Popular choices for complementary biorefining include biodiesel, dried distillers grains with solubles, gluten feed, gluten meal, corn oil, and soybean oil meal with high protein content.

Those familiar with the development of the oil industry can see parallels between the early challenges the oil industry faced and those the ethanol industry is facing today. Initially, oil refineries were built to refine lamp oil, extracting kerosene from crude oil to supply this single market. It was a struggle to figure out what to do with the rest of the products. In some markets, it was so bad that the refiners would run gasoline into the rivers at night to get rid of the “byproduct.” Obviously, the car came along and solved that problem, but this provides some perspective to consider how much things can change from where they start out. This is just one extreme example that evolving a new industry takes some time and that the markets for each of the resulting coproducts will take time to evolve as well.

Now an oil refinery uses every molecule from that barrel of crude oil. In the same way, 2010 will see single purpose installations in ethanol rapidly evolve into more sustainable plants that reach for pharmaceutical precursors, higher value livestock feeds, and extracted oils.

For example, Central Indiana Ethanol LLC in Marion, Ind., extracts corn oil and sells it to both feed markets and as biodiesel feedstock. “Poultry producers like the orange color given to the eggs by corn oil,” Bjornstad says. “It’s also a lot more lucrative to the plant not to have a valuable coproduct leave as a lower value product or an uncaptured waste stream.”

Tighten Integration With Fuel Supply Chain
Listing RINs on an invoice is perhaps the most popular method in place today to pass RIN value to customers, but this practice will not meet EPA requirements in 2010. The EPA’s Moderated Tracking System will be enacted after the final RFS2 rule comes out later in 2010. When MTS activates, EPA will no longer accept spreadsheets or RINs incorporated in invoices as a means to report RIN transactions.

This evolving regulatory need is only part of the story. Customers and marketers need electronic bills of lading complete with electronically generated unique 38-digit RINs in real time as product enters the fuel supply chain. Refiners and ethanol buyers depend on enterprise resource planning (ERP) systems to eliminate manual labor cost and avoid data entry errors. The fuel industry has spent billions to automate its processes, ethanol now has to step up and plug in to that automated supply chain.

“Our industry doesn’t yet have sufficient systems to conduct itself in a digital environment,” Bjornstad says. “Refinery customers demand that accountability, so in 2010, a greater focus on digital systems is going to separate the men from the boys when it comes to marketing ethanol. What we’re doing with our plants is generating a temperature corrected electronic bill of lading and a RIN live with our terminal automation system that mirrors the systems in use today at major petroleum terminals. This system is networked and immediately updates our tracking system for our plants with their EPA-ready RIN reports, and then allows us to send the report right to our customers ERP systems in formats that can be easily downloaded directly into those systems so the customer has no labor or costs on their end.”
Integrating more tightly with the fuels supply chain also means focusing on other needs of refineries—such as reducing third-party risk. When Aventine Renewable Energy Inc. and VeraSun Energy Corp. declared bankruptcy, the contracts they had with refiners were canceled at tremendous cost.

Refiners demand and depend on the reliability and security of their supply. “Refiners are now more aware of that risk,” Bjornstad says. “That risk is going to come to an end.” There are two ways it can end—refineries can purchase their own ethanol plants, like Valero did, or create relationships with ethanol marketers that have the technical capabilities as well as the financial strengths to be a true partner.”

Bob Ferguson, general manager for Heron Lake BioEnergy LLC, recently inked a three-year relationship with C&N. “We reviewed several potential ethanol marketing companies and we are pleased to have selected C&N. Their transparent approach gives us the ability to manage and forecast our costs and margins. Their access to a nationwide market consisting of refiners and blenders gives us great confidence in their ability to secure the best customers for our product.” EP

Doug Haugh is executive vice president and CIO of Mansfield Oil. Reach him at dhaugh@mansfieldoil.com

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