Strategy for supply chain development of Bio-diesel as an alternative fuel in Pakistan

8/7/2019 Strategy for supply chain development of Bio-diesel as an alternative fuel in Pakistan

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Research Paper on

Strategy for Supply Chain Development ofBio-Diesel as an Alternative Fuel in Pakistan

Authors:

M. Ammad Riaz Rabia Shoaib AhmadDirector System Engineering Director Business DevelopmentClean Power (Pvt.) Ltd. Clean Power (Pvt.) Ltd.Isalmabad. Islamabad.Pakistan. [email protected] [email protected]

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Abstract

Bio-diesel is a clean burning alternative fuel,produced from domestic, renewableresources. It is Biodegradable, nontoxic, andessentially free of sulfur and aromatics. Bio-Diesel isusually blended with hydro-carbon diesel with ratios 10-90 (called B-10) or 20-80 (called B-20). This Bio mix is atested model in various countries for use as alternativefuel.

motivators for the production of Bio-Diesel in Pakistanand world wide development in this field.

Bio-Diesel can be produced from a number ofseed oils (used and un-used). The production processfor resources vary from one to another in terms of minoroperational deviations. The flow line from stakeholderto consumer consists of growing of seeds, oil extraction,chemical treatments and consumption. This flow lineinvolves a number of characters that can play theirspecific roles behind the stage.

The paper proposes a strategy for development ofsupply chain mechanism for use of Bio-Diesel as an

alternative fuel in Pakistan. The rational of paper isintroduction of Bio-Diesel including its viable sources inPakistan and its subsequent benefits, principle

The actual theme of this paper is supply chaindevelopment strategy in Pakistan, which coversdemand management, identification of inventoryrequirements, devising the production process flow,deployment models and basic infrastructurerequirements.

The attributes covered are availability of rawmaterials, production processes, handling,transportation, distribution and storage between indifferent stages. In the end, authors have describedexpected challenges and uncertainties in deployingsupply chain of Bio-Diesel as an alternate fuel inPakistan, and the possible solutions.

This paper does not take into account theeconomic aspect as a focal element of consideration.

The reason being that at this point of time, the bestpossible solution may terminate due to economicconsiderations. The intention is to device such systemthat can economize itself with expansion anddeployment.

Project of Clean Power (Pvt.) Ltd. and AEDB Page 1 of 8


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Strategy for Supply Chain Development of Bio-Diesel as an Alternative Fuel in Pakistan___________________________________________________________________________

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1. PREAMBLE

1.1 Introduction to Bio-Diesel:

Bio-diesel is a clean burningalternative fuel, produced from domestic,renewable resources. It is Biodegradable,nontoxic, and essentially free of sulfur andaromatics. In modern world the use of Bio-diesel is preferred due to environmentalreasons. In Pakistan the Bio-diesel isunknown. Bio-Diesel is usually blended withhydro-carbon diesel with ratios 10-90 (calledB-10) or 20-80 (called B-20). This Bio mix isa tested model in various countries for use asalternative fuel.

The universally understoodadvantages of using Bio-Diesel are:

Utilization of Domestic NaturalResources as Raw Material

Promotion of Green Resources

Substitute to Hydrocarbon Diesel

Cheaper Infrastructure required

Reduced Engine Emissions

Availability Possible in Far Flung RuralAreas

No Competition

1.2 International Statistics:

Bio-Diesel is currently commerciallyproduced in Germany, Italy, Austria, CzechRepublic, Malaysia and United States, and ismost advanced in the United States andEurope, which currently produce 2 billion and1 billion liters of Bio-Diesel per yearrespectively. In Germany there are over 1000outlets where Bio-Diesel is cheaper thanstandard diesel. France, currently the largestuser of Bio-Diesel in the world, has a minimummix of 5% in all diesel sold.

2. ENVISIONED SUPPLYMODELING:

Bio-Diesel can be used in the form ofdifferent models in Pakistan to start with.

Following sectors have been targeted tostudy the supply chain:

Transport Sector Industrial Sector

Power Generation Sector

Agriculture Sector

There are broadly two forms ofmodels to initiate the interface of bio-masstechnology with domestic infrastructure.One is a closed loop solution, whichintroduces a concept of self-made Bio-Diesel for the consumer. Other is theconventional model involving number ofdirect and indirect stake holders.

