Future of fuels for U.S. freight transport

by C. Phillip Baumel
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In 1878, Rudolph Diesel, a student in Munich, Germany, learned that the new internal combustion gas engine, developed by Nikolaus Otto, converted only a small percentage of the fuel energy into mechanical energy. He also learned that a higher compression ratio in a combustion cylinder should lead to higher fuel efficiency. The theory was that higher air compression would create enough heat to ignite the fuel in the cylinder. The resulting high temperature explosion would burn more of the fuel energy, creating greater energy efficiency and more power than Otto’s spark-ignited engine. Five years later, Rudolph Diesel developed a compressed ignition-diesel-engine that worked.

In 2010, medium- and heavy-duty trucks consumed 91% (33.7 billion gallons) of the diesel fuel consumed on U.S. highways, according to the U.S. Energy Information Administration (EIA). That same year, Class I railroads consumed 3.5 billion gallons, according to the American Association of Railroads.

Song-Charng Kong, associate professor in the College of Engineering at Iowa State University, notes that the fundamental difference between diesel- and gasoline-powered internal combustion engines is the method of igniting the fuel in the combustion chambers. The mixture of air and fuel injected into the cylinders of gasoline engines is ignited by a spark from the spark plug in each cylinder. With no spark plugs, the fuel in a diesel engine is ignited by the very high temperature in the high compression ratio combustion chamber. The compression ratio in gasoline engines ranges from 8 to 12 and from 14 to 25 in a diesel engine. The lower compression ratio of gasoline engines restricts it to converting about 35% of the energy in the fuel to move a vehicle. The higher compression ratios of diesel engines enable them to convert up to 55% of the energy in the fuel to move a vehicle or ship. However, if a pre-mixture of fuel and air is used in the cylinder of a diesel engine, a high compression ratio could induce an undesired auto ignition, causing the engine to knock. Thus, in Diesel’s new engine, only air is induced into the cylinder and the liquid fuel is injected near the end of the compression stroke.

Another reason that diesel is preferred over gasoline is that one gallon of diesel fuel contains 138,700 Btu while one gallon of gasoline contains 125,000 Btu, according to the U.S. Department of Energy. Moreover, diesel fuel emits only small amounts of carbon monoxide and hydrocarbons that are attributed to global warming. However, diesel fuel emits large amounts of nitric compounds and soot that lead to acid rain, smog and health problems.

With all of its advantages, why are we trying to find substitutes for diesel fuel? The two major reasons are crude petroleum and the environment. At the end of 2010, the United States had proven technically recoverable reserves of about 25.2 billion barrels of petroleum. Total domestic crude petroleum extraction in 2010 was 2 billion barrels. At this rate of extraction, the U.S. has a 12 1/2-year supply of proven domestic crude petroleum reserves. Proven recoverable reserves do not include non-conventional supplies like shale and sand oil and some off-shore deposits. The EIA estimated that the total U. S. proven and unproven petroleum reserves in 2011 were 219 billion barrels.


The only commercially available biofuel substitute for diesel fuel in the United States is biodiesel. A large amount of biodiesel is made from inedible fats and oils, waste restaurant oils, and inedible corn oil. Also, a substantial amount of biodiesel is made from virgin vegetable oils, like soybean and canola oil. However, soybean and canola oil prices are higher than the prices of used and inedible fats and oils.

The 2007 Energy Independence and Security Act mandates that biodiesel be blended into diesel fuel. In 2010, the Environmental Protection Agency (EPA) mandated that 800 million gallons of biodiesel be blended with diesel fuels. This mandate increased to 1 billion gallons in 2011 and 1.28 billion in 2013. This mandate ensures that there will be a market for biodiesel even if biodiesel costs more than petroleum-based diesel.

Data from Renewable Energy Group Inc. (REG), which produced the largest number of gallons of biodiesel in 2011, illustrate this point. In 2011, REG produced 150 million gallons in the United States. The feedstocks for 83% of that production were inedible animal fat, used cooking oil and corn oil extracted from a byproduct of ethanol production.

These lower-cost fats and oils helped make REG one of the lowest cost biodiesel producers. Only 13% of its production came from soybean oil. The total cost of goods sold for these 150 million gallons was $696.6 million for an average cost per gallon of $4.64. Another $34.5 million of operating costs increased the production cost to $4.87 per gallon. The 150 million gallons were sold for $758 million, an average price of $5.05 per gallon. This analysis arbitrarily assumed that 3 cents of that $5.05 came from the sale of glycerin and fatty acid byproducts. This reduced the average selling price paid to this producer for biodiesel to $5.02 per gallon.

