A day in the life

For those interested in working with renewable fuels, here’s how I spent my Saturday:

1PM – Started my work day

  • After eating breakfast and running personal errands, I went to Office Depot to get materials to make brochures and marketing materials. Then I went to Crump’s Plumbing to get a pressure reducing valve to repair a customer’s vegetable oil pumping station because the Fill Rite LP50 oil pump is not compatible with the Sotera 825 meter (made by Fill Rite and sold by them for this application).
  • Replaced the vegetable oil filter in my converted 2004 Golf. Over the last week, I had started losing power at higher RPM’s, probably due to accidently bypassing the 1 micron filter on our retail pump, which allowed some extra crud to get into the system.
  • Installed a 1 micron filter between our dewatering system and our retail pump to catch crud generated by the boiling process. Some non-oil particles carbonize, resulting in sludge build-up.
  •  Drove to Round Rock and bought 2000 pounds of road base to even our our driveway, and to cover what used to be a grassy area in front of our tank farm, but is now a mess of dead grass from biodiesel spills. Spent a couple of hours shoveling it from the back of the truck.
  • Pumped 1200 gallons of B100 out of our 10k tank to find out exactly how much inventory we have left. With the price of diesel at $4, we are burning through the fuel much faster than usual.
  • Started a new batch of oil to dewater in order to be sold as fuel for converted vehicles
  • Sold biodiesel to a group of people traveling the country in a school bus converted to run on solar power and waste vegetable oil –

10PM – Came home

Fuel pricing updated – and explained

With the price of diesel nearing $4, it’s a good time to reflect on the relative value of biodiesel and used cooking oil, and ultimately answer a difficult question: Why does the cost of biodiesel seem to creep up with diesel?

This is the first in what may become a series of topics – future articles may explain the value of a distributor in the fuel supply chain (why it’s not always a good idea to cut out the middle man); the effects of government intervention (subsidies, tax relief, and environmental legislation) on the biodiesel industry; sustainability in biodiesel production; and any other topics suggested by readers.

First, let’s talk about the biodiesel supply chain, in a somewhat simplified model. Crops are grown and harvested, seeds are crushed to extract oil, and the oil is made available for sale. From that point, the basics of biodiesel production:

1. Biodiesel producer invests in plant (typically millions, although possibly less for a very small plant)

2. Producer sources “feedstock” (oil), and other raw materials (methanol and catalyst)

3. Producer converts the raw materials into biodiesel and finds a buyer (usually a distributor)

4. Distributor takes the biodiesel in bulk, blends if appropriate, and finds a buyer (fleet customers, retail outlets, etc)

5. Customer fills up with biodiesel, breathes easier

Most people do not understand the complexities of the supply chain, and think it’s as simple as “marking up” a product in order to make a profit. Unfortunately, there are a number of factors that make it more complex than this. I can’t emphasize enough – the biggest factor in biodiesel production is the price of the feedstock oil. Soybean oil is currently over $4 per gallon – just for the oil! Subtract the $1 per gallon federal subsidy, then tack on production costs, and it’s easy to see why B100 at the pump is over $3.50 per gallon. Even the cost of used cooking oil is over $2.50 per gallon.

Aside from the feedstock, 20% of the biodiesel reaction is methanol – a toxic chemical that has fluctuated wildly in price. In the past two years, it’s gone from $2 a gallon, up to $5, and most points in between more than once. Interestingly, methanol use could be cut in half with the right production system, but that costs several hundred thousand or more – a cost only worthwhile if methanol goes above a certain threshold, which we are at today.

Several years ago, when oil and methanol were about $2 per gallon, biodiesel investors flooded the market with money for new plants. My phone rang daily with someone offering the promise of B100 at a competitive price, just as soon as the plant was finished. Fast forward to 2008, and more than half of all plants in the country are shut down or operating at massively reduced capacity. What happened? The feedstock providers looked at the downstream value of their products, saw massive growth in the biodiesel industry, and raised their prices to take a chunk. While biodiesel investors planned on major market growth, they didn’t seem to plan for their margins to be eroded out from under them.

