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From waste to value: Z Energy’s cunning biodiesel plan

Biofuels get a bad rap. After all there is only one answer to the question: “Do we grow crops to power cars or feed starving people?” And it isn’t biodiesel.

So the recent announcement by New Zealand-owned fuel company Z Energy that it will spend $21 million on a biodiesel plant is an interesting one.

On the not-taking-food-from-the-mouths-of babes front, the investment ticks a few boxes. Z Energy’s Wiri plant will make 20m litres of biodiesel a year from 20,000 tonnes of tallow – an inedible fat by-product from meat works.

Converting tallow into useable fuel by mixing it with ordinary diesel will help Z meet its sustainability goals, one of which is to be our leading biofuel supplier by the end of 2015, says CEO Mike Bennetts. But can Z make money from biofuels where others (including in New Zealand) have tried, and failed?

Already, the Wiri plant has a chequered past. Construction was started by a company called Ecodiesel, but it went into liquidation a couple of years ago, having failed to raise the money it needed. Z is restarting the construction at the moth-balled site, using Ecodiesel’s founder Gary Brockett as a consultant, and expects production to begin by the end of 2015.

The company says Brockett’s patented batch process, which uses relatively lower temperatures and pressures than other tallow biodiesel production, makes the plant cheaper to build – and so easier to get a return on. If demand is strong, a relatively paltry $2.5m additional investment could double output to 40m litres a year. But the venture is not without risks.

The Government removed its biofuel subsidy in 2012 and Z will have to charge 1-2 cents more per litre for its 5%-20% biodiesel mixes than for fossil fuel-derived diesel. (Z currently sells over 1bn litres of diesel a year, 27% of the market.)

The company is attempting to mitigate the risk that consumers will chose price over sustainability, mostly by asking its supply chain to share the expected upside and downside price movements. “It requires a symbiotic relationship throughout the whole value chain for everyone to be a winner,” Bennetts says.

He says several major diesel users are keen to get on board to reduce their carbon footprint, and are prepared to pay a small premium. Z has signed letters of intent for the purchase of 11m litres of the annual 20m litres of production.

Equally important, Bennetts sees tallow to biodiesel as a potential precursor to an even larger Z biofuel play. The company is in the initial design and technology review phase of a larger project at Kawerau, alongside Norske Skog’s pulp and paper plant. The joint venture “stump to pump” project would use water at high temperature and pressure to turn woodchips into hydrocarbons.

“This is potentially a game changer,” Bennetts says. If Z can prove the tallow to biodiesel process works, from an economic and environmental point of view, Bennetts says, there should be less concern about introducing the stump to pump fuel. “It could be significant for the economy. On our most optimistic projections you’d see a number of such plants built around the country to use what at the moment is forestry residue.”

Bioenergy Association of New Zealand executive officer Brian Cox says Z Energy’s plans are a logical move to a post-petroleum era. Turning wood waste into fuel should become economic fairly soon, and the next step is to extract biochemicals from the same residues.

“In the longer term the extraction of biochemicals from lignin [the organic polymer which makes plants rigid and woody] will be the most valuable part of deconstructing a tree. There’s an old joke that you can make anything in the world out of lignin – except money. That’s all changing quite rapidly.”

Biofuels are as old as human civilisation, but have a mixed history 2007 NZ coal company Solid Energy makes its own biodiesel foray, spending $2.3 million buying 80% of Canterbury Biodiesel.

The business clocked up $38 million in operational losses from 2007, before being sold in 2012. 2008 An Air NZ plane makes aviation history flying for two hours using a hardy, poisonous bush – jatropha – for fuel. But commercial production proves uneconomic, and environmentally unfriendly.

2009 In Dallas, the Fryer Flyer comes into service in 2009 – the first of 1700 Dallas buses to run on biodiesel from chip fat. Media reports say the city expects to reduce its carbon footprint and save $US400,000 a year. 2010 Former US Vice

President Al Gore tells a green energy conference he regrets his support for the US ethanol industry because of its role in driving up the price of corn, and therefore food.

2013 Production begins of the newest biofuel excitement: algae fuel, with anticipated high yields and low land use. But Exxon pulls out of a US$600 million JV, claiming viability is likely to be 25 years away.

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