Biodiesel Opportunities in the Southeast
Presented by Renewable Energy Group®
Wednesday, Sept. 1, 2010
W d   d    S t 1   ...
Today s
Today’s Agenda
• Biodiesel 201                                    • Infrastructure
• Federal Drivers              ...
Biodiesel 301
   d    l
   Copyright 2010
   Renewable Energy Group®   3
What is biodiesel?
• Biodiesel is methyl esters made from biological oils and
  fats (triglycerides) by transesterificatio...
Methyl stearate




   Copyright 2010
   Renewable Energy Group®
Methyl linoleate




    Copyright 2010
    Renewable Energy Group®
Feedstock and fuel quality
• Biodiesel can be made from:
   • Vegetable oils (soy, canola, corn, etc.)
                   ...
BQ 9000
BQ-9000 Critical Specifications
 Free Glycerin                     ASTM D6584   Max 0.020% mass
 Total Glycerin   ...
Multi-feedstock opportunities through
  enhanced production technology
• Animal fat biodiesel advantages                  ...
B100 Cloud Points for REG 9000TM
                      REG-9000

                                                         ...
Federal Market Drivers
  d l      k
   Copyright 2010
   Renewable Energy Group®   11
Blenders Tax Credit Update
• Federal Blenders Tax Credit supporting biodiesel expired
  on December 31, 2009
• Continues t...
RFS2 Impact
 • Revised Renewable Fuels Standard requires 1.15 billion
   gallons of biodiesel (2009 + 2010) to be consumed...
RFS2 & RINs
Primary Purpose:                  Incentivize Renewable Fuel Blending
• Biodiesel producers generate RINs
• RI...
Renewable Fuel Identification Numbers
(RINs) Overview
• How do RINs work?
   • RINs are attached to a batch of B100/B99 at...
How are RINs valued?
• To an obligated party…
  • RINs help them meet their EPA-regulated volume requirements
  • Obligate...
Historical Biodiesel RINs Values
                              Source: OPIS Biodiesel Mid-Range RIN prices
0.7000

       ...
RINs Program Resources
   EPA’s RFS2 Jobber                  RIN Alliance                              RIN Star
      Supp...
State Market Drivers
         k
   Copyright 2010
   Renewable Energy Group®   19
US Distillate Consumption by State
                                  (000 gallons)




   Copyright 2010
   Renewable Ener...
Biodiesel Industry Market Drivers 2010
• State Incentives
    • Mi
      Minnesota
             t                       B5...
Alabama
• Fleet Incentives
• Grants are available from the state of Alabama to cover
  up to $2,500 of the cost of cleanin...
Arkansas
• Infrastructure Incentives
• Alternative fuel distributors can receive up to $300,000 or 50% of
  the project co...
Florida
• Fleet Mandates
• All state agencies must use ethanol and biodiesel blended
  fuels when available.




     Copy...
Kentucky
    • Tax Incentive (Diesel)
    • Qualified biodiesel producers or blenders are eligible for
      an income tax...
Louisiana
• State Mandate (Diesel)
• B2 required in all diesel fuel sold in the state one in-state
  biodiesel production ...
South Carolina
    • Tax Incentives (Diesel)
    • A $0 25 incentive payment is available to biodiesel retailers for each ...
Tennessee
• Infrastructure Incentives
• The Tennessee State Energy Office offers grants to
  county governments for the in...
Other Market Drivers
  h      k
   Copyright 2010
   Renewable Energy Group®   29
Air Quality:
 Opportunities Non Attainment Areas
 Oppo t nities in Non-Attainment A eas
• Biodiesel is the only alternativ...
Biodiesel Industry Market Drivers 2010
• ASTM D975 diesel specifications
   • Announced Oct. 2008
   • Allows biodiesel to...
Biodiesel Industry Market Drivers 2010
• New Market Development
  • Heating Oil Market
  • Power Generation
  • Mi i
    M...
Infrastructure
  f
   Copyright 2010
   Renewable Energy Group®   33
U.S. Diesel Terminal Infrastructure




   Copyright 2010
   Renewable Energy Group®   34
Pipeline Downstream Injection Concept
• Objective: Participate in biodiesel supply
   • Introduce biodiesel at downstream ...
Southeast Pipeline Opportunities




