that works toward preventing marine and atmospheric pollution.

Part of a comprehensive effort to clean up shipping emissions worldwide, it aims to reduce sulfur emissions by 77% — or 8.5 million metric tons. Ships have two options to achieve this expectation — installing an exhaust gas cleaning system called a scrubber or changing fuels.

“Most companies have hesitated to purchase a scrubber,” says Tom Brooks, general manager at Western Dubuque Biodiesel, a biodiesel processing facility in eastern Iowa. “Choosing an alternative fuel is more practical.”

Biodiesel provides cleaner air emissions, better lubricity and similar horsepower, torque and mileage as diesel.

Photo: Joseph L. Murphy/Iowa Soybean Association

That’s where homegrown, soybeanbased biodiesel comes in. Biodiesel provides cleaner air emissions, better lubricity, and similar horsepower, torque and mileage as diesel and requires no change of equipment or infrastructure. According to Brooks, to meet this new standard, shippers will likely go from a No. 4 diesel fuel to a No. 2, which he believes will be beneficial to the biodiesel industry.

“A 5% blend with the No. 2 diesel option would create an annual demand for 2.7 billion gallons of biodiesel,” says Brooks.

This amount is based on the 150-million-gallons-per-day demand for bunker fuel created through the shipping industry.

Ships don’t have to blend biodiesel with their fuel choice to increase demand for the renewable fuel, Brooks says. He’s optimistic that a greater market demand on No. 2 diesel would also provide opportunities for the biodiesel industry.

Ships travel the Saigon River near Ho Chi Minh City in Vietnam. Beginning Jan. 1, 2020, all ocean vessels are required to reduce sulfur emissions.

Photo: Joseph L. Murphy/Iowa Soybean Association

“This kind of demand on No. 2 diesel could lead to shortages or price hikes, making biodiesel much more attractive,” adds Brooks. “I’m expecting big impacts in coastal areas that will need to pull fuel from the Midwest to backfill the demand for over-the-road trucks and vehicles.”

Coastal states like California, Oregon and Washington have already taken similar emissionreducing measures that make biodiesel a viable fuel alternative. British Columbia is also meeting a lower carbon fuel standard. States on the East Coast have pioneered biodieselblended home heating oil — or bioheat.

“Bioheat is replacing home heating oil on the East Coast,” says Brooks. “That’s what we hope happens with the ships, one way or another.”

It’s not uncommon for these states and companies, who prioritize environmental sustainability, to go above and beyond what new regulations dictate, Brooks says. Some companies will expand their offerings of biodiesel-based products to cater to environmentally minded consumers.

But, as with most environmentoriented rulemaking, the changes to adapt can be expensive at first, and sometimes remain that way long term. Mike Steenhoek, executive director of the Soy Transportation Coalition (STC), is always cautious when transportation costs increase.

Mike Steenhoek, Soy Transportation Coalition Executive Director

Photo: Joseph L. Murphy/Iowa Soybean Association

“The reality in farming is that transportation costs usually get put back on the farmer,” says Steenhoek. “The new IMO rule could lead to increased shipping costs. Rather than risk losing customers due to higher shipping rates, it’s common that companies place the cost burden on farmers in the form of a wider basis.”

Unlike many industries that are solely fuel consumers, soybean farmers are also fuel producers. Steenhoek says this new maritime rule is a testament to farmer diversification.

Ships travel the Saigon River near Ho Chi Minh City in Vietnam. Beginning Jan. 1, 2020, all ocean vessels are required to reduce sulfur emissions.

Photo: Joseph L. Murphy/Iowa Soybean Association

“The fuel consumption side of the soybean industry – exports – could experience a cost increase,” he adds. “On the other hand, the fuel production side – biodiesel – could experience increased market opportunities. This underscores the virtue of diversifying our demand as an industry.”

The cost of diesel is slated to increase by almost $4 per gallon according to IHS Markit, a research firm with Argus Media. Brooks says the increase is an opportunity, as a higher cost of No. 2 diesel will offer biodiesel blends a larger market share.

“If you remember a few years back, over-the-road fleets also had to lower their sulfur content, and to do that they went to No. 2 diesel,” he continues. “In return, we got cleaner air and a chance to have biodiesel fill this market with a lower-cost, environmentally friendly fuel option.”

Contact Katie James at kjames@iasoybeans.com