Biodiesel Opportunities in the Southeast

416 S B ll A

Biodiesel Opportunities in the SoutheastPresented by Renewable Energy Group®

W d d S t 1 2010 416 S. Bell Ave.

Ames, IA 50010 888-REG-8686

www.regfuel.com

Wednesday, Sept. 1, 2010 Dial In: 866-921-2204; *1728675* Please mute your line.

Today’s AgendaToday s Agenda• Biodiesel 201 • Infrastructure

• Federal Drivers

• State Drivers

• Other Market Drivers

• Blending Economics

• REG Overview

• Q&A• Other Market Drivers • Q&A

Copyright 2010Renewable Energy Group® 2

Dave Slade, Ph.D Gary Haer Larry Breeding

d lCopyright 2010Renewable Energy Group® 3

Biodiesel 301

What is biodiesel?What is biodiesel?• Biodiesel is methyl esters made from biological oils and

fats (triglycerides) by transesterificationfats (triglycerides) by transesterification

Methanol Methyl ester

Methyl ester

M th l tMethanol

Methanol Triglyceride

Methyl esterMethanol

ProductsRaw materials

Transesterification reaction

Copyright 2010Renewable Energy Group®

Methyl stearateMethyl stearate


Methyl linoleateMethyl linoleate


Feedstock and fuel qualityFeedstock and fuel quality• Biodiesel can be made from:

Vegetable oils (soy canola corn etc )• Vegetable oils (soy, canola, corn, etc.)

• Animal fats (pork, beef tallow, poultry)

• Used oils (used cooking oil, yellow grease)( g y g )

Production skill not feedstock determines biodiesel quality• Production skill, not feedstock, determines biodiesel quality

• Feedstock mix determines methyl ester profile and color

• Fatty acid profile only affects a few properties:• Cloud point• Density & viscosity

Determined by the fatty acid profile of


• Cetane number the feedstock mix

BQ-9000 Critical SpecificationsBQ 9000 Critical SpecificationsFree Glycerin ASTM D6584 Max 0.020% mass

Total Glycerin ASTM D6584 Max 0 240% massTotal Glycerin ASTM D6584 Max 0.240% mass

Flash Point [Methanol] ASTM D93 Min 130 °C [Max 0.2% methanol]

Acid Number ASTM D664 Max 0.50 mg KOH/gAcid Number ASTM D664 Max 0.50 mg KOH/g

Water & Sediment ASTM D2709 Max 0.050% volume

Visual Appearance ASTM D4176 Max 2

Oxidative Stability EN 14112 Min 3.0 hr

Sulfur ASTM D5453 Max 15 ppm

Cold Soak Filtration ASTM D6751 Annex

Max 200/360 seconds (cold/warm weather)

Cloud Point * ASTM D2500 Report, °C


* Depends on feedstock

Multi-feedstock opportunities through enhanced production technologyenhanced production technology

• Animal fat biodiesel advantagesHi h t Test

Vegetable Oil Animal Fat

• Higher cetane

• Better oxidation stability

• Lower GHG emissions number by EPA

Test Oil Biodiesel Biodiesel

Cetane 47 – 49 51 – 58

O id ti t bilit 4 6 h 6 12 hEPA Oxidation stability 4 – 6 hr 6 – 12 hr

Sulfur 1 – 8 ppm 5 – 14 ppm

Cl d P i t 3 t 3°C 6 t 16 °C• Animal fat biodiesel disadvantages

Cloud Point -3 to 3°C 6 to 16 °C

• Benefits of multi-feedstock

• Higher cloud point

• Unique processing challenges—pretreatment & experience • Benefits of multi feedstock

biodiesel production • Economics• Supply assurance

required to exceed ASTM specifications


• Properties not available with a single feedstock

B100 Cloud Points for REG-9000TMB100 Cloud Points for REG 9000

16

15

20

6 6

10

13

10

15

9000/10

12

6

0

5

9000/19000/5

-3 -3-5

Canola Inedible Corn Oil

Soybean Used Cooking Oil

Yellow Grease Poultry Fat Choice White Grease

Palm Beef Tallow

1


Cloud Pt. (°C)

d l kCopyright 2010Renewable Energy Group® 11

Federal Market Drivers

Blenders Tax Credit UpdateBlenders Tax Credit Update• Federal Blenders Tax Credit supporting biodiesel expired

on December 31, 2009

• Continues to be bi-partisan support for legislation to be passed retroactively to January 1, 2010.