The average U.S. pump price for petroleum diesel in 2011 was $3.84 per gallon, according to EIA. To estimate the production cost of diesel fuel, this analysis deducted the EIA estimated 14% from the retail price to account for distribution costs. The average federal and state diesel fuel tax of 48 cents per gallon was subtracted from the average 2011 U.S. pump price for diesel fuel. This yielded an average producer selling price of $2.82 per gallon of diesel fuel. The price of biodiesel paid to this low-cost producer was approximately $2.18 per gallon above the estimated price paid to the producers of petroleum diesel.

The major reason why the biodiesel industry was able to sell its biodiesel 2011 output at a price that was, on average, $2.18 above petroleum-based diesel that contains 9% more Btu, is the federal blending mandates. Moreover, some states also mandate the use of biodiesel.

To track the sales of renewable fuel production (biodiesel), the EPA created the renewable identification number (RIN) system. All EPA registered producers of biodiesel may create an RIN for each gallon produced. RINs have value to “obligated parties” to satisfy their renewable volume obligation under the Renewable Fuel Standard legislation. Most biodiesel is sold with its RIN attached. RINs may also be sold as a separate commodity. On Dec. 31, 2011, RINs contributed approximately $1.83, or 38%, of the average Jacobsen B100 Upper Midwest spot price of a gallon of biodiesel.

The blender’s tax credit also provided a $1 excise tax credit per gallon of 100% biodiesel to the first person who blended biodiesel with petroleum-based diesel fuel. This tax credit expired on Dec. 31, 2011 and was renewed on Jan. 1, 2013.

A common blend, B10, is 10% biodiesel and 90% petroleum diesel. Blends can range from B1 to B99. The main reason for blending these two fuels is the federal government blending mandates. Second, the biodiesel helps improve the lubricity of low sulfur petroleum-based diesel. Third, blending reduces the “cloud point” of biodiesel. The cloud point is the temperature below which a fuel becomes cloudy. Cloudiness indicates that the fuel is likely to gel. This could lead to plugged fuel filters and other problems. Biodiesel begins to gel at 30 to 60 degrees F. The cloud point for diesel fuel is below 20 degrees F.

Another issue with biodiesel is that it contains oxygen. Oxygen makes the fuel crystallize in cold temperatures and over time. The crystals can clog engine fuel delivery systems. A good biodiesel management program is needed to prevent these problems.

There are limited supplies of low-cost feedstocks to produce biodiesel. Some contend that finding feedstocks to produce the 2013 mandated blending 1.28 billion gallons of biodiesel may be tricky. The supply of inedible corn oil will top out at 300 million gallons of biodiesel. The meat packing industry will supply enough animal fats to produce 400 million gallons of biodiesel. The remaining 580 million gallons will need to come from used cooking oils and virgin soybean and/or canola oil. The EPA believes that the additional soybean oil will come from reduced U.S. soybean exports, yet world demand for virgin vegetable oil is increasing. If this scenario plays out, biodiesel producers will be forced to compete with international vegetable oil buyers for virgin vegetable oils. This suggests that biodiesel producers could face higher prices for virgin vegetable oils and inedible feedstocks to meet the mandated 1.28 billion gallons of biodiesel. Potential shortages of biodiesel feedstocks could increase the costs of biodiesel production.

A fundamental principle of economics is that a firm will not produce a product if the price it receives is equal to or less than the variable cost of producing that product. The logic is that a firm will only produce a product if the price it receives covers its variable costs per unit of output and, at least, some of its fixed costs. If the REG variable cost of production is its 2011 $4.64 per gallon, and the wholesale price of diesel fuel is $2.82, REG is likely to shut down some of its high-cost plants after the EPA-mandated blending of 1.28 billion gallons is reached. Wholesale buyers would no longer be forced to pay more for biodiesel than the wholesale price of petroleum diesel.


Renewable diesel usually refers to hydro-treated vegetable oils or animal fats, according to a report issued by the Transportation Technology Center, Inc., Pueblo, Colorado, U.S. It said the feedstocks for biodiesel are treated with hydrogen to remove their oxygen. This process produces a diesel fuel with no stability or low temperature problems that have been associated with biodiesel. The properties of renewable diesel are similar to gas-to-liquid (GTL) synthetic diesel fuels. The cetane number for renewable diesel, a measure of the fuel’s ability to self-ignite, is very high; the higher, the better, for diesel fuel. Renewable diesel has no sulfur, oxygen or nitrogen. According to the report, renewable diesel’s clouding point is well below freezing and its heating value is similar to diesel and its storage stability is good.