This leads me to my next point – vegetable oil as a fuel. With the market price of used oil as a feedstock starting to approach $3, we can’t afford to sell it for less than its market value. Based on our calculations, we could turn every bit of oil we have into biodiesel, at a market price of $2.60 per gallon. Therefore, it will be our policy going forward to sell our WVO at this market price. It is assumed that the price of WVO will generally stay about $1 lower than B100, which will roughly track the price of diesel. This was a hard decision that we came to only after much discussion, and the realization that we are not in business to subsidize the public’s fuel cost.

So, here we are – selling B100 for $3.50 per gallon, AFTER the 50 cent subsidy. Our meager profit unchanged; meanwhile, the price of feedstock and other materials continues to climb. While writing this post, I was IM’ed by a broker offering me B99 from soy for $4.26. I hope our customers ride this out with us – without our loyal following of fanatical fuelers, we have nothing. I would not be surprised if our costs (and therefore, price) jump 40-50 cents in the next 90 days.

Final thought – biodiesel IS a replacement for diesel fuel. Therefore, it has roughly the same market value as diesel. Let’s forever dispel the notion that it should be cheaper than diesel. In fact, it’s a premium product, renewable, made in the US, better for the environment, better for your engine, and better for the world. Just like organic food costs more than mass produced, factory farmed food; biodiesel will generally cost more to make than petroleum diesel. If you’re an organic food shopper, biodiesel should be on your shopping list.Jason

Side effect of using alternative fuels

Last month, as I was putting the finishing touches on a VIP customer’s vegetable oil fuel system (my own!), I was having trouble with intermittent stalling and hard starts. I pulled over as it died, and I cranked for minutes before it began a choppy idle. Of course, I was supposed to be meeting a customer at the shop, and I was within a hundred yards when I gave it that last rev, which killed it. I wanted to let it idle for awhile, so I locked up and ran to the shop to meet the customer. When I ran back to the car 10 minutes later, I found two police cars writing me a ticket!

 I tried explaining the situation to the police, but they didn’t understand or didn’t care. As I got my ticket ($150), I tried to drive away, but the car immediately died again. I flagged down the same cop, who expressed surprise when I said the car wasn’t working. She casually said “ah just go to court – the judge will throw it out”. So that’s just what I did – only to be told by the prosecutor that they only have to prove that I did indeed leave the car running, regardless of intent. Rather than face the prospect of $200 in court fees and even more in fines, I accepted the $65 fine and CONVICTION for leaving my car unattended.

 Quote of the day (as said by Izzy of Mean Green Trucking last year): “Shit, man, they should be paying US to do this stuff!”

Regarding the ridiculous crap “Diesel Secret”

There is a guy in Louisiana who heard that farmers used to blend a little kerosene and gasoline into vegetable oil and run it in their diesel trucks. He added a commercially available cetane booster rebranded as his secret sauce, then sells the plans under the name “Diesel Secret”. He paid top dollar for Google adwords matches, so just about any search for biodiesel or WVO will generate his ads. Because of the success of the ads, the question has come up more and more – “can I use vegetable oil in my unmodified engine?”

While biodiesel is itself considered an experimental fuel, the use of WVO is sort of the stepchild. Most people in the biodiesel industry neither support nor endorse the use of unmodified vegetable oil as a fuel. However, there is a vibrant community of vegoil users – even a national organization (which, unfortunately, is shutting down) was formed to support these efforts. By using a heated second tank, it has been shown that vegoil can be used in most diesel vehicles with fantastic results. There isn’t much debate that it can be done, and most of the back and forth relates to either poorly designed systems or misconceptions/mistakes (in part due to poor cooperation among vendors).

