How biodiesel made from waste cooking oil is powering transportation construction and events in the UAE
Neutral Fuels plans to open 10 biorefineries in the GCC in the next three years that will operate with a closed-loop process of sourcing, producing and supplying biodiesel, locally.
Every day, McDonald’s delivery trucks returning to their depot in Dubai Industrial City make a stop at a biorefinery nearby, to refuel their tanks with 100% biodiesel (B100). This has been the practice since July 2011 when the retailer entered into a partnership with UAE-based biofuel manufacturer Neutral Fuels to power its delivery trucks. The B100 used in McDonald’s trucks is made entirely from used vegetable oil, a waste product sourced from McDonald’s chain of restaurants in the UAE.
By March 2019, McDonald’s biodiesel delivery trucks clocked over 12 million kilometres without the need to modify or upgrade their engines. According to the retailer, the adoption of B100 biodiesel has translated to almost 100% reduction in CO2 emissions from its trucks. Compared to petroleum diesel, when biodiesel is used in conventional diesel engines, the lower sulphur and higher oxygen content results in substantial reduction of unburned hydrocarbons, carbon monoxide, carbon dioxide, sulphates and particulate matter.
A McDonalds's truck refuelling at the Neutral Fuels biorefinery.
Karl Feilder, chairman and CEO, Neutral Fuels, says: “When we started supplying 100% biodiesel to McDonald's in 2011, everyone told us we were mad. Their arguments varied from “You can't run biodiesel in unmodified vehicles!” to "fuel consumption will skyrocket!" to "you will destroy the engines!" However, McDonald's UAE and their supply chain partners Mohebi Martin Brower chose to bet on the solid science and engineering behind a superior biofuel which does not require vehicle modification, does not increase fuel consumption, and actually makes the engines run better.”
Karl Feilder, chairman and CEO, Neutral Fuels
McDonald’s is Neutral Fuels’ first and biggest customer for B100 biodiesel. Another prominent customer, Cummins, powers one of its facilities in the UAE with its own brand of generators that run on B100. In March 2019, Cummins partnered with Neutral Fuels to power the RIT Tiger Fest music and dance festival in Dubai. This was the first time B100 biodiesel was used at an outdoor event in the Middle East to power the entire venue, including the stage, sound, lighting and effects.
In addition to B100, the purest form of biodiesel, Neutral Fuels produces various blends for the UAE market, primarily B5 (a blend of 5% biodiesel and 95% petroleum diesel) and B20 (a blend of 20% biodiesel and 80% petroleum diesel) compliant with European standards. In increasing order of sales volume, B100, B20 and B5 constitute the majority of Neutral Fuels’ business in the UAE.
“Batch production enables us to make different blends for customer requirements, provided the volume is sufficient. Some of our customers use blends depending on the market pricing of petroleum diesel, because engines don’t need to be modified and there’s no difference in fuel consumption. Our biodiesel blends, and indeed pure B100 biodiesel, are compatible with any engine, compliant with Euro 2 to Euro 6 standards. Customers could use B10 for a week and then switch to B20 or B30 for another week and so on, depending on the pricing agreements we have with them,” says Feilder.
Some customers prefer to blend it themselves. ENOC, for example, procures B100 from Neutral Fuels and blends it with 95% petroleum diesel to create B5, which the company retails under the brand name Biodiesel 5. In 2018, ENOC launched a pilot project with Dubai Municipality using Biodiesel 5 to fuel the Municipality’s fleet of trucks at its Umm Ramool facility.
Demand for B20 has been increasing in the last five years. In 2018, Nestlé Waters introduced 10 trucks running on B20 in Dubai. Nestlé, which aims to reduce greenhouse gas emissions by 10% between 2014 and 2020, estimates reductions of 272 tonnes of CO2 equivalent emissions each year if biodiesel is used to power Nestlé Waters’ entire fleet of trucks.
Neutral Fuels has also been supplying biodiesel blends to construction sites in the UAE for over five years. Around four years ago, the Dubai Expo 2020 management specified that all construction equipment at the site should be fuelled with B20. All contractors were required to comply with this regulation unless they had a valid reason for not being able to use B20. In such cases, they were allowed to use B5.
“We’ve been supplying B20 to the Expo 2020 site for over three years to fuel the power, earthmoving and heavy lifting equipment at the site,” says Feilder.