There are no published cost analyses of renewable diesel production costs, but they are believed to be higher than the cost of producing biodiesel. There are no commercial renewable diesel production plants in the United States.


Algae biofuel is a popular potential alternative to diesel fuel. These algae are not the algae plants commonly found in ponds of water across the country. Rather, it is a group of single-cell micro-organisms that produce large amounts of lipids. Lipids can be transformed into hydrocarbons that are essentially indistinguishable from gasoline or diesel fuels, according to Robert C. Brown, distinguished professor of mechanical engineering at Iowa State University.

Zhiyou Wen, professor at the Center for Crops Utilization Research at Iowa State University, said there are about 50,000 species of these microalgae. One of the problems facing researchers in the development of algae fuels is finding those species of microalgae that produce the most lipids. At the present time, the typical lipid content of algae is 5% to 10% of their liquid content, he said. In theory, it is possible to genetically modify microalgae to contain in excess of 50% of lipids, Wen noted. Other problems include designing the most productive methods of growing the algae.

Brown said two methods of production currently getting the most research attention are open ponds and enclosed plastic “photobioreactors.” Open ponds cost about $100,000 per acre and the photobioreactors cost about $1 million per acre. Another major problem is the harvesting and extraction of the lipids on a daily basis.

A DOE study suggests that it costs over $10 to produce a gallon of algae diesel from open ponds and $20 per gallon from photobioreactors.

The study suggests that the cost of algae diesel could fall to $4 per gallon under the following conditions: major improvements in algae lipid content and production along with greatly reduced harvesting and extraction costs and the sale of the spent biomass at $500 per ton.

Some researchers suggest that this will be achieved in a decade. Others indicate that there have been no major breakthroughs and that commercialization of algae diesel is decades away.

Algae fuels are sometimes referred to as third-generation biofuels. Other potential sources of lipids for diesel fuel are palm oil, jatropha, a hardy group of wild tropical plants and salicornia, a salt-tolerant plant that grows in marshes and beaches. Brown noted both jatropha and salicornia face several decades of development if, indeed, they prove to be good sources of lipids.

There is substantial environmental resistance to the use of palm oil for fuels because of the destruction of rainforests to produce palm oil, according to Brown.


Natural gas (NG) consists of 90% methane. It originated from the remains of historic plants and animals and was formed by the great pressure exerted over centuries by the thousands of feet of rock, sand and debris covering the plant and animal remains. Recently, large quantities of NG have been found in shale formations.

In 2010, the United States had proven NG reserves of 317 trillion cubic feet (tcf). The 2011 production of NG was 24 tcf. At that level of production, the 317 tcf would only last 13 years. The good news is that the U.S. has huge quantities of unproven NG reserves locked deep in shale formations. EIA estimates that, as of Jan. 1, 2010, the total NG reserves in the United States were 2,203 tcf. At the 2011 level of production, that would be more than a 92-year supply. Some observers suggest that the EIA estimate of unproven reserves is too low.

The huge unproven reserves of NG have been made available to U.S. markets by hydraulic fracturing, commonly called fracking. Fracking pumps more than 1 million gallons of water, chemicals and sand under high pressure into each well. These wells vary in depth, but can be as deep as 10,000 feet. After reaching the desired depth, the drilling extends horizontally across the shale formation. The high pressure of injected water, chemicals and sand fractures the shale formations, and allows the NG and other hydrocarbons that exist there, to escape the shale and flow up the well.

The major advantages of NG over diesel are its low price and huge supplies. Its major disadvantages are that it is a gas, not a liquid and it has low energy density. It must be converted into “compressed NG” (CNG) and “liquefied NG” (LNG) before it can be used by trucks and railroads. CNG is NG under pressure of 3,000 to 3,600 pounds per square inch. LNG is NG that has been cooled to -260 degrees F. At that temperature, it changes from a gas to a liquid that is 1/600th of its original volume. CNG is less expensive to produce and store than LNG, because it does not require expensive cooling and cryogenic tanks. Other than biodiesel, NG is the only near-term alternative to diesel fuel for trucks.


Diesel fuel can be produced synthetically from NG, coal and biomass. Biomass includes crop residues, grasses and wood products. The United States has huge quantities of biomass and coal.

