Marketers Demand 'Full Disclosure' by Refiners of Biodiesel Blend Levels

Fear overblending, oppose proposal that marketers use standardized colors for every grade of fuel they sell

Carole Donoghue, Petroleum Editor

LINCOLN, Neb. -- There is growing concern among wholesalers about what they say is a lack of disclosure on product transfer documents and bills of lading as refiners increase sales of B5 diesel blends.

ASTM specifications define diesel as any fuel containing up to 5% biodiesel, which means suppliers do not have to disclose what portion of their diesel is biofuel if it is not more than 5%. The Federal Trade Commission (FTC) also only requires labeling of blends of B5 or more.

But wholesalers who blend below the rack say they need to know how much biodiesel is in the fuel they're buying so they do not accidentally produce off-spec fuel.

Both refiners and wholesalers say it would cost them too much to test every batch of fuel before it's sold, and each says the other side should bear any additional testing costs.

Additionally, marketers are worried by National Conference on Weights & Measures (NCWM) suggestions that the industry adopt standardized colors for all fuel nozzles by grade, to prevent consumer misfueling.

Conspicuous product labeling is already required for pumps and there is no evidence that color coding of nozzles will be any more effective, say NACS, PMAA, SIGMA and NATSO in a letter to NCWM officials. Besides, there are not enough distinct colors to cover all the different types of fuel being sold, including ethanol-blends. The proposal would also mean that marketers couldn't use single-hose pumps because they dispense multiple types of fuel through one nozzle.

Marketer groups also are opposing another NCWM proposal that they change to much smaller filters for diesel dispensers at retail. NCWM has suggested a 10-micron of smaller pore-sized filter. They say a filter that small will cut the flow rate at dispensers by 50% or more and the additional fueling time would be costly for the trucking industry, especially given that federal regulations limit the hours that a driver can operate his truck.

As for the issue of biodiesel blend levels, that is now coming to a head as refiners move to B5 diesel blends to help them meet EPA renewable fuel requirements. By blending themselves, refiners can also earn more Renewable Identification Numbers (RINs), which were worth about $1.50 to $2 per gallon of biodiesel at year's end, say marketer and blender sources.

Pipeline giant Kinder Morgan has told wholesalers that it will sell only a B5 diesel at its terminals in Colton and Fresno, Calif., and in Las Vegas by mid-year. Chevron is also switching to a B5 at its terminal in Montebello, Calif., and at supply points in Houston, effective February 1. ExxonMobil is doing the same at four terminals in Texas.

Wholesaler trade groups intend to raise the disclosure issue at a meeting of the NCWM in Dallas next week. A committee of the state standards regulators has already agreed to look into the situation.

"The problem is, marketers don't know any more what people are selling them, whether it's a B2 or a B5 diesel or something else, and that raises the risk of over-blending," said Holly Alfano, vice president of the National Truck Stop Association (NATSO), which backs calls for full disclosure.

Over-blending is a big worry for marketers because equipment firms often limit biodiesel blends to 5% or less. For example, John Deere and Caterpillar engine warranties allow B2 or B5 blends but void the warranties if blends exceed that amount. "Consequently, petroleum marketers face a greater risk of liability from consumers with voided warranties," according to Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA), in a letter to Lincoln, Neb.-based NCWM.

Marketer groups say all parties in the distribution chain have a responsibility to disclose accurate biodiesel content, starting at the top. Refiners and terminal operators are uniquely positioned to do so. Establishing baseline biodiesel content shouldn't be left to small marketers who lack the resources to test the fuel, Gilligan said.

An ASTM-approved test for biodiesel content is usually run in a lab but over the past two years suitcase-type testing equipment has become available for use in the field by biodiesel blenders. One pipeline company reported at a biodiesel workshop in November that it has been using field equipment that costs $6,000 to $7,000 per kit and obtaining accurate analyses.

Additionally, Veeder-Root is developing an option to add biodiesel blend testing capability to its existing tank level and leak detection controls. Another firm is developing in-line equipment for pipelines that will analyze blend content down to the parts per million level, but neither test is commercially available yet, according to one NCWM document.

Refiners argue that if blenders and marketers want to add more biodiesel to fuel, it should be their responsibility--and liability--to determine if the final blend meets specs. Refiners would have to analyze fuel every time product is sold from a bulk tank if new fuel has been introduced since the last test, said a spokesman for the American Petroleum Institute. That would mean buying testing equipment and providing staff to take samples, raising costs for all customers while benefiting the relatively few who blend their own fuel.

Currently, biodiesel blends in the United States are shipped only on pipelines that do not carry jet fuel. But work is underway to increase the amount of biodiesel allowed in jet fuel from 5 parts per million (ppm) to 100 ppm, which may would make it easier for pipelines that transport jet fuel to also move biodiesel. As the biodiesel industry grows, refiners expect more biodiesel blends to travel by pipeline, especially as EPA renewable fuel requirements increase, sources say.

There is also concern about some policies being adopted by shippers. Kinder Morgan's decision to drop B0 for B5 in California means that large wholesalers lifting from KM racks will have no choice but to sell their customers a B5. "All shippers will be required to ship a B5 biodiesel through the facilities, it is intended that everything will contain 5% biodiesel," said Ed Hahn, Kinder Morgan's director of product movement.

Refiners are moving to B5 as part of a strategy to satisfy requirements under the Renewable Fuel Standards. In 2012, the EPA standard for biomass-based diesel is 1 billion gallons, up from 800 million gallons last year. The biodiesel sector exceeded that ceiling at the end of November. The agency has proposed, but has not yet finalized, a 1.28 billion gallon-requirement for 2013, according to the National Biodiesel Board (NBB).

"They could satisfy EPA demands by buying RINs, but there are an increasing number of requirements to use B5 at state and federal level," said Ben Evans, a spokesperson for the Washington, D.C., advocacy group. "With solid RIN prices, buying wet barrels can be more profitable," he said.

A federal blenders' credit of $1 per gallon for biodiesel expired December 31, 2011, but 18 states continue to offer tax or other incentives for biodiesel production, sales and consumption, according to the NBB. Some require that a minimum 2% to 5% biodiesel be used, while others provide incentives only if biodiesel content is over a certain value, up to 11% or even 20%. Some states also are looking at legislation that would require disclosure of blend levels.