Process Dynamics Ready to Refine Diesel Quality: Trucking Companies Could Benefit From Savings If Refiners Reduce $10 Billion Compliance Costs

Michael Ackerson was just looking for a cheaper method to make paraffin when he stumbled onto a way to wax the competition in a totally different field.r

His company, Process Dynamics Inc., has patented a breakthrough hydroprocessing technology that experts say could save the oil refining industry billions of dollars during the next 20 years. The process, which began as an effort to make food-grade wax coatings like the kind Tyson Foods Inc. uses to ship its meat products, turned out to be equally good for hydrotreating fuel. Hydroprocessing is used to cull impurities such as sulfur out of fuel feed stocks.r

The Fayetteville firm has been awarded two U.S. patents and has two more pending with 15 to 20 international patents in various stages of approval.r

Ackerson, Process Dynamics’ president and a professor of chemical engineering at the University of Arkansas, said his “IsoTherming” technology requires far less pressure than refiners previously thought was needed to reduce sulfur levels. That means much less costly and elaborate methods and machinery can be used to make clean-burning fuel.r

The accidental discovery couldn’t have come at a better time.r

The Environmental Protection Agency has mandated that the sulfur content in diesel fuel for on-the-road use be cut from 500 to 15 parts per million (ppm) by 2006. Western Europe will require the same by 2011.r

The estimated compliance cost for the refining industry, according to the National Petroleum Refinery Association, is about $10 billion for the U.S. market. With 140 American refineries, that breaks down to about $45 million-$50 million per project since many of the larger plants will require three to five projects each.r

Worldwide during the next 20 years, the NPRA said, the diesel-quality market will probably be 10 times larger.r

Ackerson said IsoTherming can cleanse diesel down to 10 sulfur ppm at 25 to 30 percent of the cost of his competitors, or about $12 million per project. That means by selling its technology to refiners, Process Dynamics stands to both help mitigate a price hike at the diesel pump and cash in on the quality conversion.r

That could also mean a heavenly return for investors in the firm, who have ponied up $3 million for research and development since its 1993 inception. Process Dynamics, which employs nine people, moved in August to the 8,000-SF former home of the Morningstar Church of the Nazarene on Deane Solomon Road. It had occupied 1,000 SF at the UA’s Genesis Technology Incubator since 1995.r

Bob Friedman, the incubator’s director, heralded Process Dynamics as a “wonderful example of an Arkansas knowledge-based business.”r

“The ‘smart’ was there six years ago,” Friedman said. “Thanks to faithful investors, the commercialization is now there, too.”r

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Big Dogs in the Huntr

Texas companies Exxon Mobil Corp. in Irving and Shell Oil Co. in Houston, plus UOP in Des Plains, Ill., and two foreign firms, are also working to beat the EPA mandate. Ackerson said his company’s patents might not prevent the conglomerates from developing similar methods. Process patents, unlike product patents, just buy inventors some time, he said.r

But Ackerson said it’s unlikely the big boys can cut through their own corporate bureaucracy and get commercial units running by the 2006 deadline.r

“The competition will respond. We’re certain of that,” Ackerson said. “We don’t know if they will blatantly infringe on our patents, but they’re not going to let the windfall go without a challenge.”r

The deal maker for Process Dynamics is probably that it already has a working commercial hydrocracker at Giant Industries’ Gallup, N.M., refinery. The $6 million IsoTherming unit, which Tulsa Engineering firm Linde BOC Process Plants LLC put up the capital to build, is producing about 4,000 barrels daily of 10 ppm sulfur-content diesel.r

It’s cleaner than Giant is required to make, but the firm isn’t incurring a lot of additional cost to produce the fuel so it’s already selling it with regular supplies.r

The Gallup unit is about a third the size of what future ones will be. They’ll eventually have about a 900-SF base and stand 45-50 feet. Construction on the unit began in December 2001, and it came online in April.r

Bob Roddey is president and CEO of Roddey Engineering Services Inc., a Shreveport chemical engineering firm he began in 1985. Before that, he spent 28 years in chemical engineering with UOP LLC and Pennzoil Corp.r

Roddey was enlisted to test Process Dynamics’ performance at Gallup. He and a team of engineers verified that during a two-week evaluation the IsoTherming unit made as low as 5 ppm sulfur-content diesel and never produced any above 10 ppm.r