• Senate/House return to D.C. Sept. 13• House: 15 working days until elections

• Senate: 7 working days until elections

• Post November elections lame duck session if R’s elected into• Post-November elections lame duck session if R s elected into leadership

• Q1/Q2 of 2010, an estimated 190 million gallons of


Q /Q , gbiodiesel was produced/sold in the United States

12

RFS2 ImpactRFS2 Impact• Revised Renewable Fuels Standard requires 1.15 billion

ll f bi di l (2009 2010) t b d bgallons of biodiesel (2009 + 2010) to be consumed by obligated parties by end of 2010.

• Grows to 1.0 billion gallons annually by 2012

• Compared to the 350 million gallon market in• Compared to the 350 million gallon market in 2009

• Petroleum majors are the primaryPetroleum majors are the primary “obligated parties”

• Refiners, Refined Fuel Importers, and Reformulators


Reformulators

RFS2 & RINsRFS2 & RINsPrimary Purpose: Incentivize Renewable Fuel Blending• Biodiesel producers generate RINs

• RINs are attached to “neat” biodiesel and remain attached until blended with diesel fuel or heating oilwith diesel fuel or heating oil

• Product Transfer Documents required

• May transfer zero to 2.5 RINs per gallon. Buyer and Producer must y p g yagree how many

• IRS blended = B99. EPA blended =B80B99 i NOT bl d d d t d RFS• B99 is NOT a blended product under RFS

• RINs must be attached.


Renewable Fuel Identification Numbers (RINs) Overview(RINs) Overview• How do RINs work?

• RINs are attached to a batch of B100/B99 at biodiesel production facility and follow / p ythrough the supply chain (until fuel is blended to <B80)

• Every gallon of B100 produced, receives 1.5 RINs

– Other liquid renewable fuels could receive different numbers of RINs per neat gallon

– As an example, every gallon of ethanol from corn receives 1.0 RINs

• If an obligated party need additional RINs, biodiesel producers can attach additional RINs to B100/B99 gallons that have been refused by small to medium sized blenders


How are RINs valued?How are RINs valued?• To an obligated party…

• RINs help them meet their EPA-regulated volume requirements

• Obligated parties can sell extra RINs to other obligated parties or purchase additional RINs from other biodiesel userspurchase additional RINs from other biodiesel users

• To a non-obligated party…• RINs values can be extracted by aggregating many RINs and• RINs values can be extracted by aggregating many RINs and

then selling them to an obligated party or broker

• If a petroleum blender does not want to take on the EPA paperwork of RINs, they can refuse them at the time of B100/B99 purchase

– For example: A mining customer could refuse RINs and receive a


For example: A mining customer could refuse RINs and receive a discount on their wholesale biodiesel purchase from REG

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Historical Biodiesel RINs Values

0 6000

0.7000

Source: OPIS Biodiesel Mid-Range RIN prices

High $0.58 per RIN, or $0.87 per gallon

0.5000

0.6000 $ p g

0.3000

0.4000

0.1000

0.2000

0.0000


OPIS Biodiesel RINS Mid

RINs Program ResourcesRINs Program ResourcesEPA’s RFS2 Jobber

Support Line

RIN Alliance(Jeff Hove)

RIN StarRinregister.compp

EMTS technical support

resources

h // /f l

( )

515.224.7545

1-866-433-7467

[email protected]

g

(575) 377-3369 – main

[email protected]

http://ww.epa.gov.otaq/fuels/renewablefuels/emtsht

ml/emtstutorials.htm

800-385-6164

(Monday thru Friday

9:00 AM to 5:00 PM ET)