For the closed loop system, theentire cycle from raw material toproduction to consumption is managed bythe user. Infrastructure is establishedthrough customization of existing options.Non-public communities and commoditieshaving a large scale collective requirementof Bio-Diesel are the best fit for this model.These can generate their raw materialthrough available infrastructure, managethe production in local vicinity andconsume their and then.

The other model will addresscommercial users for which, there has tobe an independent system withindependent stakeholders in place forstorage, transportation and supply of rawmaterial. Likewise, independentproduction units purchase the raw materialand deliver product to the distributors forretail.

The strategy for supply chainbroadly addresses both the models from asingle eye. The micro details of

implementation will be the derivatives ofstrategy.

Considering the above-mentionedmodels and botanical studies on Bio-Diesel resources, following are selectedfor production of Bio-Diesel in thebeginning.



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Oil extracted from Pongamia Pinnataseeds

Oil obtained through transesterification ofwaste vegetable oil

2.1 Supply Chain with respect toBio-Diesel:

Bio-Diesel, like any typical engineeringcycle, involves maximum elements of supplychain, which are listed below:

Demand management

Production

Storage at all levels

Transportation between all levels

Distribution Consumption

2.2 Experimented Yields:

RawMaterial

% SeedYield

% Oil Yield

PongamiaPinnata

2.5 tonsper hactare

25 lit bio-diesel / 100kg seed

WasteVegetable Oil

N/A 80 lit bio-diesel / 100lit WVO

3. THE SUPPLY CHAIN OF BIO-DIESEL:

3.1 Demand Management:

3.1.1 Raw Materials Availability:

Pongamia Pinnata Seed

Pongamia Pinnata can be cultivated asa non-cash crop and does not necessarilyoccupies the land, which is

reserved for regular / routine cultivation.In first phase existing plantation of theseplants can be used. This plantation isscattered in Pakistan and no reliable dataexists for their locations. However, the

scattered availability will introduce aconstraint of difficulty in seed collection.Thus planned plantation is must on a largescale.

In this regard government has to takefollowing steps:

Offer of financial aids to farmers.

Announcement of special incentiveslike free saplings, seeds

Announcement of purchase price of

seed before plantation (refer topractices of agricultural cash crops).

Plantations on state lands.

In addition to availability, wholesalemarkets are also required for distributionof seeds. For that, the existing markets ofcash crops can be customized and used.

Waste Vegetable Oil

In this category two main sources areavailable:

Domestic

House hold users.

Industrial

Hotel industry, Restaurants chains,Industry consuming edible oils.

Collection of WVO from both the usersis a complex process and needs to beestablished properly. Some suppliers ofWVO are already existing that can betabbed. For house hold users there maybe a welfare oriented collectionmechanism like offering a bottle of clearwater in replacement of one bottle ofWVO.



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This may be further improved by introductionof bigger containers and then to collection pointsat some places.

Following steps are required for availability ofWVO:

o Determination of fixed price for WVO.

o Expansion and customization of WVOwholesale markets.

o Expansion and customization of collectionand supply mechanism.

o Public awareness through media.

3.2 Storage of Raw Material:

Storage of raw materials can be built in thewholesale markets. Seeds can be stored withnormal agricultural practices. Metal tanks withprevention from contamination are good enoughfor storage. Storage capacity must fulfill theseasonal variations.

A designated Govt. department orTrading Corporation of Pakistan shouldcontrol the supply of seeds to consumer. Thus,

there should be capacity building strategy at agradual pace.

3.3 Transportation of RawMaterial:

The transportation mechanism is available inthe country at wide scale with plenty of options.Both road and rail transportation systems arerecommended for seeds as well as WVO fortransportation to wholesale market andproduction units. The choice of road and railoption depends upon availability of road / railnetwork and further requirement. Seeds can behandled in existing dampers and likewise, WVO

in tankers. Here it is important to note thatWVO requires dedicated tankers due to itsexclusive chemical properties and thosetankers can not accommodate material otherthan WVO.