“The concept is so simple, that if you’re knowledgeable about hydrotreating, the impulse is to say, ‘Why didn’t I think of that?’ The significance is the unit is using about 40 percent cracked stock and 60 percent straight-run.r

“The desulfurization process is more difficult for cracked stocks, but they present a higher yield and are therefore a more valuable product. That means, Mike has found a process that’s much more economical for refiners than typical hydrocrackers.”r

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Black Gold, Texas Tear

Jon Skeds, director of refining at Linde BOC, said after evaluating Process Dynamics’ technology that its merit was obvious.r

Linde BOC has 30 years of experience in designing and building petroleum refineries and chemical plants from $1 million to $75 million in size. Its parent company, Linde A.G., is an internationally renowned chemical engineering firm in Munich, Germany.r

“We don’t normally involve ourselves in commercializing technology and taking such a risk,” Skeds said. “But we saw the potential, and several experts confirmed what we thought. Hydrosulfurization has been around for 30 years, so the concept’s not new. This is just a much more efficient method. The refining community is still very conservative, but the Linde name lends a lot of credibility.”r

Skeds said following a presentation to Exxon Mobil, that firm’s chief researchers proclaimed Process Dynamics’ method “the No. 1 outside technology that [Exxon Mobil] would be evaluating.”r

Even so, Ackerson said his firm may miss some early sales because it’s small and located in the Ozark Mountains. When pitching his discovery early on, he said, most big companies acted like, “What could you possibly know that we don’t?”r

Steve Byars, Process Dynamics’ vice president, said the company’s staff wonders the same thing.r

“The best answer we can come up with is hydrotreating techniques were first developed just to remove odor and color from petroleum fractions,” Byars said. “That’s the template everyone has worked on for 50 to 60 years, and not much else needed to be accomplished.”r

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Ol’ Jed’s a Millionairer

Ackerson, a Kansas City native, got his undergraduate degree from the University of Missouri at Rolla and worked at Phillips Petroleum in Bartlesville, Okla., for six years as an applied thermodynamicist. He joined the UA faculty in 1987 after commuting to earn his master’s and Ph.D. in Fayetteville.r

Byars did his Ph.D. work on Ackerson’s solvent-dewaxing technology, the original goal before the IsoTherming process proved so diverse and potentially lucrative. Process Dynamics licenses that technology from the UA, which would receive royalties on the solvent-dewaxing process if it’s successfully commercialized.r

Ackerson said the “A-ha” moment was more like a series of “A-ha” months. His team had contacted paraffin manufacturer Edelanu in Frankfurt, Germany, and discovered they couldn’t afford to build a commercial hydrotreater. Plus, they learned that the conventional process caused temperature spikes of more than 100 degrees, so the challenge became to do it cheaper and cooler. IsoTherming produces about a five to 10-degree change, which contributed to its name selection.r

“We weren’t running around celebrating,” Ackerson said. “We learned about the diesel regulations later and then saw the real potential.”r

SIDEBAR: Environmental Maneuver’s Total Impact Still Uncertain

Companies that own diesel tractor fleets — such as J.B. Hunt Transport Services Inc. in Lowell, Wal-Mart Stores Inc. in Bentonville and Springdale’s Tyson Foods Inc. — face even more than a potential fuel-price hike related to a 2006 diesel sulfur reduction mandate by the Environmental Protection Agency.r

The EPA is also requiring that all on-road diesel engines add catalytic converters by 2007.r

Additional requirements are expected for off-road tractors, construction equipment and diesel trains within the next 10 years. High sulfur limits, which were allowable up to 20,000 ppm prior to 1994, damage catalytic converters and therefore contribute to the urgency for cleaner fuel. The sulfur ceiling was reduced to 500 ppm in 1994.r

Without catalytic converters, diesel engines produce the well-known pollutant SO2 (sulfur dioxide), which was linked 20 years ago to acid rain and watershed destruction.r

Dan Moore, a transportation analyst at the Little Rock securities firm Stephens Inc., said it’s too early to know exactly how the EPA mandate will impact other industries. With no big rigs yet on the road that comply, he said it’s still “anybody’s guess.”r

“There’s a certain return that’s required in my industry for companies to reinvest in and grow their fleets,” Moore said. “If the cost of equipment and/or fuel increases, then that could and likely would have a negative impact on their margins. The only way to recoup that is by raising rates, which means shippers pay more and ultimately pass that on to the consumer or absorb some portion of it themselves.”