U.S. inventories of distillate fuel oil depleted to 106 million barrels on Oct. 7, the lowest seasonal level since the government began collecting weekly data in 1982.

EU distillate inventories were just 360 million barrels at the end of September, the lowest seasonal level since 2004.

Singapore mid-distillate inventories have fallen to just eight million barrels, the lowest seasonal level since 2007.

The global petroleum and refining system has proved unable to keep up with rapid growth in fuel consumption as a result of the manufacturing and freight-led recovery after the coronavirus pandemic.

The immediate bottleneck is the lack of enough distillation and catalytic cracking capacity to make middle distillates from crude (Oil refining industry insights, International Energy Forum, Sept. 2022).

The world’s two largest refinery systems are both producing less distillate fuel than before the pandemic erupted.

U.S. refinery closures brought on by the pandemic, equipment failures and the planned shift to electric vehicles have left insufficient capacity to meet both domestic and rising export demand.

U.S. refineries produced an average of 4.9 million barrels per day of distillate fuel oil in 12 months ending July 2022, down from 5.2 million in the same period ending July 2019.

China’s refineries have also scaled back crude processing as the country struggles with the economic disruption caused by repeated city-level lockdowns to control the epidemic.

China produced 115 million tonnes of diesel in the first eight months of 2022, down from 119 million in the same period of 2018, according to the National Bureau of Statistics.

Some western policymakers have called on China to relieve the distillate shortage by boosting crude processing and resuming fuel exports. The country recently issued new export quotas to allow more fuel to be sent abroad.

But diesel accounts for only 30 per cent of the output of China’s refineries. The rest is gasoline (26 per cent), naphtha (nine per cent), fuel oil (nine per cent), petroleum gases (nine per cent), asphalt (seven per cent), coke (five per cent) and kerosene (five per cent).

Processing significantly more crude to meet the export demand for distillate would likely leave the refinery system with excess inventories of other products.

In any event, accelerating refinery processing will simply push the shortage upstream from the fuel market to the crude market.

Brent’s six-month calendar spread has been trading in a backwardation of more than US$8 per barrel, in the 98th percentile for all trading days since 1990, a sign of how tight the crude market is already.

U.S. crude stocks including the government’s strategic reserve have fallen to the lowest level since 2002, according to data from the U.S. Energy Information Administration.

There is not enough crude available to satisfy a big increase in demand from the refiners in China without depleting inventories further and sending prices higher.

This is the context in which U.S. officials told their Saudi counterparts there was “no market basis to cut production targets” before October’s OPEC+ meeting, according to the U.S. National Security Council.

In the absence of major new additions of crude production and refinery capacity, the only path to market rebalancing is through a sharp deceleration in fuel consumption to stabilize and then rebuild distillate inventories.

Distillates are overwhelmingly used in manufacturing, freight transport, farming, mining, forestry and oil and gas extraction, so consumption is driven primarily by the economic cycle rather than prices.

The need for a major reduction in consumption from trend implies a relatively severe downturn in the business cycle across North America, Europe and Asia.

The U.S. Federal Reserve cannot drill oil wells or build new refineries, but it can reduce fuel consumption by raising interest rates and inducing a broader slowdown in the domestic economy and major trading partners.

U.S. interest rate traders anticipate the Fed will raise its target for the interbank federal funds rate to 4.75-5 per cent before the end of March 2023, up from 3-3.25 per cent now.

[RELATED] Understanding risk exposure key to managing rising interest rates

If realized, the forecast increases would take U.S. interest rates to the highest since October 2007, immediately prior to the onset of a recession that December.

The U.S. Treasury yield curve between two- and 10-year securities is more inverted than at any time since March 2000 and before that February 1982, both of which were associated with the onset of recessions.

The World Bank, International Monetary Fund, World Trade Organization and United Nations Conference on Trade and Development have all warned in recent days that a severe slowdown is likely in 2023.

