Features Biodiesel Bioenergy
Biodiesel: making it work

The dream of a renewable fuel resource is creeping closer to reality, as proven
by these two prairie companies who are 'up and running' with biodiesel products.
While many hurdles remain for highly concentrated biodiesel, blends of less
than five percent are starting to hit the market. Two companies in Saskatchewan
and Manitoba are making inroads. Milligan Bio-Tech at Foam Lake, Saskatchewan,
and Bifrost Bio-Blends of Arborg, Manitoba, are two of only four biodiesel companies
up and running in Canada. And even in the US, where heavy subsidies are encouraging
development, only 35 biodiesel companies exist.

A Bio-Bus at the Canada Summer Games in Regina was fuelled by B5 biodiesel from Milligan.

At Foam Lake, Zennith Faye, executive manager of Milligan Bio-Tech, says the
market is starting to catch on to biodiesel but that in Canada, the biggest
initial market will be for a low concentrate diesel fuel conditioner. Their
product, Milligan Bio-Tech Diesel Fuel Conditioner, is used as a 0.1 percent
canola-based additive, and tests show that it can reduce engine wear up to 50
percent and improve fuel economy by around 13 percent. One litre of the product
treats 1000 litres of diesel fuel.

"Right now, production cost for pure biodiesel made for canola oil is
$1.25 per litre. Fuel has to be a lot higher to justify the use of B20 or higher
concentrations," explains Faye. "The market right now is for diesel
fuel additives."

What is biodiesel?
Biodiesel is made from any vegetable or animal fat, including canola oil, soybean
oil, hemp oil and used cooking oils. The oil is mixed in a reactor tank where
methanol and a catalyst are mixed with oil to produce a batch of methyl esters,
or biodiesel. The reaction breaks off the sugars, which settle to the bottom,
leaving biodiesel floating on top. The process is relatively simple, especially
compared to ethanol, which requires fermenting and distilling processes.

Biodiesel has several advantages and disadvantages. It is comparable to regular
diesel in terms of performance and power, and is biodegradable, non-toxic, and
free of sulphur. It can be used as a 100 percent biodiesel (B100), or blended
in other ratios.

Biodiesel also helps to reduce greenhouse gas emissions. A B20 blend (80 percent
petro-diesel and 20 percent biodiesel) can reduce net greenhouse gas emissions
by 16 percent and B100 can reduce greenhouse gases by up to 78 percent, making
it the single most effective greenhouse gas reduction technology for diesel
engines.

On the downside, engine manufacturers only warrant a biodiesel blend up to
five percent, or B5. Plus, high concentrations of biodiesel gel at cold temperatures;
the temperature depending on the source of oil. Animal fat starts to gel at
20 degrees C, while soybean starts to solidify around freezing and canola oil
around minus 15 degrees C. However, at blends less than B20, the cold flow properties
of canola biodiesel are very similar to petroleum diesel.

Faye also stresses the importance of quality control in biodiesel. "Biodiesel
is not biodiesel unless it meets certain quality parameters, as set out by the
American Society of Testing Materials (ASTM) in the US and the Canadian General
Standards Board (CGSB) in Canada," explains Faye. "The current ASTM
6751 standard that is used in the US is to be adopted in Canada. We've spent
a lot of research and third party testing to meet these standards, and while
making biodiesel is not rocket science, making a high quality product, day in
and day out, is very complex."

Increased fuel economy and reduced engine wear
A key benefit, which factors into Milligan's business plan, is that petroleum-based
diesel fuel on the market today has poor lubricity. Faye says that as sulphur
is removed from diesel fuel, as has been mandated by the federal government
since the 1990s when sulphur content was reduced from 3000ppm to 500ppm, the
lubricity component of diesel becomes weaker. This increases engine wear and
increases fuel consumption. New regulations for 2006/2007 call for sulphur content
to be reduced further to no more than 15 parts per million.

"Fuel companies are struggling to find replacement additives," says
Faye.

In seven years of testing by Agriculture and Agri-Food Canada and the University
of Saskatchewan, biodiesel was proven to improve fuel economy and reduce engine
wear. A report from the University of Saskatchewan's mechanical engineering
department states that canola-based lubricity additives 'have been shown to
be effective in reducing engine wear by as much as one-half, thereby potentially
doubling diesel engine life. Fuel economy gains of up to 13 percent have also
been recorded'.

