ConocoPhillips, Tyson to make biodiesel from fat

By Michael Erman and Bruce Nichols

NEW YORK/HOUSTON (Reuters) - Oil company ConocoPhillips and meat producer Tyson Foods Inc. plan to work together to produce biodiesel from animal fat, the companies said on Monday.

Beef, pork and chicken fat from Tyson rendering plants will be processed at ConocoPhillips refineries to create transportation fuel.

ConocoPhillips, the third-largest U.S. oil company, said it plans to spend about $100 million over a 3 year to 5 year period to prepare several refineries to process the fuel. It said the diesel will first be produced at its Borger, Texas, refinery.

Tyson, the world's largest chicken, beef and pork processor, said it will make capital improvements this summer at some of its rendering plants so it can start pre-processing animal fat.

The companies expect production from the project will ramp up over time to as much as 175 million gallons per year of biodiesel.

Tyson said production is expected to start late in 2007 and ramp up through spring 2009. At full production, Tyson expects annual earnings of 4 cents to 16 cents a share from the project.

"We are firmly committed to leveraging our leadership position in the food industry to identify and commercialize renewable energy opportunities," said Tyson Chief Executive Richard Bond in a statement.

ConocoPhillips and Tyson will be taking advantage of a $1 per gallon tax credit that will make the fuel cost effective, they said.

"It's not profitable without the $1 per gallon tax credit," ConocoPhillips CEO James Mulva said at a news conference. "With the tax break, it's barely commercial."

Mulva said the project would have no real impact on his company's financial results.

The tax credit is set to expire in 2008, but both companies are hopeful it will be extended.

Early this year, U.S. President George W. Bush called for increased use of renewable fuels to reduce reliance on oil from the Middle East.

Energy companies have come under pressure from environmentalists to increase production of renewable fuels.

In 2006, U.S. biodiesel makers produced between 225 million and 250 million gallons, or less than 6 million barrels, of the fuel, according to the National Biodiesel Board. That compared with an overall on-road diesel market of about 38 billion barrels, the board said.

Only a very small percentage of the biodiesel currently produced in the United States comes from animal fat. The main feedstock currently used to make biodiesel is soybean oil.