Sunday, November 06, 2005

Platts Biodiesel Investor Conference, Chicago

I just returned from the Platts Biodiesel Investor Conference in Chicago. It was a good conference, informative presentations and many good people in attendance. My presentation on biodiesel incentives can be found here. The slides from the other presenters will be made available soon and when they are I will post the link in a follow-up piece.

A few observations coming out of the conference:

First, biodiesel still is and will be for the next couple of years a soy oil play. All the talk of alternative feedstocks (broadly defined for this purpose as anything other than soy or canola/rape) is encouraging, but such feedstocks will have a limited roll in the US biodiesel industry in the near term. Animal fats will have a roll to play, but the technology for converting these feedstocks to consistent high quality biodiesel is still fairly new, which is resulting in smaller plant sizes (1-5 mgpy) compared to the new virgin oil plants (30-50 mpgy). Accordingly, virgin oil biodiesel will continue to dominate in the marketplace. Well designed and thought out animal fat biodiesel plants should be able to survive in this environment, but need to have a strategy to survive in the industry long term as the trend towards larger plants continues. Imported oils such as palm may also have a roll to play, but their roll in the near term is fairly limited.

Second, there is lots of excitement in the biodiesel industry, but business models still need sharpening. I met many eager biodiesel developers, folks with plants currently in the early stages of development. I wish each of these folks well, but my working hypothesis that most of these plants will never get built remains. The risk has not been sufficiently taken out of these deals to attract serious investors. A few of these folks will get there with the right guidance, but sadly, I fear that many will not make the long slog from conception to production.

Third, the trend of power plant developers getting interested in biodiesel continues. These folks are looking to transfer their power project development expertise into the biodiesel industry. This should benefit the industry as it continues to professionalize and grow beyond its agriculture and rendering/WVO roots. The big question that comes along with this phenomenon is how sustainable is an independant biodiesel producer. If petroleum prices remain high and government support for biodiesel remains strong, I believe the independent biodiesel producers can thrive. On the other hand, should the price of oil drop below $35 or $40 dollars a barrel and/or government support for biodiesel falter, the independent biodiesel producer could quickly find themselves in troubled waters.

Fourth, if the three most important factors in the restaurant business are location, location, location, then the three most important factors in the biodiesel business are quality, quality, and quality. This is not new, but is worthy of note because it has several implications. (More on that later. Out of time at the moment. Sorry.)

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