But with spare capacity almost exhausted, a recession is the most likely route to rebalancing the distillate market in particular and the petroleum market in general.

– John Kemp is a Reuters market analyst. The views expressed are his own.

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While the plan includes a flat $25-a-tonne carbon tax starting sometime next year, it also says if Manitoba diesel pumps had to include five per cent biodiesel instead of the current two per cent, carbon emissions over the next five years would drop by between 360,000 to 431,000 tonnes.

• Read more: Mazier defends KAP’s approach on ‘made-in-Manitoba’ carbon tax

That would be the second- largest method of cutting emission behind the carbon tax, which is projected to reduce emissions by 1.07 million tonnes.

While the carbon tax is projected to reduce emissions by 40 per cent, adding more biodiesel would cut emissions up to 16 per cent, according to the plan.

“If we can convince the government that the biodiesel portion should be from canola, for example that’s a 1.9-million-tonne demand (based on five per cent biodiesel across Canada)…” Fossay said. “There’s a good chance we could see our (canola) prices go up.”

Someone suggested a higher biodiesel requirement could result in higher diesel prices, but Fossay noted “marked” farm fuel is exempt from the carbon tax.

In an interview later he said canola-based biofuel is cheaper to make than drilling for, extracting processing petroleum into diesel.

“We think it (canola-based biodiesel) will go a long ways to helping reduce carbon emissions that come from diesel fuel,” he said.

“By going to the B5 level (five per cent biodiesel) the carbon emissions will be reduced I believe by three to four megatonnes a year. So that goes a long ways to achieving the 80-megatonne targets that the (federal) government has… by 2022.”

The MCGA has not taken a position on Manitoba’s plan, but will discuss it at an upcoming board meeting, Fossay said.

The MCGA does favour more biodiesel, he said.

“Certainly any time we can find a new market for canola seed it’s a benefit to producers across Western Canada,” Fossay said.

KAP also supports regulations requiring more biodiesel be used, KAP president Dan Mazier said in an interview after the meeting.

“It will make a huge difference,” he said.

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The conversion produces significantly more energy than it requires and results in transportation fuels — diesel, for example — that can be blended with existing ultra-low-sulphur diesels and biodiesels. Other products, such as natural gas, naphtha (a solvent), gasoline, waxes and lubricating oils such as engine oil and hydraulic oil also can be obtained from shopping bags.

A report of the new study appears in the journal Fuel Processing Technology.

Americans throw away about 100 billion plastic shopping bags each year, according to the Worldwatch Institute. The U.S. Environmental Protection Agency reports that only about 13 per cent are recycled. The rest of the bags end up in landfills or escape to the wild, blowing across the landscape and entering waterways.

From the Grainews website: Understanding biofuels

Plastic bags make up a sizable portion of the plastic debris in giant ocean garbage patches that are killing wildlife and littering beaches. Plastic bags “have been detected as far north and south as the poles,” the researchers wrote.

“Over a period of time, this material starts breaking into tiny pieces, and is ingested along with plankton by aquatic animals,” Sharma said. Fish, birds, ocean mammals and other creatures have been found with a lot of plastic particles in their guts.

Whole shopping bags also threaten wildlife, Sharma said.

“Turtles, for example, think that the plastic grocery bags are jellyfish and they try to eat them,” he said. Other creatures become entangled in the bags.

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“The railway is a mature business and we’re a short line with 120 miles of track, so where do we grow our business?” said CEMR’s assistant general manager, Sean Crick.

The answer to that question was transloading fuel and blending in biodiesel so that Manitoba fuel suppliers could comply with new biofuel regulations. Changes to Manitoba’s Biofuels Act in 2010 meant all diesel fuel sold in the province would be required to contain 2.5 per cent biodiesel.

Fuel companies first looked to ship diesel fuel south of the border, where it would be blended to include 20 per cent biodiesel, before being shipped back to Manitoba where it would be reduced to a five per cent bioblend.