The UAE does not yet have a biodiesel distribution infrastructure. So, Neutral Fuels produces biodiesel on demand and delivers it via fuel tankers. Customers have the option of installing dedicated biodiesel dispensing tanks or filling stations at their premises or on construction sites. Neural Fuels manages the ordering and delivery processes through a data-driven approach that involves real-time fuel monitoring using IoT sensors.
“We operate a comprehensive web portal which tracks the sourcing, production and supply of our biodiesel. We install IoT sensors in all the tanks we supply to customers so that we can monitor fuel consumption in real time and prevent wastage and theft. As a result, we need to refill the tanks only when required. When the fuel level drops in the dispensing tanks at customer sites, we get notified through a mobile app to send the next delivery. At the end of every month, we provide a report that includes a breakdown of fuel consumption analytics according to vehicle, driver, etc., and our suggestions to reduce fuel consumption,” says Feilder.
Neutral Fuels is neither an exporter of biodiesel nor importer of its feedstock. The company sources its raw materials locally, and then manufacturers and supplies biofuel entirely for local consumption. A closed-loop supply chain for biodiesel is the most environmentally friendly strategy, according to Feilder.
“We believe all of the used cooking oil in the UAE can and should be processed in the UAE and supplied as biofuel for local needs. When we started this venture, our promise to the UAE government was that we would take the waste produced in the UAE and convert it locally into a fuel for the benefit of the UAE,” he adds.
Neutral Fuels sources waste cooking oil from restaurants and commercial kitchens in the UAE, both directly and through local dealers.
“We source only waste cooking oil and not fresh oil for our raw material. We have strong relations that enables us to source the raw materials at different prices, ranging from free of charge to the market rate,” says Feilder.
Neutral Fuels sells its B5 and B20 blends on par with the market prices of petroleum diesel in the UAE. However, the price of B100 is fixed for up to six months in order to maintain the price of its feedstock. Currently, Neutral Fuels sells B100 at AED3/L.
“We revise the price of B100 once or twice a year. Most of our customers appreciate the predictability of the B100 price for six months. In most cases, it works to their advantage; when the price of petroleum diesel increases or decreases they get B100 biodiesel at a fixed price. If the price of petroleum diesel reaches AED2.90/L or increases further, we could sell more B100 than other blends,” says Feilder.
Customers could argue that the price of biodiesel should be significantly lower than that of petroleum diesel because the raw material is a waste product. However that’s far from the truth. There’s a global market for used cooking oil, particularly in Europe and Asia, which creates the demand for the waste product from the Middle East. Furthermore, in most parts of the world, the price of biodiesel is higher than that of petroleum diesel. Currently, the international price of biodiesel is around 39% higher than that of petroleum diesel, according to S&P Global Platts. The price of B100 in the UAE is about 20% higher than that of petroleum diesel.
Feilder explains: “The current market price for used cooking oil in Europe is higher than that of diesel – one of the reasons why European and some Asian countries import used cooking oil from the Middle East. As long as there’s global demand for used cooking oil, its price will be dictated by market forces. We request governments in the region to put a ban on such trade practices because there’s no guarantee the waste product will be refined into a clean fuel. Furthermore, unlike in other parts of the world where most biodiesel companies exist because of government subsidies or use feedstock such as soybean oil in the US, Neutral Fuels is neither subsidised by the UAE government, nor does it have access to alternative feedstock in the local market.”
“We find that people who start the discussion with price are missing the point. Generally, a company decides to switch to biodiesel because they have a corporate commitment to sustainability. Most of our customers have international businesses and they’re familiar with biofuels and have used them previously in other markets. They usually have a global mandate to include biofuel within their total fuel requirements. So they contact us as the local supplier for their needs. That’s how 90% of our sales come from inbound leads,” he adds.
According to Feilder, two major factors – the price hedging of B100 and the need for efficient fuel and waste management in cities with growing populations – will drive the future markets for B100.
“Any city with a sizeable population needs efficient ways for both fuel and waste management. When these two needs converge, there’s value in building a biofuel production facility. Our calculations indicate that is any city with more than a million inhabitants should have a dedicated biorefinery because it will be able to source enough feedstock from the local market and produce biofuel only for local consumption,” says Feilder.
