Report on the Technical Feasibility of Integrating an Annual Average 2% Renewable Diesel in the Canadian Distillate Pool by 2011
For the purposes of this report, infrastructure readiness means that the fuel handling industry (refiners, distributors and retailers) has demonstrated a capacity to install the needed infrastructure to store and blend biodiesel, and distribute and retail the blended fuel. An analysis to demonstrate infrastructure readiness would include a determination of the state of readiness for primary suppliers (petroleum fuel producers and importers) and other affected stakeholders assuming they would have to comply with a 2011 implementation date. The assessment will also consider how the primary suppliers would plan to comply at different time intervals (during 2011 and beyond). In addition, the analysis will assess options based on possible blending schedules. All analyses will consider existing provincial mandates with a focus on requirements to meet an average 2% national mandate.
This section provides a description of the type, timing and cost of required infrastructure upgrades for the blending and distribution of renewable diesel blends in the context of an average 2% federal requirement for renewable content in diesel and heating oil.
The majority of this section is based on a report, National Renewable Diesel Demonstration Initiative Infrastructure Project, prepared by EcoRessources Consultants for NRCan and assumes an average 2% national renewable content in distillate mandate as has been proposed by Environment Canada.
There are presently 19 refineriesFootnote 54 in Canada, located in all provinces except for Manitoba, Prince Edward Island and the Territories. Once refined, petroleum products leave the refinery and are delivered to a primary terminal where they are stored before being distributed either to a secondary terminal (bulk plant), a cardlock or a retail station. There are 76 primary terminals in CanadaFootnote 55. In general, western refineries supply petroleum product demand from Vancouver to Thunder Bay; Ontario refineries supply Sault Ste. Marie, northern Ontario and south-western Ontario; Quebec refineries supply the St. Lawrence River corridor from Toronto to the Gaspé Peninsula. Atlantic refineries generally supply local demand as well as the Arctic and Hudson Bay regions and export significant quantities of product to the United States. To supply petroleum products to end-users, the distribution infrastructure is composed of pipelines, ships, railways and trucks.
Renewable diesel fuel distribution in Canada is not always achieved by the same means as fossil fuels; infrastructure must be modified for the transportation and distribution of first generation biodiesel. Since the biodiesel industry is still at an embryonic phase and its development is fast, the best practices are not always used for the different distribution activities. As a result, special infrastructure must be built in order to ensure that integrity of the fuel is maintained throughout the distribution system.
4.1 Key Factors
In most cases, planning, permitting, construction and commissioning will have to take place before companies can start blending and marketing renewable diesel blends. Depending on the type of facility, type of infrastructure and region of the country, timing for these investments could be significantly different.
4.1.2 Regional Requirements
Depending on the region of the country in which companies operate, there will be different infrastructure requirements. Renewable diesel availability, market share, population density and existing provincial mandates will all affect the ability of fuel producers and importers to comply with the proposed federal regulation.
4.1.3 Seasonal Requirements
As the cloud point of biodiesel is much higher than that of petroleum diesel, blenders will need to take into account Canada’s climate when deciding what time of year they will blend biodiesel.
4.1.4 Sources of Renewable Diesel
The source of the renewable diesel used in Canada will depend on availability, price and quality. In addition, some companies may choose to use HDRD with properties similar to petroleum diesel. The proposed regulation does not prescribe the origin of renewable diesel.
4.1.5 Capacity to Reduce Cross-Contamination
The use of biodiesel blends could be more challenging in some applications than others which may require the segregation of products. There may be some cases where biodiesel blends must be kept separate from petroleum diesel.
4.1.6 Infrastructure Requirements
Refiners, blenders, retail site operators and transportation companies will all require some level of new or modified infrastructure in order to blend renewable diesel into petroleum diesel. The cost, type and timing for all of these infrastructure operators will vary significantly.
4.2 Main Findings
For the purpose of this analysis and to preserve commercially sensitive information provided by petroleum producers and blenders, the country has been divided into three regions. The region defined as “West” includes British Columbia, Alberta, Saskatchewan and Manitoba. There is a central region that includes only the province of Ontario and is therefore referred to simply as “Ontario” throughout the text. The region defined as “East” includes Quebec and the Atlantic provinces. In addition, refiner and terminal operations have been combined due to the similarity of the changes.
The lead times for the required upgrades to a terminal or refinery site are approximately one to three years. Longer lead times are usually associated with larger investments, such as truck, rail and/or marine receipt facilities. Permitting and planning are typically the most time-intensive steps in the process, totaling 9 to 18 months. Infrastructure that is expected earlier in this period is already in the detailed planning or construction phase. Accelerating lead times at refineries or terminals in order to meet a mandated regulatory start date, although possible, can lead to significantly increased costs due to plans and permitting being rushed.
The lead times for retail site upgrades are very short, three to six months, since the types of modifications are minor (tank cleaning, new filters, inspections). These modifications are typically done on an as-needed basis and are not an issue in terms of industry preparedness for the proposed federal regulations.