   Copyright 2010
   Renewable Energy Group®   36
Blending Economics
 l d
   Copyright 2010
   Renewable Energy Group®   37
Current Biodiesel Pricing
  REG-9000-1                      REG-9000-10    #2 ULSD
    FOB, IA                         FOB...
B5 B20
B5-B20 Current Blending Economics
 • B100 Pricing (REG 9000/10)                             =$2.90/gallon
 • Biodie...
REG Overview and Updates
               d   d
  Copyright 2010
  Renewable Energy Group®   40
A Complete Biodiesel Solution
•    Leading biodiesel company through vertical integration
    •        Feedstock Productio...
REG Network of Biodiesel Production
                          Low                                     Low                 ...
REG Sales and Marketing
• 2009: ~26% U.S. biodiesel consumption
• S ld 94 million gallons in 2009, expect sales of >98 mil...
Supply Chain Management and
Distribution & Logistics
• Marketing via rail and truck in all 48 continental states across th...
National Infrastructure
(Production & Terminals)




     Copyright 2010
     Renewable Energy Group®   45
Thank You
                         Larry Breeding
           Biodiesel Sale Manager, Southeast Region
           Bi di   l...
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Biodiesel Opportunities in the Southeast

  1. 1. Biodiesel Opportunities in the Southeast Presented by Renewable Energy Group® Wednesday, Sept. 1, 2010 W d d S t 1 416 S. Bell Ave. S B ll A Ames, IA 50010 Dial In: 866-921-2204; *1728675* Please mute your line. 888-REG-8686 www.regfuel.com
  2. 2. Today s Today’s Agenda • Biodiesel 201 • Infrastructure • Federal Drivers • Blending Economics • State Drivers • REG Overview • Other Market Drivers • Q&A Dave Slade, Ph.D Gary Haer Larry Breeding Copyright 2010 Renewable Energy Group® 2
  3. 3. Biodiesel 301 d l Copyright 2010 Renewable Energy Group® 3
  4. 4. What is biodiesel? • Biodiesel is methyl esters made from biological oils and fats (triglycerides) by transesterification Methanol Methyl ester Methanol Triglyceride Methyl ester Methanol Methyl t M th l ester Raw materials Products Transesterification reaction Copyright 2010 Renewable Energy Group®
  5. 5. Methyl stearate Copyright 2010 Renewable Energy Group®
  6. 6. Methyl linoleate Copyright 2010 Renewable Energy Group®
  7. 7. Feedstock and fuel quality • Biodiesel can be made from: • Vegetable oils (soy, canola, corn, etc.) (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 skill, feedstock • Feedstock mix determines methyl ester profile and color • Fatty acid profile only affects a few properties: • Cloud point Determined by the • Density & viscosity fatty acid profile of • Cetane number the feedstock mix Copyright 2010 Renewable Energy Group®
  8. 8. BQ 9000 BQ-9000 Critical Specifications Free Glycerin ASTM D6584 Max 0.020% mass Total Glycerin ASTM D6584 Max 0.240% mass 0 240% Flash Point [Methanol] ASTM D93 Min 130 °C [Max 0.2% methanol] Acid 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 Max 200/360 seconds Annex (cold/warm weather) Cloud Point * ASTM D2500 Report, °C * Depends on feedstock Copyright 2010 Renewable Energy Group® 8
  9. 9. Multi-feedstock opportunities through enhanced production technology • Animal fat biodiesel advantages Vegetable Animal Fat Test Oil • Hi h cetane Higher t Biodiesel Biodiesel • Better oxidation stability Cetane 47 – 49 51 – 58 • Lower GHG emissions number by EPA Oxidation t bilit O id ti stability 4 – 6 hr h 6 – 12 hr h Sulfur 1 – 8 ppm 5 – 14 ppm • Animal fat biodiesel disadvantages Cloud P i t Cl d Point -3 to 3°C 3t 6 to 16 °C t • Higher cloud point • Unique processing challenges— pretreatment & experience required to exceed ASTM • Benefits of multi-feedstock multi feedstock specifications biodiesel production • Economics • Supply assurance • Properties not available with a single feedstock Copyright 2010 Renewable Energy Group® 9
  10. 10. B100 Cloud Points for REG 9000TM REG-9000 20 16 15 13 10 9000/10 10 6 6 9000/5 9000/1 5 2 1 0 1 -3 -3 -5 Canola Inedible Corn Soybean Used Cooking Yellow Grease Poultry Fat Choice White Palm Beef Tallow Oil Oil Grease Cloud Pt. (°C) Copyright 2010 Renewable Energy Group® 10
  11. 11. Federal Market Drivers d l k Copyright 2010 Renewable Energy Group® 11
  12. 12. Blenders 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 Rs leadership • Q1/Q2 of 2010, an estimated 190 million gallons of Q /Q , g biodiesel was produced/sold in the United States Copyright 2010 Renewable Energy Group® 12
  13. 13. RFS2 Impact • Revised Renewable Fuels Standard requires 1.15 billion gallons of biodiesel (2009 + 2010) to be consumed by ll f bi di l t b db obligated parties by end of 2010. • Grows to 1.0 billion gallons annually by 2012 • Compared to the 350 million gallon market in 2009 • Petroleum majors are the primary “obligated parties” • Refiners, Refined Fuel Importers, and Reformulators Copyright 2010 Renewable Energy Group® 13
