Bright biodiesel future if obstacles surpassed

ATLANTIC CITY (Reuters) - Some U.S. companies are betting on a bright future for biodiesel, a green fuel that can be used to heat homes or power cars, but experts warn that legislative, infrastructure and other hurdles must be cleared.

A guard stands next to the entrance of a biodiesel plant owned by Spanish energy group Natura in Ocana, Spain, March 26, 2007. Some U.S. companies are betting on a bright future for biodiesel, a green fuel that can be used to heat homes or power cars, but experts warn that legislative, infrastructure and other hurdles must be cleared. REUTERS/Susana Vera

Industry players and experts said at the Atlantic Region Energy Expo in Atlantic City last week the nascent industry has a chance to grow dramatically as the administration of U.S. President George W. Bush promotes alternative fuels to cut Mideast oil imports.

But biodiesel, made from varied feedstocks such as vegetable oil, animal fat and turkey manure, relies on government incentives, can be difficult to transport, and may never become mainstream in the nation’s giant energy mix.

“When you see how immense the energy market in the United States is ... it’s impossible to replace that with renewable fuels,” said Ron Marr, a consultant with Lake Erie Biofuels, which is building a biodiesel plant in Pennsylvania.

Still, stubbornly high oil prices are a key reason for a surge of interest in recent years in alternative fuels -- something that could propel biodiesel’s growth.

Typically, biofuel can be used for heating homes in areas such as the U.S. Northeast in blends of 5 percent of biodiesel with 95 percent regular heating oil, and as a transportation fuel when as much as 20 percent is blended with regular diesel.


There are 115 biodiesel plants in the United States with a combined production capacity of 865 million gallons a year -- about five days of total U.S. distillate consumption, according to industry group, the National Biodiesel Board (NBB).

But the addition of nearly 80 plants currently under construction is set to boost total U.S. output capacity to over 2 billion gallons over the next 18 to 36 months, adds NBB.

“I would say in the past three or four years, it (capacity) has grown three to four times in size,” Paul Nazzaro, who heads outreach programs at Jefferson city, Missouri-based NBB, told Reuters.

Nazzaro said output capacity grew exponentially after biodiesel producers received a $1 per gallon tax credit a few years ago. The provision is due to expire next year but his group is lobbying aggressively to get it extended, he said.

The tax credit that biodiesel producers currently enjoy is higher than the 51 cents per gallon for motor gasoline blend ethanol, which has been the focus of renewable fuels.

Farmers this year are planning to plant a bumper crop of corn, the main U.S. ethanol feedstock, possibly the most since World War Two, while production capacity of around 5 billion gallons per year is set to rise to about 8 billion gallons in the next 18 months.

Among major firms that have announced forays into the biodiesel market, oil giant ConocoPhillips COP.N and meat producer Tyson Foods Inc TSN.N said on Monday that they will join forces to produce biodiesel from animal fat.


“Biodiesel is a very good fuel, it’s very clean, has a lot of oxygen, and a high energy content that is very close to diesel fuel. But it has some hurdles,” said Rick Handley, director of regional energy programs at CONEG Policy Research Center, a government funded nonprofit.

“Unlike ethanol ... biodiesel is produced from multiple feedstocks that have to be processed differently,” he said. “And smaller plants are being developed; quality control is something the industry has to get its hands on.”

Biodiesel can also be more difficult to handle than its conventional counterpart in cold weather, as it starts to gel as much higher temperatures. Experts add that transporting the fuel is also a challenge.

“We don’t produce quantities of biodiesel that would make it economic to put it though a pipeline so it’s almost exclusively transported by rail and truck, which is not as efficient as a pipeline,” Handley told Reuters.

Tim Keaveney of Sprague Energy Corp in Portsmouth, New Hampshire, said that without the proper infrastructure such as more terminals to bring it to the masses it will fail as a viable industry.

“The need for more terminals is vital. I don’t think it can survive without it,” said Keaveney, a fuel marketing manager.

Robert Woodruff of Woodruff Energy, which sells biodiesel in New Jersey, said the product is slightly more expensive than regular diesel, but the higher cost is not prohibitive for customers.

“It’s worth it. It’s a premium product which we can sell against natural gas, it’s clean heat, it’s green,” said Woodruff. “It smells like pop corn when you are driving down the road not like that horrible diesel smell.”