3.4 Production of Bio-Diesel:

Bio-Diesel can be produced by twomethods with respect to the types of rawmaterial sources. The production set-upscan be established in Pakistan through aphased approach.

3.4.1 Oil Extraction from Seeds:

Existing oil extraction machines canbe used in the first phase. But thesemachines have low capacity to produce Bio-Diesel. Later on, exclusive oil extractionmachines can be brought into use in theextraction plants of Bio-Diesel with capacityto process seed ranging between 1-2 tonsper day. Such machines are available inforeign countries with specific options forlarge scale Bio-Diesel production. Themechanics of these machines is not very

complicated and can be re-engineered inPakistan through indigenization.

3.4.2 Transesterification:

Transesterification is the chemicalconversion of WVO to Bio-Diesel. The flowof process can be managed both in the formof flow line and batch production. Theprocess layout for both options isinternationally available with consideration oflean set-up and maximum efficiency.Design and fabrication of equipment is notcomplicated. Reference models can beimported and re-produced. The systemintegration in the form of production plant isa specialized role.



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Government should set-up model unitsand develop vendors that are specialized inrequirement analysis, arrangement ofequipment and setting up the plant.

For a small scale Transesterification unit(like 50 100 Liters per day) no heavyequipment is required and it can be arrangedeasily in the initial phase. Later on, units with500 1000 Liters per day capacity can beestablished, which is also easy to fabricate.

3.4.3 Storage of Bio-Diesel:

The production plants of Bio-Diesel

should have appropriate storage place for theend product depending upon the plantcapacity.

3.5 Distribution of Bio-Diesel:

Mechanism for distribution of Hydro-Carbon-Diesel to sale points already exists.There is a need of building capacity in existingmechanism. The same can be used withexpansion, if required.

3.6 Blending of Bio-Diesel:

Blending can be introduced at anygood stage in the entire flow depending uponthe whole system in place. To start with, oneeasily doable and recommended option is toblend in the fuel supply of consuming engine.Difference in specific gravity of Bio-Diesel andhydrocarbon diesel allows the straight mixingand settling when induced through separatedispensers. For this option, separate storagetanks are required at the distribution points.

With the passage of time, mechanizedblending equipments can be deployed at oilrefineries to produce ready-to-use Bio-Dieselthere and then in large quantities. This option

requires transportation of Bio-Diesel toblending faciliti at the refineries andextended storage there. However, thebenefit is a more centralized approach

towards handling and delivery of endproduct to the distributors.

3.7 Consumption:

Initially, Govt. has to set-up somepilot projects to use Bio-Diesel. Thesystem, with usage, will automaticallyincrease its efficiency. This is explainedin the later part of paper.

3.8 On-spot / Self production:

For self production, elements ofsupply chain that are available in the in-house mechanism are obtained from thereand rest are utilized from the over allsystem.

4. QUALITY ASPECT:

4.1 Quality of Production:

It is understandable that QualityStandards for production of Bio-Diesel donot exist in Pakistan. Internationallyavailable standards can be used in theinitial phase. In the later stages,indigenous standards can be developedconsidering the domestic scenario.

4.2 Certification of Product:

Bio-Diesel has to be chemicallycompatible with Hydro-Carbon Diesel butit can have same variations as acceptable

in the international models (ASTMstandards). The prevailing system inPakistan to check the quality of fuel isto be used for Bio-Diesel.



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4.3 Certification of Process:

The entire process of obtaining Bio-Dieselfrom raw seeds shall be documented andapproved by the competent authorities and

controlled. The facilities and processes forproduction of Bio-Diesel shall be qualified in thesame manner as that of ISO certifications. Onlycertified agencies shall be permitted to undertakethe production of Bio-Diesel.

Government should designatedepartment / company to certify the producersof Bio-Diesel.

4.4 Environmental Concern:

Overall Bio-diesel emissions are lowerthan gasoline or diesel fuel emissions (with theexception of NOx). Compared to hydrocarbondiesel, Bio-Diesel produces no sulfur, no netcarbon dioxide, up to 20 times less carbonmonoxide and more free oxygen. Bio-Diesel hasthe following emissions characteristics whencompared with petroleum diesel fuel:

Reduction of carbon dioxide emissions(CO2) by 100%

Reduction of sulfur dioxide (SO2) emissionsby 100%

Reduction of soot emissions by 40-60%.