  14. 14. RFS2 & RINs Primary 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 oil • Product Transfer Documents required • May transfer zero to 2.5 RINs p gallon. Buyer and Producer must y per g y agree how many • IRS blended = B99. EPA blended =B80 • B99 is NOT a blended product under RFS i bl d d d t d • RINs must be attached. Copyright 2010 Renewable Energy Group® 14
  15. 15. Renewable Fuel Identification Numbers (RINs) Overview • How do RINs work? • RINs are attached to a batch of B100/B99 at biodiesel p / production facility and follow y through 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 Copyright 2010 Renewable Energy Group® 15
  16. 16. 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 users • To a non-obligated party… • 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 discount on their wholesale biodiesel purchase from REG Copyright 2010 Renewable Energy Group® 16
  17. 17. Historical Biodiesel RINs Values Source: OPIS Biodiesel Mid-Range RIN prices 0.7000 High $0.58 per RIN, or 0.6000 0 6000 $ $0.87 per g p gallon 0.5000 0.4000 0.3000 0.2000 0.1000 0.0000 OPIS Biodiesel RINS Mid Copyright 2010 Renewable Energy Group® 17
  18. 18. RINs Program Resources EPA’s RFS2 Jobber RIN Alliance RIN Star Support Line pp ( (Jeff Hove) ) Rinregister.com g 515.224.7545 (575) 377-3369 – main EMTS technical support 1-866-433-7467 cem@cfch.com resources info@RINalliance.com http://ww.epa.gov.otaq/fuel h // /f l s/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) Copyright 2010 Renewable Energy Group® 18
  19. 19. State Market Drivers k Copyright 2010 Renewable Energy Group® 19
  20. 20. US Distillate Consumption by State (000 gallons) Copyright 2010 Renewable Energy Group® 20
  21. 21. Biodiesel Industry Market Drivers 2010 • State Incentives • Mi Minnesota t B5 M d t effective M 1st, 2009 Mandate ff ti May t • Illinois Tax abatement on B11 biodiesel blends 6.25% • Iowa $0.03/gallon tax income tax credit on gallons including B2 • Oregon g B2 Mandate effective July 2009 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 South Carolina $0.25/gallon t il i $0 25/ ll retailer incentive on B100 ti • 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 Copyright 2010 Renewable Energy Group® 21
  22. 22. Alabama • 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 B20 dispensed during that time period. Copyright 2010 Renewable Energy Group® Fleet 22
  23. 23. Arkansas • 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 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 volume. volume Copyright 2010 Renewable Energy Group® Fleet 23 Infrastructure
  24. 24. Florida • Fleet Mandates • All state agencies must use ethanol and biodiesel blended fuels when available. Copyright 2010 Renewable Energy Group® Fleet 24
  25. 25. Kentucky • 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 for qualify. all biodiesel producers may not exceed the annual biodiesel tax credit cap of $10 million. Incentive Copyright 2010 Renewable Energy Group® 25
  26. 26. Louisiana • 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 2010 Mandate Renewable Energy Group® 26
  27. 27. South Carolina • Tax Incentives (Diesel) • A $0 25 incentive payment is available to biodiesel retailers for each gallon of $0.25 i ti ti il bl t bi di l t il f h ll f 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, 2012 1 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. feasible Incentive Copyright 2010 Renewable Energy Group® Fleet 27 Infrastructure
  28. 28. Tennessee • Infrastructure Incentives • The Tennessee State Energy Office offers grants to county governments for the installation of biodiesel infrastructure, infrastructure including biodiesel tanks, pumps, and card tanks pumps 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 fuel providers to install f f fueling f facilities. Fueling f facilities include storage tanks and fuel pumps dedicated to dispensing biofuels biofuels. Copyright 2010 Renewable Energy Group® 28 Infrastructure
  29. 29. Other Market Drivers h k Copyright 2010 Renewable Energy Group® 29
  30. 30. Air Quality: Opportunities Non Attainment Areas Oppo t nities in Non-Attainment A eas • Biodiesel is the only alternative fuel to voluntarily complete EPA Tier I and Tier II testing to quantify emission characteristics and health effects. 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 1998 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% (75 85%) to trace levels), which have been identified as potential cancer causing compounds. • As a result of the health benefits of biodiesel, some chapters of the American f f f f Lung Association have pledged their support for use of the alternative fuel. Copyright 2010 Renewable Energy Group® 30