“When we heard the plan was to ship it down to the States, we said there has to be a way to do something,” Crick said. “We’re railroaders here, not bioblenders, but we did the math on what the cost would be to get the rail cars there and back… and pretty quickly we said we think we can do something here.”

CEMR commissioned a mobile blending unit (MBU) that could blend biofuel into diesel fuel at any location.

“It has the ability to blend with a precision of .02 per cent,” he said. “That’s pretty good.”

The $250,000 machine has two sides to it, one for diesel and one for biofuel as well as a mixer. But the steam punk-esque apparatus is also versatile and can inject or add up to 20 different additives to products being transloaded.

The process also moves quickly, with liquids blended at a rate of 1,200 litres per minute. The unit can be attached to up to four fuel sources at any given time, while manufacturing a single homogeneous fuel.

“Creating the technology, processes and partnerships for enabling biodiesel blending was no small feat,” said Mac MacDonald, CEMR’s sales and business development manager. “Existing fuel facilities were not designed or equipped to do the job, so new technology had to be created to allow us to quickly and precisely blend diesel and biodiesel together and get the final product back into the customer’s hands quickly.”

He added he was also pleased the new system will help lessen transportation-related greenhouse gas emissions in Manitoba.

The Railway Association of Canada (RAC) was also impressed with the project. The organization awarded CEMR its 2012 Marketing Award, which recognizes short lines for their role in accelerating and increasing the flow of goods.

“In this particular case, CEMR had the flexibility and innovative capacity to solve a problem that otherwise would have resulted in significant modifications to existing fuel-processing operations and possible delays in meeting Manitoba’s biodiesel mandate,” said RAC president Michael Bourque. “While smaller in size, short line operators are often essential to solving big problems.”

CEMR now uses its transportation centre located six miles from Imperial Oil’s facility in Winnipeg as its blending location. Low-sulphur diesel is transported from Imperial Oil, while CEMR ships in biodiesel from the U.S. using Canadian Pacific Rail. Using only the liquid blending and distribution unit, tank cars and transloading track infrastructure, CEMR can mix the two fuel sources onsite without the use of expensive tanks, loading racks or piping systems.

The unit is so effective, that over the past two years CEMR has blended all of Imperial Oil’s summer diesel.

“We just saw an opportunity, and went with it,” said Crick.

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briefs

reuters / U.S.-based agribusiness Archer Daniels Midland Co. said Nov. 14 that it would build a 265-millionlitre biodiesel plant in Lloydminster, Alta.

The plant would crush canola, Canada s second- biggest crop after spring wheat, and boost ADM s North American biodiesel production capacity by 50 per cent.

ADM said it would start building the facility in spring 2012 for completion in the fourth quarter of 2013, next to ADM s canola-crushing facility in the western province.

Since July 1, 2011, all diesel fuel and heating oil sold in Canada must contain at least two per cent biodiesel, under a mandate from the Canadian government.

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Western Canadian farmers are major consumers of diesel fuel which is used in most types of farm equipment.

“For both environmental and cost reasons, some producers have been looking for alternatives to conventional diesel fuels. But, until now, many weren’t sure if bio-based fuels would measure up to conventional fuels. We can now say with confidence that they do,” says David Gullacher, president and CEO of PAMI.

PAMI’s biodiesel research was supported by 10 public and private funding agencies from across Western Canada. Among the findings in PAMI’s report:

POWER

In lab tests, PAMI measured the effect on engine horsepower for a range of biodiesel blends, from five per cent to 100 per cent biodiesel. The blends were also tested with various newer and older engine types. Except at the highest levels of biodiesel blend, no significant loss of power was discovered.

STORAGE

PAMI also explored the concern that biodiesel quality deteriorates after long storage in cold weather. In PAMI’s tests, biodiesel remained fully potent after two winters. The tests were carried out using both external storage tanks and the engine’s own fuel tank. The fuels after storage were proven to meet the globally recognized standards of the American Society for Testing and Materials.

