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Why Z Energy is persisting with its biofuel plant

Z Energy announced in 2014 it would build a biofuel plant to produce 20 million litres of diesel a year from waste animal fats. Newsroom's business editor Nikki Mandow went to the factory in Manukau to find out what's holding up production and why Z Energy is still pushing ahead.

Four years ago, Z Energy announced a cunning plan: to build a plant to turn tallow into biodiesel. The plant would be operational in 2015 and would help Z and some of its commercial customers (companies like Fonterra, Fulton Hogan and NZ Post) take a bit of fossil fuels off their carbon balance sheet and meet their greenhouse gas reduction commitments.

Voilà. Easy.

Four years on and a new government with ambitious carbon reduction targets has put biofuels more firmly on the radar. Cars will go electric, but for the time being there aren’t many “green” alternatives to fossil fuels for heavy trucks, ships and planes.

But over in Manukau, more than two years after it was meant to go into production, Z is struggling to get biodiesel out of its plant. The company has yet to produce a single litre of saleable biofuel. Z still thinks biofuels are a good idea, and it has customers keen to buy it - even prepared to pay a couple of cents a litre extra for it. 

Outside Z's biofuels plant hoses to bring hot tallow in and take biodiesel out. The $5 million distillation tower behind is still not working properly. Photo: Nikki Mandow.

Z’s sometimes tortuous experience trying to get its plant up and running has a key lesson for industry and government as we look at ramping up New Zealand’s nascent biofuels industry.

It’s not as easy as you think.

The ZBioD plant sits at the end of an industrial cul-de-sac in Auckland. To the uninitiated it could almost be a brewery. There are big metal tanks and gauges and lots and lots of pipes. Outside there are feeder tubes for tankers bringing in hot tallow (a rather smelly fatty substance that looks a bit like the bottom of your pan after a Sunday morning bacon fry-up), and for taking out finished biodiesel. And there’s a 20 metre-high, $5 million, sparkly new-looking distillation column.

Twenty staff work there. But instead of the 20 million litres of biodiesel Z hoped to be churning out annually by now; nothing. And so far the plant has cost some 15 percent more than the $21 million it expected, says David Binnie, Z Energy's GM of supply and distribution. That`s a little over $24 million. And it could escalate more.

Name the problem, it seems Z has encountered it over the last four years. Land issues, technical issues, power cut issues, problems with the gaskets, with a faulty vacuum pump, and with the distillation tower, which still isn’t working consistently.

One problem is the chemical process of turning gunky old sheep into something that will power your car isn't straightforward. The production formula on the wall in the meeting room looks like something that would get anyone but the most enthusiastic industrial chemist reaching for the arnica. Stewart Gibb, biofuels operations manager, tries to make it simple. Methanol takes the water out of the tallow, and drives the process - and then both methanol and water are recovered. A nitrogen blanket keeps the process contained, so there's nitrogen to recover too. There's a side system to remove glycerol, a by-product which can be sold, and the distillation tower removes any sneaky final triglycerides (bits of fat) left in the system, before the finished biodiesel can be trucked out.

"It’s small, but it’s a step forward,” says Stewart Gibb, Z Energy's biofuels operations manager. “It’s the first time New Zealand has done a plant of this scale. It’s an experiment to see can we do it, and then we can look at whether we can expand it, whether we can work with others.”  Photo by Nikki Mandow.

Gibb's safety briefing covers the quirks of methanol, which burns with an invisible flame. This means you could be on fire, but no one can see where to douse the flames. Another issue to add into the mix when designing the plant. 

Binnie says the technical problems Z has had are frustrating, but not project-threatening.

“It’s not the economics we first hoped, but it’s nowhere near a cash drain on the business. It’s unlikely to break the bank.”

Binnie’s learnt from experience not to give a start date, but he’s pretty certain it will be this year.