  31. 31. Biodiesel Industry Market Drivers 2010 • ASTM D975 diesel specifications • Announced Oct. 2008 • Allows biodiesel to be blended with diesel fuel up to B5, with no labeling required • Greenhouse gas emission reduction goals • Low Carbon Fuel Standards (California, Mass., etc.) • RFS2 GHG Emission Reduction Thresholds Copyright 2010 Renewable Energy Group® 31
  32. 32. Biodiesel Industry Market Drivers 2010 • New Market Development • Heating Oil Market • Power Generation • Mi i Mining • Government Copyright 2010 Renewable Energy Group® 32
  33. 33. Infrastructure f Copyright 2010 Renewable Energy Group® 33
  34. 34. U.S. Diesel Terminal Infrastructure Copyright 2010 Renewable Energy Group® 34
  35. 35. Pipeline Downstream Injection Concept • Objective: Participate in biodiesel supply • Introduce biodiesel at downstream pipeline facilities • Pursue injection-blending into outbound stublines/delivery lines • Select locations with low potential for jet fuel trail-back • Select locations with high shipper value due to: ith shippe al e d e to • Local mandates • Local incentives • Climate advantages • Allow for discretionary concentration selection by shippers (B2 to B20) • P id a low cost, fast t k opportunity f obligated parties - Provide l t f t track t it for bli t d ti an initial step in biodiesel participation until trail-back challenge is resolved Copyright 2010 Renewable Energy Group®
  36. 36. Southeast Pipeline Opportunities Copyright 2010 Renewable Energy Group® 36
  37. 37. Blending Economics l d Copyright 2010 Renewable Energy Group® 37
  38. 38. Current Biodiesel Pricing REG-9000-1 REG-9000-10 #2 ULSD FOB, IA FOB, IA Rack Chicago $3.15 B100 $2.90 B100 $2.00 RINS Value = $.70-80/gallon Copyright 2010 Renewable Energy Group®
  39. 39. B5 B20 B5-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 =$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 Copyright 2010 Renewable Energy Group® 39
  40. 40. REG Overview and Updates d d Copyright 2010 Renewable Energy Group® 40
  41. 41. A Complete Biodiesel Solution • Leading biodiesel company through vertical integration • Feedstock Production, Research and Development • Feedstock Extraction d Refining F d t k E t ti and R fi i • Conversion of Feedstock to Fuel • Fuel Sales and Marketing • Fuel Distribution and Logistics • Customer S i and Administration C t Service d Ad i i t ti • Industry Leadership • Began business in 1996 • Tremendous growth opportunities across biodiesel value chain • Experienced and best-in-class management team • Headquartered in Ames, Iowa with locations nationwide • Redefining biodiesel quality • REG-9000TM biodiesel meets and exceeds industry quality specifications • Marketed through existing nationwide diesel infrastructure 41 Copyright 2010 Renewable Energy Group®
  42. 42. REG Network of Biodiesel Production Low Low Low Low High High REG Danville REG Houston REG Newton REG Ralston 45 MGY, Startup: 11/2008 35 MGY Startup: 08/2008 MGY, 30 MGY S MGY, Startup: 5/2007 12 MGY, Startup: 3/2003 Danville, IL Seabrook, TX Newton, IA Ralston, IA Low High Low Low High Low High REG Seneca REG Emporia REG New Orleans SoyMor Biodiesel 60 MGY Acquired: 04/2010 MGY, 60 MGY Startup: TBD MGY, 60 MGY Startup: TBD MGY, 30 MGY Startup: 8/2005 MGY, Seneca, IL Emporia, KS Destrehan, LA Glenville, MN Low Low free fatty acid High High free fatty acid feedstock conversion feedstock f d t k conversion i (soy, canola, refined fats) (fats, corn, waste greases) Copyright 2010 Renewable Energy Group® 42
  43. 43. REG Sales and Marketing • 2009: ~26% U.S. biodiesel consumption • S ld 94 million gallons in 2009, expect sales of >98 million Sold illi ll i 2009 t l f 98 illi 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 for customers consistent quality, quantity and supply assurance • REG distribution advantages • Lower transportation costs than other producers L i h h d • 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. Copyright 2010 Renewable Energy Group® 43
  44. 44. Supply Chain Management and Distribution & Logistics • Marketing via rail and truck in all 48 continental states across the U.S. l H U S plus Hawaiiii • REG has 18 terminal locations nationwide • REG 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. Copyright 2010 Renewable Energy Group® 44
  45. 45. National Infrastructure (Production & Terminals) Copyright 2010 Renewable Energy Group® 45
  46. 46. Thank You Larry Breeding Biodiesel Sale Manager, Southeast Region Bi di lS l M S th t R i Larry.breeding@regfuel.com Gary Haer Vice President, Sales and Marketing Gary.haer@regfuel.com Gary haer@regfuel com Dave Slade, PhD Director, Technical Services Dave.slade@regfuel.com Copyright 2010 Renewable Energy Group® 46

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