Bumper crop

Alberta may have a new homegrown energy industry soon with a spate of biodiesel projects in the works

Anyone who has ever spent more than a few hours driving Highway 2 has likely seen an image like this before: a pumpjack sprouting up amid the nodding yellow canola blossoms, all set against a bright blue prairie sky.

It's a lovely pastoral scene, but also the perfect representation of Alberta's growing energy industry. Of course, we're talking about the canola.

"Everyone thinks of Alberta as just petroleum, but in fact it's been really visionary in playing a real leadership role in developing renewable energy," says Tim Haig, chair and interim president of the Canadian Renewable Fuels Association.

The oilsands still dominate the discussions (and headlines), but biodiesel may be the next big homegrown energy industry for the province, with several major projects coming down the pipe and others already well into the development and construction phases. Among the projects already announced:

  • American agribusiness giant Archer Daniels Midland Company has announced it will be building a 265-million-litre-per-year biodiesel plant in Lloydminster on the Alberta-Saskatchewan border. Construction is expected to begin in the spring of 2012 for start-up late in 2013.
  • Another U.S. company, The Power Alternative, is teaming up with a consortium of Canadian backers to build two $30-million biodiesel plants in the province, each capable of producing 66 million litres per year. One will be built in the High Prairie region and the other in Smoky Lake County. The first should be running by early 2013, according to the company.
  • Biostreet Canada Inc. is working on financing its own biodiesel plant for Vegreville, Alta. The $221-million project would produce 237 million litres per year. A timeline for construction is not yet known.

 "OILBERTA" NO MORE?

Given this sudden flurry of biodiesel activity, one might wonder if "Oilberta" had grown weary of its reputation as the petroleum province. But in fact, Alberta's biodiesel industry is poised to take off precisely because of the province's unique economic makeup, which includes a robust mixture of cattle and grain farming, as well as strong petroleum and refining industries.

In short, the province's biodiesel industry is the offspring of "the marriage between agriculture and energy," as Haig describes it.

The combination of those two industries certainly encouraged Kyoto Fuels Corporation to build its own biodiesel project in Alberta.

After almost four years of construction, his company is nearing completion on a $34-million biodiesel plant in Lethbridge, Alta. When finished this March, the plant will have a capacity of 66 million litres per year and produce biodiesel from either tallow or canola.

When asked what drew Kyoto Fuels to build in Lethbridge, company president and chief executive officer Kelsey Prenevost says the company didn't even consider any locations other than Alberta. There were simply too many logistical and regulatory advantages to ignore.

"Alberta-and Lethbridge-represented the jewel in the crown," he says.

The first facet of this jewel is a renewable fuel standard. In April 2011, the Alberta government's standard came into effect, requiring all diesel in the province contain two per cent biodiesel content. A federal mandate requiring the same level of renewable fuel content across the entire country followed in July of the same year.

For Haig, it's impossible to underestimate the importance of these standards to the growth of the biodiesel industry: "If there's a mandatory inclusion in the fuel pool, which allows [biodiesel producers] to create a market that creates a margin, then they have the opportunity to go forward."

Prenevost has seen the positive effects of the standards on his own plant. "That definitely put the wheels under the bus on the project here," he explains. "As soon as you're required [to include renewable content in fuel], a lot of other things fall into place, including the demand and the pricing structures."

The exact level of that demand is debatable, but it's undoubtedly considerable. Prenevost believes his 66-million-litre plant can supply roughly half of Alberta's biodiesel needs, while he pegs the country's total demand at around 600 million litres annually. Haig favours a more conservative estimate of between 450 million and 550 million litres per year for all of Canada.

Feedstock to fill this demand will undoubtedly come from the province's own abundant supply of canola. According to the Alberta government, the province grew 5.3 million tonnes of the oilseed in 2011, more than a third of Canada's 14.2-million-tonne crop that year.

But even though plant-based biodiesel will likely be the major product, animal fats can still be used to create the fuel. And with 5.5 million head of cattle in the province in 2010-roughly 40 per cent of the country's total cattle herd, by the reckoning of the Alberta Beef Producers-there's a lot of potential feedstock available.

ACCESS IMPORTANT

Another key factor is the proximity to refinery access. While Lethbridge may be more than five hours south of Edmonton, it offers an effective link to the refineries outside of the capital city-all of which will be looking for a supply of biodiesel to blend into their own fuel products.

Kyoto's decision to build in Lethbridge is particularly strategic. Numerous 50,000-litre trucks bring diesel into the area for distribution across southern Alberta, but then return to Edmonton empty. That will change once the plant is operating.

"The only thing they can ship back is diesel or a diesel-like material, which is biodiesel," Prenevost explains. "We're taking care of quite a few deadhead trips to distribute this material to Edmonton."

Finally, Haig notes that a couple of crucial policies have made the Alberta market a tempting proposition for biodiesel producers.

"This is being driven by the fact that the Alberta government is one of the first jurisdictions [in North America] to put some price on carbon and to put in some very supportive producer incentives for moving the industry forward," he says.

The incentive he's referring to is the Bioenergy Producer Credit Program, and it offers a per-litre rate on biodiesel and other renewable fuels produced in the province up until 2016, when the program expires.

Equally important is the province's greenhouse gas emission reduction program. When a company goes over the targeted emissions level, it is required to either pay a fee of $15 per excess tonne of emissions or else purchase carbon offsets.

And these offsets, according to Prenevost, can be a valuable sideline for green industries like biodiesel plants, which can sell their carbon savings to large emitters on the open market.

"We haven't produced anything, but we have pre-deals already laid out," he says. "It's quite an active part of our business, the carbon side of it."

None of which is to say the process hasn't had its fair share of hiccups along the way. As one of the early pioneers in Alberta's biodiesel industry, Kyoto Fuels discovered the regulatory system was still sometimes playing catch-up with a new industry.

"Kyoto Fuels was one of the first biodiesel operations to start in construction early," Prenevost says. "We were at the time considered a heavy oil upgrader, since they didn't have a biodiesel category.

"It was an educational process for both sides. Kyoto Fuels was educating Alberta Environment [and Water] and they were educating us."

With the regulatory wrinkles smoothed out, the industry is preparing to ramp up to meet the challenge of fulfilling the country's new biodiesel mandate. While much of Canada's biodiesel supply currently comes from the United States, domestic production is increasing to meet the new surge in demand.

The Kyoto Fuels executive already has plans for a 70-million-litre-per-year expansion for the Lethbridge plant if the initial phase proves successful. Combined with all the other plans on the table, it's one more sign of the bright outlook for the province's biodiesel industry.

"I see Alberta being the primary location for biodiesel operations," Prenevost says.


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