FARM FEEDBACK

In addition to lab tests, PAMI collaborated in a one-year trial in Manitoba to gather impressions from producers about the use of biodiesel-fuelled equipment on active farms. Producers reported few differences compared to conventional fuel.

“This is exciting information not only for producers but for the Prairie economy as a whole. Western Canada is a natural place to build a vibrant biofuels industry. For the farming community the good news is that you don’t need to wait for tomorrow you can start using biodiesel today.”

Detailed reports on PAMI’s biodiesel research can be downloaded from its website at www.pami.ca.

The post PAMI Puts Biodiesel To Work On Farms appeared first on Manitoba Co-operator.

Tractors and other farm equipment using fuel containing as much as 10 per cent biodiesel operated normally even when the temperature dipped to -36 C, according to a study conducted by the Saskatchewan Research Council.

“The study included an entire cycle of farm equipment use, including a lengthy off-season storage period,” said Grant McVicar, director of energy conservation for the council, an independent, third-party research organization.

“Throughout the study, fuel quality was closely monitored in tractors, combines, swathers and on-farm bulk fuel storage facilities.”

New federal regulations, which go into effect on July 1, 2011, will require all diesel and heating oil to have an average renewable content of two per cent.

But the effect of cold temperatures is a concern for anyone operating equipment with diesel engines. All fuels have a cloud point, the temperature at which solid crystals begin to form in the fuel, causing blockage in fuel filters and choking off the supply of fuel to the engine. This is why oil companies produce both “summer” and “winter” diesel – the latter having a lower cloud point (and therefore able to endure much lower temperatures before crystals form). However, biodiesel typically has a higher cloud point than regular diesel and is more susceptible to this problem.

But the Saskatchewan Research Council found no problems when it tested blends containing anywhere from two to 10 per cent canola-based biodiesel.

The study was conducted at Foam Lake, Saskatchewan from August 2009 to November 2010 on a range of equipment manufactured from 1965 to 2009. During the study period, temperatures ranged from -36 C to 31 C.

Eight farmers participated in the study and more than 50 pieces of farm equipment were tested. The equipment ranged from sub-100-horsepower yard tractors to +500-horsepower, four-wheel-drive tractors, as well as combines and swathers. Several engine brands and types were represented, and there were no modifications to equipment, fuel storage facilities, or fuel-handling practices. As part of the test, fuel was left in tanks from harvest end to harvest beginning the following year and no performance problems were found.

A fact sheet and Frequently Asked Questions booklet can be found at www.biodiesel-info.ca.

The post Study Finds Biodiesel Blend Can Handle Prairie Winter appeared first on Manitoba Co-operator.

two per cent biodiesel. But so far, it hasn’t done it.

Canadian canola grower associations want that renewable fuel standard in place April 1, 2011 and are urging farmers to lobby their MPs to make it happen.

“If a renewable fuel standard doesn’t come forward in a timely manner some of these producers that have invested in plants are stranded because the marketplace isn’t developing for their biodiesel to flow into,” said Brian Chorney, a farmer from East Selkirk and chair of the Canadian Canola Growers Association’s biodiesel committee.

When the two per cent biodiesel mandate takes effect it will require a million tonnes of canola annually to fill it, adding a new stable, domestic market for Canadian growers, Chorney said in an interview last week.

“Right now for every bushel of canola I produce, 85 per cent of it goes to export where it’s exposed to tariff and non-tariff trade barriers, ocean freight and currency fluctuations,” he said.

Last week the Manitoba Canola Growers Association, of which Chorney is a director, emailed farmers a newsletter asking them to contact their MPs to push for the biodiesel requirement.

“Discussing this at the kitchen table or in the coffee shop is not enough,” the newsletter says. “If you want Ottawa to deliver, please take the time to get your message to them today.”

The newsletter contains a link to a sample letter farmers can use to send to MPs.

The newsletter says farmers should also talk to friends and local government about the issue.