Reduction of carbon monoxide (CO)emissions by 10-50%

Reduction of hydrocarbon (HC) emissionsby 10-50%

4.5 Safety Requirements:

Safety requirements are to be devised forBio-Diesel. These instructions are availableinternationally and in local petroleum industry.For devising safety requirements for Bio-Diesel,guidelines can be taken from existing practices inlocal petroleum industry viz a viz the difference inrequirements of petroleum products and bio-fuels.

these requirements must be devised as per localconditions.

5. DEPLOYMENT OPPORTUNITIES:

As Bio-Diesel opens a new avenue inPakistani Petroleum Industry, thus itsdeployment must be a systematic step by stepapproach. Deployment of Bio-diesel in Pakistanmust follow following steps:

Establishment of Pilot Model.

o Government owned pump and its operationfor at least 02 years to sustain the supply chainin a cost effective manner.

o Conversion of vehicle fleet of some Govt.

department on Bio Diesel.

o Conversion of a Govt. owned industry /factory on Bio-Diesel.

o Supply of Bio-Diesel for agriculturalmachinery in a specific area.

After at least one year of sales at these pilotmodels, complete analysis is to be performed tocalculate cost effectiveness of the system,effectiveness of supply chain mechanism,cultural growth

After successful running of this pilot model,Govt. is to take steps to introduce the same pilotmodels in some other major cities.

Legislations for supply, distribution,production, transportation, handling andblending of Bio-Diesel.

Establish basic system to support the supplychain development programs in country.

Promotion of Bio-Diesel Culture.

o Seminars

o Workshops

o Gathering all agencies on singleplatforms.



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Special relief to the following through taxsubsidies.

o Farmers

o Oil Production plants

o Suppliers of WVO

o Sales points (pumps).

Target Setting for Government Agencies.

o Agricultural department forplantation of seeds.

o Forest Department for plantation

o Local Govt. for collection ofWVO.

o Ministry of Industries for oilextraction & chemical treatmentplants

o Ministry of petroleum for settingup blending options

o Pakistan Railways to partiallyswitch over on Bio-Diesel.

o NHA / Pakistan Railways forplantation along road and trackside.

o Bank loans for new pumps,plantation fields, extraction units.

6. EXPECTED CHALLENGES:

Currently the use of Bio-Diesel is zero and thisis a new thing happening in Pakistan. Every newhappening has some barriers that to bemanaged and reduced efficiently. Some theimportant challenges to extensive use of Bio-diesel are explained below:

Fierce competition from existingpetroleum industry

Existing usages of WVO

Non existing infrastructure, legislation,supply chain of raw material

Expected higher price compared toexisting petroleum

Un-awareness in general public andmost importantly in the Govt. sector.

Expected Imbalance Between Supply& Demand

Poor Coordination, Communicationand Understanding among Players

Lack of Project Endorsement

7. RECOMMENDATIONS:

Based on the above study the authorsrecommend following:

Government of Pakistan needs to getcommitted for the use of Bio-Diesel as analternative fuel, followed by efficient programmanagement.

Bio-Diesel will not only provide energysecurity but also make the dream of greenerPakistan come true.

Pakistan Railway with an annual

consumption of approximately 35 millionliters HSD can completely switch on B10 by2008. Land and Infrastructure of Railwaycan be used for plantation of raw materialresources. The oil production and stakeson raw material can be kept optional forRailways or a third party.

50 villages can be switched on B10 foroperating agricultural machinery by 2008.This can be a closed model, where entirechain can be managed with in the specificvillages to meet the demand.

10 industries can switch their engines onB10 by 2008.

10 retail outlets in urban areas can supplyB10 by 2008.



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8. ACKNOWLEDGEMENTS:

This research acknowledges theefforts of Government sector towardspromotion of renewable energies. AlternativeEnergy Development Board (AEDB) is playinga central role in establishing the systems.This particular research is an outcome of pilotproject on bio-fuels initiated by AEDB andexecuted by Clean Power (Pvt.) Ltd.


Documents

Strategy for supply chain development of Bio-diesel as an alternative fuel in Pakistan