4.2.2 Regional Requirements
Due to the regional nature of their operations, regional producers/blenders will have less flexibility in terms of where and when they blend with renewable diesel.
Because of existing provincial mandates (see Section 6), the situation in the West is unique. The marginal volume of renewable diesel that will need to be blended in order to meet the proposed federal requirements is relatively low (notably because the regional producers/blenders in the West would already be meeting the proposed federal requirement via their blending for provincial regulations).
The situation is quite different in Ontario and the East. Since there are no existing or planned provincial regulations for renewable content in diesel/heating oil in these regions, the volumes of renewable diesel that will need to be blended in order to meet the federal mandate will be higher.
4.2.3 Seasonal Requirements
In both the West and the East, blenders will seek to minimize blending during the winter months by blending higher biodiesel concentrations in the summer months.
In the absence of provincial regulations, national refiner/marketers operating in the West would choose to blend in high concentrations (B5) only during the warmer months, mostly April to September, in order to help them meet their national 2% average. However, it is important to note that in order for some companies to meet provincial requirements, they will have to blend biodiesel during part or all of the winter.
Some refiners/blenders in Ontario and the East have indicated that they will have to blend significant volumes of biodiesel during the winter months, which typically requires large volumes of kerosene.
The increased volume of kerosene required to blend biodiesel in the winter months will add significant costs to the blender. It has been estimated, based on projections for 2013 diesel fuel demand, that the incremental volume of kerosene will be approximately 530 million cubic metres at a cost $25.9 million dollars per year. It is also important to note that as Canada is already a net importer of kerosene, it is unclear where this incremental volume will be sourced.
4.2.4 Sources of Renewable Diesel
It is likely that the majority of product will come from the United States and Canada. However, in some cases it is predicted that companies will use Hydrotreated Vegetable Oil (HVO) in order to meet the mandate. Initially this product is predicted to be sourced from Singapore, the USA and Finland.
4.2.5 Capacity to Reduce Cross-Contamination
There may be some cases where biodiesel blends must be kept separate from petroleum diesel (this is particularly true in the case of jet fuel). A variety of safeguards are possible to reduce the likelihood of cross-contamination: 1) Biodiesel receipt facilities (marine, rail or truck) are to be kept entirely separate from facilities for receipt of distillates; 2) Biodiesel and biodiesel blends are kept in separate tanks from other distillates; 3)Segregated facilities are used for blending, whether it is for bulk blending or for blending at the rack.
Monitoring and testing procedures are put in place in order to keep track of acceptable levels of biodiesel content (of particular importance with regards to jet fuel). Some contamination can occur through shared piping/lines; however these volumes are small and not expected to have a significant impact.
4.2.6 Infrastructure Required: Refineries/Terminals
Existing infrastructure at refineries and terminals has continually been upgraded over the years to comply with more stringent provincial or federal regulations. Recent investments to specifically adapt infrastructure requirements for storage and blending of biodiesel due to provincial mandates have taken place at two western refineries, seven western terminals and three eastern terminals.
The types of investments that have been made at terminals in order to accommodate renewable content are listed below:
- Truck offload facilities for B100 and/or BXX;
- Rail offload facilities for B100 and/or BXX;
- Marine offload facilities for B100 and/or BXX;
- Installation of new tanks and/or modification of existing tanks (cleaning, treating and installation of filters) for the dedicated storage of B100 and/or BXX;
- Procedural changes in tank inventory management for B100, BXX or HVO;
- Installation of temperature control equipment for tanks containing B100 or BXX: heating coils/elements, nitrogen blankets, etc.;
- Installation of in-line blending equipment;
- Installation of blending equipment on the rack;
- Line tracing to the rack and back to the tank for B100 and BXX;
- Re-programming of rack ordering software for BXX;
- Modification to systems;
- Customer education.
In order to meet the proposed new federal regulations, new infrastructure would be required at a total of 21 additional refineries and terminals in Canada: eight in the West, six in Ontario and seven in the East. It should be noted that the proposed new projects in the West are predominantly in order to meet provincial regulations. However, some projects would have been put in place, even in the absence of provincial regulations (or at least the nature of the investments would not have changed much), in order to meet the federal regulations. Not surprisingly, most of the infrastructure additions are being made at the refinery and/or terminal sites serving large markets (i.e., near large urban centres) and capable of handling high volumes. The types of investments to be made at these refineries and terminals are similar to those made for existing infrastructure as laid out above.
The costs for the upgrade of one refinery or terminal site ranged from $0.5 million to $16.3 million, the average being around $7.5 million. Terminal sites that require marine and/or rail offloading infrastructure for biodiesel had the highest costs, usually in the $7 million to $16 million range. Truck offloading equipment, new tanks, equipment for heating and in-line blending at the rack on a terminal site are all also significant expenses, ranging from $1 million to $7 million.