Biofuels are certainly not the panacea as New Zealand struggles to reduce its carbon emissions. But they need to be part of the mix, according to last week’s Productivity Commission report into meeting our climate change commitments.

“Biofuels can help mitigate more challenging transport emissions”, particularly in the heavy transport, shipping and aviation fleets, the report says.

Commission chair Murray Sherwin, whose team spent the last year working on the more-than-600-page report, says transport is “one of the big three” emissions baddies.

New Zealand consumed 8.6 billion litres of liquid fossil fuel in 2015, equivalent to five litres a day for every one of our 4.6 million inhabitants. Burning these fossil fuels made up about 23 percent of NZ’s domestic greenhouse gas emissions that year, much of that for transport.

If New Zealand is to have any chance of meeting its Paris Agreement commitments (reducing greenhouse gases by 30 percent over 2005 levels by 2030), let alone reach Labour’s more ambitious target of carbon neutrality by 2050, more has to happen on biofuels (as well as everything else), Sherwin says.

“We can’t continue to do what we’ve done and hit the targets.”

We all have to put our money where our mouth is. Z has proved ourselves willing to invest in something new. And if the government is serious about carbon it needs to look at what it can do to help - a more dynamic ETS system, a capital contribution.”

A biofuels report from forestry crown research industry Scion released in February comes to a similar conclusion:

“The country has both a legal and moral obligation to meet the [Paris Agreement] commitments. The production and use of biofuels is one way for New Zealand to carry out its part in reducing GHG emissions.”

So far, the impact of biofuels is almost insignificant - they make up just 0.1 percent of total liquid fuel sales in New Zealand. Worldwide it’s about 4 percent.

The easiest way to make biofuels is from plants - anything from sugar beet to corn to that spiky plant in Australia no one can find another use for.

What’s good about biofuels?

In the simplest biofuel scenario, you grow a plant, which absorbs CO₂. Then when you turn that plant into ethanol (the most common biofuel) and burn it in a vehicle engine, a little green sleight-of-hand allows you to write off the CO₂ it produces. Just like that: carbon neutral. Well, almost.

It’s a bit more complicated with biodiesel made from waste products (rubbish or tallow, for example), as you don’t have that handy CO₂ in-and-out exchange. But what’s not to like about making fuel from waste, especially when burning biofuels produces slightly less CO₂ than burning fossil fuels?

And what’s not so good?

Biofuels also have some significant downsides:

- As Z has found, the technology can be complex. The company knows that choosing to use an untried New Zealand technology rather buying a more expensive off-the-shelf product from overseas has added to the technical challenges. Even so, according to the Productivity Commission’s report: “advanced biofuels are much less technologically mature and therefore come with significant technical risk”. For example, five years ago, there was much excitement about a new biofuel made from algae. Algae would produce high yields and wouldn't use up productive land. But the euphoria soon died down. Oil giant Exxon pulled out of a US$600 million joint venture, claiming viability is likely to be 25 years away.

- The easiest way to make biofuels is from plants - anything from sugar beet to corn to that spiky plant in Australia no one can find another use for. But the idea of using productive land to grow fuel (rather than food) has some serious ethical and environmental downsides, which have stymied projects overseas - and put many people offside. In 2009, US President Al Gore told a green energy conference he regretted his support for the US ethanol industry because of its role in driving up the price of corn, and therefore food.

- Most biofuels have to be mixed with carbon-emitting fossil fuels at very low ratios (5-10 percent biofuel with 90-95 percent ordinary petrol or diesel) just so they don’t mess up our engines. Sometimes it hardly seems worth it. (Interestingly, the mixing thing is more to do with engine technology than the properties of biofuels. In fact Henry Ford designed his first cars to run on biofuel, not petrol.)

Air New Zealand has set vicious carbon reduction targets and it needs a big new technology or it is never going to meet them.