(REG does not endorse third-party partners but can


work with any commercial RIN partner)

kCopyright 2010Renewable Energy Group® 19

State Market Drivers

US Distillate Consumption by StateUS Distillate Consumption by State(000 gallons)


Biodiesel Industry Market Drivers 2010Biodiesel Industry Market Drivers 2010• State Incentives

Mi t B5 M d t ff ti M 1 t 2009• Minnesota B5 Mandate effective May 1st, 2009

• Illinois Tax abatement on B11 biodiesel blends 6.25%

• Iowa $0.03/gallon tax income tax credit on gallons including B2

• Oregon B2 Mandate effective July 2009g y

• Washington B2 Mandate effective December 2008

• Pennsylvania B2 mandate effective January 2010 for transportation fuel

• Massachusetts B2 mandate effective July 2011 for transportation fuel and heating oil

S th C li $0 25/ ll t il i ti B100• South Carolina $0.25/gallon retailer incentive on B100

• Texas $0.20/gallon tax abatement on B100

• New Mexico B5 mandate for state fleets effective July 2010, all diesel July 2012

• Hawaii Excise tax abatement of 25% on B100 gallons

• Louisiana B2 Mandate once 15 mgy of production capacity

• Provincial Incentives• Canada Manitoba (B2) and British Colombia (B3) effective January 2010


AlabamaAlabama• Fleet Incentives

• Grants are available from the state of Alabama to cover up to $2,500 of the cost of cleaning existing fuel tanks in preparation for storing B20. Successful applicants will be required to provide B20 for a minimum of three years to provide information on the number of gallons of B20provide information on the number of gallons of B20 dispensed during that time period.

Copyright 2010Renewable Energy Group® 22Fleet

ArkansasArkansas• Infrastructure Incentives

• Alternative fuel distributors can receive up to $300,000 or 50% of the project cost, whichever is less, to assist with the distribution and storage of alternative fuels or alternative fuel mixtures atand storage of alternative fuels or alternative fuel mixtures at distribution facilities that are located and operated in Arkansas.

• Fleet Mandate

• All diesel-powered motor vehicles, light trucks, and equipment owned or leased by a state agency are required to operate using diesel fuel that contains a minimum of 2% biofuel by volumediesel fuel that contains a minimum of 2% biofuel by volume.

Copyright 2010Renewable Energy Group® 23Fleet Infrastructure

FloridaFlorida• Fleet Mandates

• All state agencies must use ethanol and biodiesel blended fuels when available.

Copyright 2010Renewable Energy Group® 24Fleet

KentuckyKentucky• Tax Incentive (Diesel)

• Qualified biodiesel producers or blenders are eligible for an income tax credit of $1.00 per gallon of pure biodiesel (B100) or renewable diesel produced or used in the blending process (B2 blend). Re-blending of blended biodiesel does not qualify The total amount of credit forbiodiesel does not qualify. The total amount of credit for all biodiesel producers may not exceed the annual biodiesel tax credit cap of $10 million.biodiesel tax credit cap of $10 million.

Copyright 2010Renewable Energy Group® 25Incentive

LouisianaLouisiana• State Mandate (Diesel)

• B2 required in all diesel fuel sold in the state one in-state biodiesel production reaches 10 million gallons per year

Copyright 2010Renewable Energy Group® 26Mandate

South CarolinaSouth Carolina• Tax Incentives (Diesel)

A $0 25 i ti t i il bl t bi di l t il f h ll f• A $0.25 incentive payment is available to biodiesel retailers for each gallon of pure biodiesel (B100) sold, provided that the resulting blends contain at least 2% biodiesel (B2). These incentives apply only to fuel sold before July 1 20121, 2012.

• Infrastructure Incentive

• A taxpayer that constructs, installs, and places into service a qualified commercial facility for distribution or dispensing of renewable fuels in the state is eligible for an income tax credit of up to 25% of the construction and installation costs.

• Fleet Mandates

• The South Carolina Department of Education is required to fuel state school bus fleets with biodiesel when feasible


bus fleets with biodiesel when feasible.