Proper blending is critical as it impacts the cold flow properties of the finished blend. The blending process is usually done by splash blending or in-line blending. Cold weather blending is a concern when the diesel fuel temperature falls below the cloud point of the B100 being blended. Therefore infrastructure has to be in place to bring the temperature of fuels up to the right temperature.
Splash blending can be appropriate for locations where the biodiesel and diesel fuel are loaded separately and where the fuels are loaded at the same time through different incoming sources but at a high enough fill rate that the fuels are sufficiently mixed. However, in some cases the tank may need to be re-circulated or further mixed to thoroughly blend the two fuels. If mixing is not complete, the slightly denser biodiesel will settle to the bottom. This is generally enough mixing except in cold weather, when the ambient temperature is significantly below the B100 cloud point. Then the two fuels mix poorly or not at all.Footnote 56
It should be noted that while splash blending was used for a number of the demonstration projects under NRDDI, these projects were very small in scale. Due to the issues associated with splash blending, refiners/importers have indicated that they will use in-line blending techniques to mix biodiesel with petroleum diesel. In-line blending occurs when the biodiesel is added to a stream of diesel fuel as it travels through a pipe or hose in such a way that the biodiesel and diesel fuel become thoroughly mixed by the turbulent movement through the pipe. The biodiesel is added slowly and continuously into the moving stream of diesel fuel via a smaller line inserted in a larger pipe, or it can be added in small slug or pulsed quantities spread evenly throughout the time the petroleum diesel is being loaded. This is similar to the way most additives are blended into diesel fuel today, and it is most commonly used at pipeline terminals and racks.
4.2.7 Infrastructure Required: Retail Sites
As of May 2010, infrastructure at approximately 400 retail sites had already been upgraded to accommodate biodiesel blends. Sites in the West were primarily put in place in order to meet the provincial regulations. In Ontario and Quebec, some biodiesel is being blending in the absence of provincial or federal regulations. This is due to some demonstration initiatives taking place with public transportation and government service vehicles in a number of jurisdictions. There have also been some initiatives in Quebec to incent agricultural producers to use biodiesel blends for their equipment, given that using these fuels supports their industry.
Relative to the volumes being blended in the West for provincial regulations, however, the volumes blended in Ontario and the East remain small. It is estimated that approximately 1500 additional retail sites (service stations, truck stops, bulk plants, etc.) will need to be converted in order to meet the federal regulations.
The types of infrastructure upgrades that have been put in place at retail sites include cleaning mechanisms for underground and above ground tanks as well as installation of new filters (compatible with biodiesel).
The cost of upgrading a retail site is quite low, from $400 to $2000 on average. Based on estimates, it is expected that a total of $1.8 million will need to be spent on upgrading retail sites across the country in order to sell biodiesel blends due to the proposed federal regulations.
4.2.8 Infrastructure Required: Transportation
Petroleum products are most commonly received at primary terminals by pipeline (for major terminals), marine (for coastal terminals), truck and in a few cases by rail. The advantage of transporting fuels by pipeline is that it is much faster and cost-effective. In one region in the West, it is possible that B5 will be transported by pipeline, requiring pipeline testing and protocol changes. Given the need for further pipeline testing and protocols, it is likely that for the most part biodiesel and biodiesel blends will continue to be transported by truck. Tanker truck operators are already carrying out regular tank cleanings, whereas this is not common practice for rail tankers. Transportation infrastructure upgrades include heated and/or insulated tanks.
The most significant infrastructure requirements for renewable diesel blending will be found at the refinery and terminal points in the network. Infrastructure requirements for retail facilities and transportation equipment as well as associated costs are anticipated to be relatively low. Note that in some instances, infrastructure upgrades have already taken place to meet provincial requirements. Regarding anticipated new infrastructure, some companies have not yet fully planned what new infrastructure investments they would make in order to conform to the proposed federal requirements. Some are waiting for a definitive signal from the federal government before they begin this planning process. Therefore, the results presented regarding anticipated new infrastructure should be regarded as neither a complete nor a definitive portrait of future investments but rather estimates of what could be possible.
In terms of new operational requirements to accommodate blending infrastructure, additional monitoring and testing procedures must be put in place in order to keep track of acceptable levels of biodiesel content.
Facilities will likely vary their production goals and blending depending on the season and the region to fulfill the national average 2% blend.
With regards to the sources of biodiesel, the majority will most likely come from sources in the United States and Canada. Blenders credits will influence the market for biodiesel and it is likely that significant volumes of Canadian biodiesel will be exported to the United States. In instances where volumes of hydrotreated product are used, they are predicted to be sourced from Singapore, the United States and Finland (although these volumes are predicted to be low in the short term due to availability and price).
The incremental volumes of kerosene required for a 2% mandate should not be overlooked. A number of other policies have either recently been put in place, or are planned for the near future, that could have an impact on the distillate pool in Canada. Given that Canada is already a significant importer of kerosene, further analysis would be useful to better understand how this regulation and others could impact the availability and security of Canada’s fuel supply.