In the case of Dubai, if all the waste cooking oil in the city is sourced to produce biodiesel, it would generate roughly around 5% of the fuel required for local consumption. This doesn’t mean feedstock for biodiesel should be imported, according to Feilder. Rather, it should accelerate the transition to more efficient fuels.
“I would argue both ethically and financially that biofuels should only be produced with feedstock sourced locally. We have spare production lines to handle any increase in production requirements. As the market gradually adopts diesel-electric and hybrid vehicles, fuel consumption will reduce by 30–40%. Ultimately, we many not produce enough biofuel to cater to the entire market demand for petroleum diesel. However, the higher efficiency of biofuels will reduce the consumption, and eventually, the demand for petroleum diesel,” says Feilder.
Currently, Neutral Fuels’ biorefinery in Dubai has two production lines which can produce up to 1 million litres of biodiesel a month. The company has three additional production lines ready for deployment. Other governments in the region have approached Neutral Fuels with interest in the closed-loop process of sourcing, producing and supplying biodiesel within their areas of jurisdiction.
“We’re in the process of building a plant in Ras Al Khaimah and getting the permissions to build a plant in Abu Dhabi. We hope to open a new plant in the GCC within the next six months. We’ll also add another two production lines this year to increase our total number of production lines to seven. With our expansion plans and pipeline of projects, we expect to increase our production capacity by four to five times the current volume,” says Feilder.
The Neutral Fuels biorefinery in Dubai can produce up to 1 million litres of biodiesel a month.
Neutral Fuels has also been conducting experiments to make biofuel from other wastes such as sewage.
“Three years ago, we cracked the way to make biofuel from sewage at waste water treatment plants. We produced 10 tonnes of biofuel in less than three days. Now that we have got the manufacturing process right, we hope to build a pilot plant this year to demonstrate that we can run it 24/7,” says Feilder.
In the next three years, Feilder envisions opening up to 10 biorefineries in the GCC. As a serial tech entrepreneur who has previously built five companies to exit via trade sale, and taken two more to their IPO, he estimates Neutral Fuels can go public on the London stock market by 2023.
“Starting with a capacity of 100,000 litres a month, we achieved month-on-month profitability within the first year of operations. Since then, we’ve grown more than 1000%. Our production methodology is modular, which allows us to scale up easily and rapidly. So far, we’ve scaled our factory four times in eight years. I believe we’re on track to achieving the scalability required for an IPO,” says Feilder.
Currently, Neutral Fuels has a market share of 0.25% in the UAE. Clearly there’s a lot of room for growth in the company’s business in the UAE and GCC without disrupting the existing markets for petroleum diesel, which has led Feilder to explore new markets for biodiesel, such as the shipping industry which remains one of the world’s biggest contributors to air pollution.
Feilder has started the debate of what constitutes as clean fuel for the marine industry in the context of the International Maritime Organization’s (IMO) 0.5% global sulphur cap on bunker fuel from 1 January 2020.
“To understand why the IMO sulphur cap is not reasonable, we need to ask the question of why sulphur content is expressed in % rather than ppm. The IMO’s 0.5% commitment to sulphur content equates to 5000ppm. A few years ago, the UAE government introduced a regulation that required the sulphur content of diesel used in the UAE be reduced from 500ppm to 10ppm. Furthermore, all international biodiesel standards set the maximum sulphur level at 10ppm. So what’s alarming is that the new ‘clean’ fuel for ships in 2020 will be 500 times worse than the current sulphur limits for biodiesel globally and petroleum diesel in the UAE,” says Feilder.
Feilder points out that climate change was caused by businesses, not consumers, and it is the businesses that have to change their ways. He puts his hope on cleanteach entrepreneurs and the youth to advance sustainability at the scale required to make an impact. The recent RIT Tiger Fest event in Dubai was an indication of how youth empowerment can drive sustainability. The outdoor event was completely managed by students who chose to use B100 biodiesel after they were made aware about the environmental impact of petroleum diesel.
100% biodiesel (B100) was used to fuel the Cummins generators at the RIT Tiger Fest music and dance festival in Dubai, on 21 March 2019.
“RIT’s students have not just seen the future, they’re rewriting it. These are our future business leaders and they’ve learnt very quickly that we all need to consider the planet in every single decision we make. Every little effort makes a difference,” says Feilder.