Manitoba mandated a two per cent biodiesel blend last November. British Columbia and Alberta also have biodiesel mandates, but the big diesel markets in Canada are Ontario and Quebec (as well as Alberta) so a national mandate is required, Chorney said.

The petroleum industry continues to ask for more studies. Chorney said it’s just a delaying tactic. Biodiesel has been intensely studied. What’s been found is when properly prepared and blended it meets all user needs,” he said.

Biodiesel has been successfully burned in Europe for many years, including in northern countries with cold winters, Chorney said. (Biodiesel’s flow point under cold temperatures is not as low as regular diesel, but that can be dealt with by reducing the amount of biodiesel in regular diesel or with additives.)

The newsletter says two federal government programs to encourage investment in biodiesel production have not met their goals. One of the programs is supposed to encourage farmers to invest in local biodiesel production. The other is supposed to encourage investment in larger plants.

Western Canada needs a large biodiesel plant, according to Chorney, to better serve the big oil companies that produce regular disease and will be compelled to add biodiesel.

“If they can’t source biodiesel in Canada they will get from the United States,” he said.

That’s where the bulk of the biodiesel used in B.C. comes from now, Chorney added. allan@fbcpublishing.com

———

“Discussingthisat thekitchentableorin thecoffeeshopisnot

enough.Ifyouwant Ottawatodeliver,please takethetimetogetyour messagetothemtoday.”

– CANOLA GROWER ASSOCIATIONS’ NEWSLETTER

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EPA data that compares greenhouse gas emissions between biodiesel and conventional diesel, released July 26, shows canola oil would meet a key eligibility requirement for the U. S. Renewable Fuel Standard program.

“These results, if finalized, would justify authorizing the generation of biomass-based diesel … produced by the canola oil biodiesel pathway modelled,” the EPA said, adding that canola oil would have to meet other criteria as well.

The EPA will receive comments on the data until Aug. 25, after which canola oil could become an eligible fuel source under the fuel mandate, giving it equal status with soyoil, said Tom Hance of lobbying firm Gordley Associates, which represents a coalition of U. S. canola and biodiesel groups.

“If you’re a (fuel provider) and you’ve got to meet this mandate and you’ve got a choice between fuel that’s eligible and fuel that’s not, you’re going to buy the fuel that’s eligible,” Hance said.

The main market for canola oil is edible oil, but biodiesel would give it fall-back demand, said Dale Thorenson, assistant director of the U. S. Canola Association.

U. S. farmers planted 1.5 million acres (607,100 hectares) of canola this year, mainly in North Dakota. That’s a relatively small area, but the U. S. Canola Association has set a goal of expanding to four million acres by 2015.

U. S. plants have annual capacity for 200 million gallons (909 million litres) of biodiesel from canola oil, Hance said.

Canola oil’s eligibility for the mandate may also stabilize U. S. imports of Canadian canola oil, Thorenson said. Canada, the world’s third-largest producer of canola and rapeseed, shipped 892,000 tonnes of canola oil to its top export market the United States from August 2009 through May 2010, according to Statistics Canada.

The United States Congress has set a goal of blending 36 billion gallons of renewable fuel into transportation fuel by 2022.

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But tell them it’s supposed to boost fuel efficiency, reduce emissions and extend engine life and you’ll have their attention.

Ron Preston, president and Kevin Kenney, biofuel systems engineer, with Nebraskabased CleanFlex Power Systems get that a lot. Their company has a patented system to retrofit diesel engines to run on at least 15 per cent, 120-proof ethanol and 85 per cent diesel.

But the technology allows diesels to run on up to 95 per cent 120-proof ethanol and just five per cent diesel.

One hundred and twenty-proof ethanol is 60 per cent pure ethanol and 40 per cent water.

Let that sink in – 40 per cent water.

WATERED DOWN

With the CleanFlex system, up to 38 per cent of the fuel burned in a diesel engine could be water; 57 per cent would be ethanol and just five per cent of it diesel.

