I had a few good conversations with Susan Moran, a very nice professor of journalism at Boulder who also freelances for the NYT. Below is her recent article (and a link to the article on the NYT website) on biodiesel.
Biofuels Come of Age as the Demand Rises
By SUSAN MORAN
Published: September 12, 2006
BARACK OBAMA is not a farmer, but he believes in biodiesel and the votes of farmers who produce soybeans and other crops for it. Senator Obama, Democrat from Illinois, spoke last month at an event to celebrate plans for a new biodiesel plant in Cairo, Ill. His presence was a welcome endorsement for a budding industry.
Nile Ramsbottom, of Renewable Energy Group in Ralston, Iowa.
On the day that Mr. Obama joined the Renewable Energy Group in announcing that it would build a 60-million-gallon-a-year refinery, the company said it had garnered $100 million in financing, the largest equity investment in biofuels so far. The infusion came from the American division of Bunge Ltd., a major food processor; two venture-capital funds controlled by Natural Gas Partners of Irving, Tex.; and ED&F Man Holdings Ltd., a global shipper of grains.
The investment underscores how the biodiesel industry is coming of age as demand for renewable fuels increases. The businesses range from soybean farmers in the Midwest seeking new markets to coastal start-ups with an environmental mission. Both camps are attracting a flow of money from venture capitalists and corporations alike.
Traditionally, soybean farmers dominated the biodiesel business, but lately a broader array of entrepreneurs is joining the pack, creating a curious convergence of environmentalists, farmers and investment bankers. Growth in the last year has been “phenomenal, almost frightening,” said Joe Jobe, chief executive of the National Biodiesel Board, a trade association.
But the ability of entrepreneurs to succeed in the long term will depend on much more than acres of oil-rich crops or deep pockets, industry players and analysts say.
“You don’t necessarily have to be a national player, but you need to optimize distribution within your region,” Mr. Jobe said.
And you need to make high-quality commercial biofuel while promising consistent quality to your customers, he added.
“Some people say anybody can make biodiesel if he can bake a cake,” Mr. Jobe said. “Have you ever baked a cake involving methanol, sodium hydroxide and other chemicals that could start fires?”
About 76 commercial biodiesel plants are in production today, up from 22 in 2004. The average business operates one plant that yields 30 million gallons a year of fuel and costs up to $20 million to build. Some companies are planning refineries capable of brewing up to 100 million gallons a year.
Nationwide production of the fuel tripled last year over 2004 to 75 million gallons. The board estimates that production will double this year, but Mr. Jobe estimates that the number could reach as much as, if not more, than 250 million gallons by year’s end.
That’s still a drop in the bucket compared with the nearly 140 billion gallons of gasoline the United States consumes each year. It also pales in comparison with ethanol. Last year, the global biofuels market totaled $15.7 billion in sales, of which only $1.6 billion came from biodiesel. That number could jump to $7.1 billion by 2015, says Clean Edge, a research company in Portland, Ore. But biodiesel has immediate appeal in that it does not require modifications of a diesel engine. It also requires far less fossil fuel to make than, say, corn-based ethanol.
Biodiesel comes from soybean, palm or oil-seed plants like canola and mustard, as well as from animal fats. Corn oil can also be extracted for fuel. Some start-up companies and university scientists are testing algae, which is attractive because it would not dip into the nation’s feedstock reserve.
Typically blended with conventional diesel, biodiesel burns cleaner and releases fewer pollutants, including carbon monoxide and particulate matter. Several factors are driving growth, including a federal ruling on low-sulfur diesel, state mandates on renewable fuels and concern about climate change and dependence on foreign oil.
But the strongest incentives are high petroleum prices and federal tax credits. “If one of those two fall, the industry’s growth would slow significantly, but would survive,” said Eric Bowen, a lawyer who helped found San Francisco Biodiesel, which plans to build refineries based on rendered animal fat and recycled vegetable oil from restaurants. “But if both fall away, the biodiesel industry would be in serious trouble.”
The federal excise tax credit, aimed at curbing pollution, offers producers and distributors of agri-biodiesel, which comes from virgin crop oils and animal fats, $1 for every gallon of biodiesel they blend with regular diesel. This means that even producers who blend their 100-percent pure biodiesel with only 1 percent of petroleum-based fuel can reap the credit.
Most biodiesel sold in the United States is a blend of 20-percent pure biodiesel and 80-percent conventional diesel fuel, called B20.
So far, commercial demand has outpaced supply. Renewable Energy plans to produce 460 million gallons from several of its plants. The company was spun off from a soybean farmer cooperative called West Central, which built its first biodiesel plant in Ralston, Iowa, in 1996. Nile Ramsbottom, the president of Renewable Energy, said he expected sales to reach $740 million in 2010, a rise from $116 million last year.
Without forming alliances and not managing risk between energy and agriculture commodities, many start-ups will falter, some industry experts contend.
“Plants are going up everywhere,” said Gene Gebolys, founder of World Energy Alternatives in Chelsea, Mass. “But individual plants must be part of a network in which products can get to the best markets.” The company expects to exceed $100 million in sales this year from producing biodiesel from soybeans, canola and animal fat.
The first biodiesel business to receive venture-capital financing was Seattle Biodiesel, which recently changed its name to Imperium Renewables. Since spring of last year, three firms have invested $10 million in the company: Nth Power of San Francisco; Technology Partners in Palo Alto, Calif.; and Vulcan Capital, led by Paul G. Allen, the co-founder of Microsoft.
Imperium’s Seattle refinery produces five million gallons a year, and the company is building a refinery in Grays Harbor, Wash., able to produce 100 million gallons a year. Imperium now buys soybean oil from the Midwest, a costly business. But it is seeking crop sources closer to home.
Another biofuel company, Greenshift Corporation, based in New York, announced in June that it had received $22 million from Cornell Capital Partners for its GS AgriFuels division, mostly to build a plant that will produce 45 million gallons of fuel a year.
Major food processors like Cargill and Archer Daniels Midland Company are investing heavily in biofuels. On the energy front, Chevron and BP are pouring millions into biofuels production or processing.
Small businesses will have to reckon with big players. As Mr. Gebolys of World Energy says of the biodiesel business: “It’s still fun, it’s cool, it’s dynamic and it’s global. And you get to make a contribution.”