27Incentive Fleet Infrastructure

TennesseeTennessee• Infrastructure Incentives• The Tennessee State Energy Office offers grants to

county governments for the installation of biodiesel infrastructure including biodiesel tanks pumps and cardinfrastructure, including biodiesel tanks, pumps, and card readers, that can be used to provide biodiesel fuel for county and city owned vehicles.

• The Tennessee Department of Transportation (TDOT) engages in public-private partnerships with transportation f f f ffuel providers to install fueling facilities. Fueling facilities include storage tanks and fuel pumps dedicated to dispensing biofuels


dispensing biofuels.

28 Infrastructure

h kCopyright 2010Renewable Energy Group® 29

Other Market Drivers

Air Quality: Oppo t nities in Non Attainment A easOpportunities in Non-Attainment Areas

• Biodiesel is the only alternative fuel to voluntarily complete EPA Tier I and Tier II testing to quantify emission characteristics and health effectsTier II testing to quantify emission characteristics and health effects.

• Exhaust emissions of particulate matter from biodiesel are about 47 percent lower than overall particulate matter emissions from diesel.

• Source: 1 In May of 1998 the US Department of Energy (DOE) and US Department of Agriculture (USDA) published the• Source: 1 In May of 1998, the US Department of Energy (DOE) and US Department of Agriculture (USDA) published the results of the Biodiesel Lifecycle Inventory Study. This 3.5-year study followed US Environmental Protection Agency (EPA) and private industry approved protocols for conducting this type of research.

• Biodiesel emissions show dramatically decreased levels of polycyclic aromatic hydrocarbons (75 85%) and nitrated polycyclic aromatic hydrocarbons (90%hydrocarbons (75-85%) and nitrated polycyclic aromatic hydrocarbons (90% to trace levels), which have been identified as potential cancer causing compounds.

f f f f• As a result of the health benefits of biodiesel, some chapters of the American Lung Association have pledged their support for use of the alternative fuel.


Biodiesel Industry Market Drivers 2010• ASTM D975 diesel specifications

Biodiesel Industry Market Drivers 2010

• Announced Oct. 2008

• Allows biodiesel to be blended with diesel fuel up to B5, with no labeling requiredlabeling required

• Greenhouse gas emission reduction goals• Greenhouse gas emission reduction goals• Low Carbon Fuel Standards (California, Mass., etc.)

• RFS2 GHG Emission Reduction ThresholdsRFS2 GHG Emission Reduction Thresholds


Biodiesel Industry Market Drivers 2010• New Market Development

Biodiesel Industry Market Drivers 2010

• Heating Oil Market

• Power Generation

Mi i• Mining

• Government


fCopyright 2010Renewable Energy Group® 33

Infrastructure

U.S. Diesel Terminal InfrastructureU.S. Diesel Terminal Infrastructure


Pipeline Downstream Injection ConceptPipeline Downstream Injection Concept• Objective: Participate in biodiesel supply

• Introduce biodiesel at downstream pipeline facilities• Introduce biodiesel at downstream pipeline facilities• Pursue injection-blending into outbound stublines/delivery lines

• Select locations with low potential for jet fuel trail-backSelect locations ith high shippe al e d e to• Select locations with high shipper value due to:

• Local mandates• Local incentives• Climate advantagesClimate advantages

• Allow for discretionary concentration selection by shippers (B2 to B20)P id l t f t t k t it f bli t d ti• Provide a low cost, fast track opportunity for obligated parties -an initial step in biodiesel participation until trail-back challenge is resolved


Southeast Pipeline OpportunitiesSoutheast Pipeline Opportunities


l dCopyright 2010Renewable Energy Group® 37

Blending Economics

Current Biodiesel PricingCurrent Biodiesel Pricing

REG-9000-1 REG-9000-10 #2 ULSDFOB, IA FOB, IA Rack Chicago

$3.15 B100 $2.90 B100 $2.00 RINS Value = $.70-80/gallon


B5-B20 Current Blending EconomicsB5 B20 Current Blending Economics• B100 Pricing (REG 9000/10) =$2.90/gallon

• Biodiesel RINs Values (=$0.75/gallon)