Next stop: flying a plane with biofuels

Despite the downsides, Binnie’s not discouraged. He’s certainly not giving up on biofuels. In fact, once Z Energy can produce (and sell) the 20 million litres of biodiesel the Manukau plant can produce, it’s a fairly easy step (perhaps a year and a less-than-$5 million investment) to double capacity, he says. And there’s plenty of tallow around. New Zealand’s meatworks churn out up to 150,000 tonnes of the inedible fatty stuff a year. Even at full 40-million-litre biodiesel capacity, Z’s plant would only use 36,000 tonnes - less than a quarter of what’s available.

 David Binnie, Z Energy's GM of supply and distribution. Photo by Nikki Mandow.

Beyond that, Binnie is already thinking about a new project - a plant to make aviation biofuel.

“Many of the things we’ve learned through hard yakka might pay dividends. We’re in early discussions with Air New Zealand, which has got almost a bigger challenge with  carbon commitments than Z has. It has set vicious carbon reduction targets and it needs a big new technology or it is never going to meet them.”

Air NZ's experimentation with biofuels goes back a decade. In 2008, an Air NZ plane made aviation history flying for two hours using a hardy, poisonous bush – jatropha – for fuel. Sadly, commercial production proved uneconomic and environmentally unfriendly.

In 2016, the international Air Transport Association set a target of reducing net global aviation emissions by 50 percent, with biofuels set to feature prominently.

Aviation biofuel is in some ways better environmentally than biodiesel because it is what is called in the trade a “drop-in” biofuel. Nothing to do with cups of tea; it’s when you can simply swoosh the biofuel straight into a vehicle’s fuel tank, undiluted with fossil fuels.
Aviation fuel might be made from wood scraps, not ex-cows. Five years ago Z Energy and pulp and paper manufacturer Norske Skog got MPI funding for their “Stump to Pump” project, evaluating the commercial feasibility of making biofuels from forest waste. Now Binney is dusting that research off as Z asks the question: How do we make this stuff, and even make a profit?

Other companies are proving you can make biofuel from all sorts of odd stuff. Gull retails two types of biofuel - bioethanol made from whey produced as a by-product from Fonterra cheese-making cheese at Fonterra plants, and biodiesel from used fish-and-chip oil. Gull also sells an 85 percent bioethanol fuel for racing cars and it had a go a filling tanks with DB Export Brewtroleum, using waste ethanol from the brewing process.

But quantities are small - Fonterra’s Anchor Ethanol plant produces only 2.8 million litres a year, 0.03 percent of what’s needed.

"I’ve had low days. But I keep coming back to why we’re doing  it. [Carbon emissions] are the big challenge of our time. If companies like Z aren’t willing to have a crack at it, who else will?

Back in, big government

Actually, the million-dollar question for biofuels is what the government decides to do - or not to do. A biofuels grants scheme launched in 2009 was shut down three years later, leaving only a weak incentive via bioethanol being exempt from the fuel tax.

The Scion biofuels report suggests government policy will be needed in the short- to medium-term to enable large-scale biofuel production. “Market forces alone will not be sufficient.”

The Productivity Commission report recommends starting with the NZ Emissions Trading Scheme as a tool to send positive signals on biofuels.

“A significant increase in the emissions price in the NZ ETS is an important first step in encouraging greater investment in the production of alternatives to fossil fuels, including biofuels.”

Z’s Dave Binnie agrees the government needs to come to the party.

“We all have to put our money where our mouth is. Z has proved ourselves willing to invest in something new - here’s the evidence. And if the government is serious about carbon it needs to look at what it can do to help - a more dynamic ETS system, a capital contribution.”

Meanwhile, Z is pushing ahead to get its plant up and running by the end of the year.

“I’ve had low days,” Binnie says. “But I keep coming back to why we’re doing  it. [Carbon emissions] is the big challenge of our time. If companies like Z aren’t willing to have a crack at it - picking up the pieces of the consequences of climate change - who else will?

“That’s one of the reasons I came to Z.”

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