Synthetic diesel fuels require no modifications to existing engines. They can be mixed with and actually improve the quality of petroleum diesel. They are liquids and can be distributed through the existing diesel distribution system. However, they are likely to cost more than diesel fuel and they have poor lubricity and cold flow properties.

In September 2012, Texas-based KiOR completed construction of a plant in Columbus, Mississippi, U.S. that will use fast pyrolysis to produce synthetic gasoline and diesel fuels from biomass. The initial production began on Nov. 8, 2012. Its preferred feedstock is southern yellow pine wood chips.

The demand for KiOR’s products, beyond the EPA, state and city mandates, will depend on their selling prices. If their diesel price is equal to or exceeds the price of petroleum diesel, truckers and railroads are unlikely to purchase quantities above the mandated amounts.

The price of their non-mandated synthetic diesel will need to be less than the price of petroleum diesel, because KiOR states that its fuels will be 1.7 GEE (gallons ethanol equivalent). Assuming 76,000 Btu per gallon of ethanol, 1.7 GEE converts to 129,200 Btu per gallon for the KiOR diesel; that is 93% of diesel Btu. Therefore, truckers and railroads will unlikely be willing to pay as much for KiOR diesel as the price of petroleum diesel. Given that their plant is in operation, KiOR will continue producing synthetic diesel as long as the price they receive exceeds their actual variable cost of production.


Fuel cells are self-contained devices that convert hydrogen into electricity. The electricity powers an electric motor to move vehicles. Some experimental fuel cells have been installed in small autos, trucks and one railroad locomotive. Thus far, fuel cells have been unable to produce adequate power for these vehicles and costs have been high. The conclusion from these tests is that commercial use of fuel cells for freight transportation is decades away.

A second hydrogen option is the hydrogen internal combustion engine. The hydrogen combustion engine is closer to commercial deployment than the fuel cell and it can be manufactured at prices 15% more than petroleum engines, according to the Transportation Technology Center, Inc. in Pueblo. It can run on pure hydrogen or on a combination of hydrogen and CNG. Hydrogen must be extracted from other substances such as coal and biomass. It is costly to extract, store and has a low energy density.


Almost all U.S. railroad freight locomotives use a diesel-electric system. The output from the diesel engine generates electricity. This electricity drives the electric motor on each of the drive axles (usually six) on heavy duty locomotives, to provide the high torque required to move the train.

The major benefit of the diesel-electric system is that it eliminates the need for mechanical transmissions. A major issue with this alternative fuel source is whether the electricity should be generated onboard the locomotive by a diesel engine, or generated elsewhere and transmitted to the moving locomotives. Electricity generated elsewhere is supplied to railroad locomotives by an overhead wire (catenary) system.

The advantages of electrified rail systems are no emissions from the locomotives and high power-to-weight ratios in passenger trains, allowing rapid acceleration and high speeds. Also, alternative fuels can be used to generate the electricity, and regenerative braking options allow the conversion of kinetic energy into electricity. The major disadvantage of electrification is the high costs of infrastructure and locomotives.

The high infrastructure costs would be prohibitive on low traffic main and branch rail lines. Therefore, an electrified rail system would require capital investments in the entire electrical transmission infrastructure, as well as new electric locomotives and a completely new electrical maintenance and support system. In addition, a complete duplicate diesel-electric system would be required to service the traffic on the lower traffic main and branch rail lines. Moreover, a single infrastructure failure on the electrified system would close the entire electrified system served by that infrastructure. These high costs mean that an electrified rail freight system is not likely to be economic under most short- and medium-term diesel fuel price scenarios.


The U.S. does not have a shortage of freight transportation fuels. However, it is developing a shortage of low-cost, liquid fuels for trucks and railroads that meet environmental standards. Diesel fuel emits large amounts of nitric compounds and soot that lead to acid rain, smog and health problems. The only near-to-medium term alternative fuels for trucks and railroads are biodiesel and NG. Railroad electrification is a physical but not an economic option for railroads.

The development and commercialization of fuel cells, hydrogen internal combustion engines and environmentally friendly biomass and other synthetic diesel fuels is likely to take decades. However, Robert Brown, professor in the college of engineering at Iowa State, suggests that some synthetic diesel fuels will likely be commercially available within five years.

If synthetic diesel fuels are commercially available in five years, they will need to be priced below petroleum-based diesel if they are to be purchased beyond federal mandates by the truck and railroad industries.

C. Phillip Baumel is an Emeritus Distinguished Professor of Agriculture at Iowa State University. He can be reached at pbaumel@iastate.edu.