• #2 ULSD Basis vs. NYMEX HO (=$0.10/gallon)

• Transportation Costs from Iowa =$0 25/gallon• Transportation Costs from Iowa =$0.25/gallon

• Net Delivered B100 Price =$2.30/gallon

• #2 ULSD = $2.00/gal

• B100 = $2.30/gal

• B5 = $2.015/gal

• B10 = $2.03/gal

• B20 = $2.06/gal


B20 $2.06/gal

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d dCopyright 2010Renewable Energy Group® 40

REG Overview and Updates

A Complete Biodiesel SolutionA Complete Biodiesel Solution• Leading biodiesel company through vertical integration

• Feedstock Production, Research and DevelopmentF d t k E t ti d R fi i• Feedstock Extraction and Refining

• Conversion of Feedstock to Fuel• Fuel Sales and Marketing• Fuel Distribution and Logistics

C t S i d Ad i i t ti• Customer Service and Administration

• Industry Leadership• Began business in 1996• Tremendous growth opportunities across biodiesel value chain• Tremendous growth opportunities across biodiesel value chain• Experienced and best-in-class management team• Headquartered in Ames, Iowa with locations nationwide

• Redefining biodiesel quality• Redefining biodiesel quality • REG-9000TM biodiesel meets and exceeds industry quality specifications• Marketed through existing nationwide diesel infrastructure


41

REG Network of Biodiesel ProductionREG Network of Biodiesel ProductionLow

HighLow

HighLowLow

REG Houston35 MGY Startup: 08/2008

REG Newton30 MGY S 5/2007

REG Danville REG Ralston35 MGY, Startup: 08/2008

Seabrook, TX30 MGY, Startup: 5/2007

Newton, IA45 MGY, Startup: 11/2008

Danville, IL12 MGY, Startup: 3/2003

Ralston, IA

LowLow

High

Low

HighHighLow

REG Emporia60 MGY Startup: TBD

REG New Orleans60 MGY Startup: TBD

SoyMor Biodiesel30 MGY Startup: 8/2005

REG Seneca60 MGY Acquired: 04/2010 60 MGY, Startup: TBD

Emporia, KS60 MGY, Startup: TBD

Destrehan, LA

Low free fatty acid feedstock conversion

Low High High free fatty acid f d t k i

30 MGY, Startup: 8/2005Glenville, MN

60 MGY, Acquired: 04/2010Seneca, IL


feedstock conversion (soy, canola, refined fats)

feedstock conversion (fats, corn, waste greases)

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REG Sales and MarketingREG Sales and Marketing • 2009: ~26% U.S. biodiesel consumption

S ld 94 illi ll i 2009 t l f 98 illi• Sold 94 million gallons in 2009, expect sales of >98 million gallons in 2010.

• Distribution through some of US’s leading terminal-operators (15+ locations)

• REG’s commercial scale facilities, production expertise and BQ-9000 Producer and Marketer status meet customers’ demands forProducer and Marketer status meet customers demands for consistent quality, quantity and supply assurance

• REG distribution advantages L i h h d• Lower transportation costs than other producers

• Long-term contracts and high volume allowed REG to negotiate advantageous turns

• In a tight market, REG established itself as a reliable supplier


• Current production capacity at 6 plants of >210 million gallons.

Supply Chain Management and Distribution & LogisticsDistribution & Logistics• Marketing via rail and truck in all 48 continental states across the

U S l H iiU.S. plus Hawaii

• REG has 18 terminal locations nationwide

• REG strategically locates plants and utilizes terminals which allow theREG strategically locates plants and utilizes terminals which allow the company to ship via rail, barge or deep water or store fuel for easy customer access

• REG manages customer demand and can produce fuel 24/7 as necessary at our network facilities.


National Infrastructure(Production & Terminals)(Production & Terminals)


Thank YouThank YouLarry Breeding

Bi di l S l M S th t R iBiodiesel Sale Manager, Southeast [email protected]

Gary HaerVice President, Sales and Marketing

Gary haer@regfuel [email protected]

Dave Slade, PhDDirector, Technical Services

[email protected]