…and then there’s Diesel Secret, aka DSE. With diesel prices hitting an all time high, and alternative energy being the buzzword of the decade, many people are confused about all the choices – ethanol, biodiesel, LPG, CNG, hybrid, etc. Then they hear that they can drive for FREE. Well not quite free, you still need a bit of nasty kerosene and gasoline and the special sauce – but they claim 40 cents or so per finished gallon. Some have tried and failed, while others have had good luck. Overall, there’s no consensus, no community, no knowledge base, not a single company who would make the finished product and stand behind it. Some say that this type of blending is the new “homebrew”, but I think it’s way too early to tell.

My personal opinion is that the risks are too high, the kerosene, gasoline, and special sauce too nasty for me to even consider it. As a business, I have to say that we don’t support, approve, endorse, or otherwise even like the idea of using a blend of vegetable oil and other chemicals directly in an unmodified diesel engine.

So, please stop calling and writing – we don’t want to hear about it, don’t want to give advice, and don’t want to get involved. I’m sure this may sound a bit harsh to some folks, and I mean no disrespect. But as a business, we have to draw the line somewhere – and that line is directly between the not-so-secret idea of blending oil with kerosene/gasoline and those folks applying heat to thin the oil, or converting it into biodiesel.

This is our official position and will not be changing unless some day there is a considerable body of scientific research and evidence to support an exact formula that will work for a given application. Until that day comes, I suggest the proponents of mixing should start their own messageboard and begin to build the kind of community that we have for vegoil and biodiesel.

3rd Place at UT Sustainable Business Summit

This was an exciting weekend. After a very rough week trying to find biodiese after the recent “ban”, I was able to relax a bit and enjoy the company of fellow “social entrepeneurs”. Met some very interesting folks and competed in a business plan competition – and took 3rd place! Considering the winner’s idea was GREAT and the second place went to a free library of sorts, it was a great win.

DieselGreen Fuels – 1 year anniversary

This week is the one year anniversary of DieselGreen Fuels. After a year of trying to work in a cooperative environment with a dozen or so others, it became clear that the non-profit coop was not meant to be. This time last year, we spent a weekend in Denver hearing for the first time that many others had found the same path just as difficult, and would ultimately disband or turn into real businesses. This latter route is the direction we took, forming an LLC between myself, Elizabeth Patrick, and Michael Mullins.The past year has been a real rollercoaster ride – working nights and weekends while friends are out having fun; missing time with our significant others; learning the ropes of running a business; getting licenses for the various business activities we are working towards.

The first few months were spent trying to figure out what all we were going to do, and we have settled on the following:

  • Biodiesel distribution – B99 (except during the coldest parts of winters) sold to retail stations – currently all retail sales go through Eco-Wise
  • Biodiesel retail – B99 on a limited basis from our own warehouse. We don’t take credit cards and are only open 7-10pm on Tuesdays, but we service a select crowd of enthusiasts that were with us from the beginning. We feel this is an important part of staying close to our customers and the community
  • VegOil distribution and retail – clean, dewatered vegetable oil collected by us for the purposes of burning in a diesel engine or as a feedstock for biodiesel.
  • Home and commercial refueling stations – from 180 to 1000+ gallon systems, we offer a steel tank with pump, meter, filter, and auto-shutoff nozzle just like you’d find at a gas station
  • Vehicle conversions to run directly on VegOil – our preferred vendor is Greasecar, but will install the kit of customer’s choosing

The next several months were spent getting licenses:

  • Texas Rendering License to pick up vegetable oil for processing
  • Texas Motor Fuels Tax License to haul diesel and biodiesel around, and sell it wholesale
  • Sales Tax Permit to sell retail goods
  • Business insurance, including auto
  • IRS registration to pay excise taxes on fuel

The past six months have been us getting our first major customer (Eco-Wise) and taking our collection and delivery process through several generations into our current system of “suction, settling, centrifuge” for oil collection.

We’ve also taken on two interns, Adam and Matt, who we hope will help us build our restaurant clientele to the point where Michael can work full time starting in September.

I hope to update this blog regularly to include news about the business, thoughts on the industry, and offer a place for others to comment.

 

Jason Burroughs