Faye says this research led to the Saskatoon Bio-Bus project with the City
of Saskatoon. He says all of the initial tests have been positive and the project
is entering its last quarter. A final report will be completed in early 2006,
with two years of data. "At this point, we are seeing better fuel economy
and reduced engine wear," explains Faye.

Milligan's Bio-Tech Diesel Fuel Conditioner also includes a canola oil derivative
(COD). Faye says it is a compound that adds further lubricity and reduced friction
to the biodiesel product, although he declined to name the proprietary product.

At Arborg, Paul and David Bobbee of Bifrost Bio-blends have an agreement to
sell 50,000 litres of canola biodiesel to Manitoba Hydro. They got into the
biodiesel business as a side-line to their farm's seed and crushing business.
In 2000, they started crushing oilseeds, mostly flax and hemp, and selling the
edible oils through Midlake Speciality Food Products. Bifrost Bio-blends also
tests their biodiesel to ensure it meets industry standards.

What really got them thinking biodiesel was the collapse of the local hemp
industry. "We had millions of pounds of seed we didn't know what to do
with, and it was all going rancid on us," says Paul. They looked at the
profit of biodiesel at the time and decided that competing on price against
high quality vegetable oil would be tough. That is when they started looking
at off-grade seed.

"If 20 to 30 percent of the oil came from off-grade seed, then the numbers
started to work," explains Bobbee. As a result, they look for damaged oilseed
crops, frozen canola, wild mustard cleaned from their seed cleaning business
and other sources of cheap oil.

Bobbee had been producing 1500 litres of biodiesel per day over the last year,
as part of their pilot project. All of the biodiesel they sell has been tested
and meets or exceeds ASTM standards. Now, they have shut that plant down and
are preparing to build a new plant in Arborg capable of producing up to four
million litres per year.

It costs Bobbee about 68 cents per litre to produce his biodiesel, with canola
prices at summer 2005 levels, and with some alternative feed stocks such as
frozen or heated canola seed. He was selling it for around 80 cents per litre
earlier in 2005.

Milligan Bio-Tech makes diesel fuel additives out of canola oil.

Will farmers benefit?
All the hype around value-added processing has left many farmers cold. After
all, if you are not part of the value-added process, you are still just selling
a commodity to the highest bidder. The Bobbees got around that by getting in
on the ground floor and setting up their own value-added plant. But can other
farmers benefit?

Certainly, the additional market for frozen and off-grade canola is a welcome
addition to the market. In bad years like 2004, when frost downgraded hundreds-of-thousands
of acres of canola, the extra market will be valuable and perhaps will improve
returns for those crops.

Plus, the growth potential is large. Canada currently has very little biodiesel
production. Information from the Saskatchewan Canola Growers Association indicates
a large market for biodiesel. Currently, Canada uses about 23 billion litres
of petroleum diesel per year in the transportation industry. A 25 bushel per
acre crop of canola will produce 250 litres of biodiesel, or about 10 litres
per bushel. Even just a one percent blend, B1, would require 230 million litres
of biodiesel annually – or about one million acres at average yields of
25 bushels per acre. And of course, the potential in the US is huge – using
a 10 times multiplier, the biodiesel market at a one percent blend could require
an additional 10 million acres of canola.

Another area where farmers could have an immediate impact on their input costs
is by using biodiesel on their farm. Just a one percent blend or using Milligan's
Bio-Tech Diesel Fuel Conditioner can cut fuel costs. If diesel savings were
in the 10 percent range, thousands of dollars could be knocked off input costs.

Faye says producers can benefit in the value-added equation. "There needs
to be more vertically integrated production with end users in place to benefit
from these value-added opportunities, which really means that in order for the
grower to gain from the value-added opportunities, they must lay dollars on
the line in the early stages of development," says Faye. "So, ultimately
it is up to farmers. Are you comfortable trying to compete with large two to
three million acre farms in South America on purely a commodity basis, or do
you want to extract premiums in the value-added process?"