U.S. biodiesel industry suffers as biofuel rule delays drag on

WASHINGTON Wed Aug 20, 2014 12:12pm EDT

WASHINGTON Aug 20 (Reuters) - The long wait for final 2014 federal biofuel use targets has compounded troubles for U.S. biodiesel producers already hit by the Obama administration's preliminary plan to slash renewable fuel requirements.

Nearly nine months behind schedule, 2014 targets from the Environmental Protection Agency could arrive in September at the earliest.

In the meantime, biodiesel producers have been squeezed by falling prices, as refiners and blenders delay purchases until they see a final mandate.

Debate about the future of the Renewable Fuel Standard has mostly focused on ethanol. But the smaller biodiesel industry has arguably been hurt more by proposed production cuts, said Anne Steckel, vice president of federal affairs at the National Biodiesel Board.

"The longer we wait, the worse the biodiesel industry is impacted," Steckel said.

The RFS requires increasing amounts of renewable fuels - including ethanol, produced mostly from corn, and biodiesel, often made from soybeans - to be blended into U.S. gasoline and diesel supplies each year through 2022.

The preliminary 2014 rule, announced in November, held the biodiesel target at the 2013 level of 1.28 billion gallons.

Producers had asked for a target of 1.7 billion gallons after producing nearly 1.8 billion gallons in 2013, and warned in a letter to President Barack Obama that a lower target would imperil billions of dollars in investments and thousands of jobs.

Renewable Energy Group, one of the few publicly traded biodiesel producers, reported a 13 percent drop in second-quarter revenues as lower prices offset an 11 percent increase in volume. Its shares have languished.

The company said the average price per gallon of biodiesel sold in the second quarter was $3.67, 21.4 percent lower than the same period in 2013.

A recent NBB survey found that nearly 80 percent of producers had cut back output this year and more than half had idled production or shut down a plant for a time. Many have cut their workforces as well.

"It's more difficult for smaller producers who don't have as much capital to take the risk of producing, not knowing what the consequences are," said Pete Moss, president of Frazier, Barnes and Associates, a biofuel consulting firm in Memphis.

Although the industry is confident it could meet a higher target, the EPA's delay means producers would have to quickly ramp up production late in 2014.

Cramming production into the final weeks of the year disrupts the market, Moss said.

The market is in "disarray," Moss said. "We are fully capable of producing higher numbers, but we really can't without some guidance."

Without the export market enjoyed by corn ethanol producers, or built-in demand from refiners that use ethanol as a cheap source of octane, some biodiesel makers have already been forced out of business.

More could shut if persisting delays leave the industry guessing at the future direction of U.S. policy, said Jeff Haas, chief executive of Seattle operations for General Biodiesel, which produces fuel from recycled cooking oil.

"We've been sailing across an ocean without a compass," Haas said. (Reporting by Ayesha Rascoe; editing by Ros Krasny and Leslie Adler)