Water, although a vital resource is renewable. And it costs pennies a gallon versus dollars per gallon for diesel, which is finite.

And there’s more. CleanFlex claims its system reduces fuel consumption 10 to 30 per cent, or boosts horsepower by that much, slashes nitrous oxide (NOx) emissions by up to 50 per cent, reduces particulate emissions and results in cooler-running engines.

“Engines run cleaner and greener and it gives longer engine life,” Preston said during a recent demonstration at Blight Equipment, a CaseIH and New Holland dealership.

Manitoba Hydro officials were to see a demonstration later in the week.

LUBRICITY

Usually the first question farmers ask is about lubricity. Won’t ethanol and water damage the engine’s fuel injection pump, fuel injectors and pistons?

Nope. The 120-proof ethanol is stored in a separate fuel tank and delivered to the cylinders through the engine’s air intake system, bypassing the injection pump and injectors.

“The point of combustion is where we go in (and the two fuels meet),” Preston said.

The ethanol-water mix enters the cylinder in a vapourized state. And even though ethanol alone has less energy (British thermal units) than diesel fuel, combining the fuels results in a slower, cooler, but more thorough burn, Kenney said. The water is converted to steam, which creates power.

“We put a steam engine inside a diesel engine,” Kenney said. “That’s what we’ve done. We’ve harnessed a bigger horse with the same bridle.”

STEAM TREATMENT

The steam also adds lubricity. The diesel fuel burns better, resulting in less nitrous oxide emissions.

“We have a pre-treatment and we are eliminating emissions so they never happen,” Preston said. “Some of the other technologies are trying to take care of emissions after the fact.”

In the United States, 200-proof ethanol sells for $1.60 a gallon (U. S.). Dilute it by 40 per cent with water and the cost of 120-proof ethanol drops to around a buck a gallon or 25 cents a litre.

Despite being 40 per cent water, 120-proof ethanol won’t freeze even at -73 C.

Like any new technology, potential users want independent, third-party data proving it works, and in this case, that it won’t harm engines. The Southwestern Research Institute in Texas is currently studying the CleanFlex system, Preston said.

In the meantime, several engines continue to burn the ethanol-water and diesel combination including the firm’s own 2005 Ford Powerstroke diesel three-quarter-ton truck.

“We’ve seen a 30 per cent improvement with fuel economy,” Preston said.

A highway tractor with a 475-hp Cat engine has logged almost 42,000 miles in the United States without any trouble, according to Preston. Fuel costs have dropped 40 per cent. One of the truck’s fuel tanks holds enough 120-proof ethanol to cover 6,000 miles.

If the truck runs out, the engine continues to operate normally just on diesel.

NON-INVASIVE

Kenney says computers and modern electronics are key to making the system work so flawlessly.

“This system is non-invasive,” he said. “We’re not changing anything on the engine. This is bulletproof.”

According to CleanFlex, its system, properly installed, will not cause engine damage, therefore, it shouldn’t void new engine warranties.

“We’ve talked to many (machinery) company engineers that don’t see a problem,” Preston said, but he agreed engine makers will need to be convinced, just as they were when ethanol and biodiesel first hit the market.

CleanFlex is ready to commercialize its technology. Retrofitting an engine would cost $5,000 to $7,500 and will take half a day by a trained installer, Preston said.

Preston hopes someday diesel engines will come from the factory already fitted with the CleanFlex system.

The American government and military are interested because it fits with the goal of reducing dependency on imported oil, he added. American farmers are interested because it has the potential to dramatically increase the demand for their corn, which is made into ethanol.

There are hurdles, such as making 120-proof ethanol generally available, especially to serve truckers, but Preston is confident the challenges can be overcome.

Before Preston and Kenney left they poured two pails of ethanol into the company truck, followed by a couple of jugs of distilled water.

It looked weird. allan@fbcpublishing.com

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