At $5 a gallon and competition for feedstock, Oregon’s fledgling biodiesel industry could burn out before it ever gets going

Sunday, June 08, 2008


The Oregonian Staff

There’s a shortage of fryer grease in America.

Thieves pilfer it by the gallon. Investors wage a bidding war for every golden drop. Add to that the soaring price of soy and canola seed, and you can understand why 26-year-old Libby Rodgers, who hopes to launch a biodiesel company, won’t reveal the sources of her blend.

“I don’t want to shoot my mouth off,” says Rodgers, who collects grease from places around Prineville that she won’t name. “I can’t say too much about my feedstock. It is just so competitive.”

Not long ago, restaurants might have paid Rodgers to haul away their oily dribbles. But with a runaway commodity market and growing friction in the food vs. fuel conflict, secondhand grease has become the diamond of gemstones to biodiesel brewers.

Now, the grease crisis has become just one part of a slippery slope that threatens Oregon’s biodiesel bonanza.

Never mind that people don’t eat enough french fries to make enough grease to go around. Skyrocketing prices for soy and canola have no end in sight. Already, the controversy over food being used for fuel has scared off some consumers. And, despite the growth of a biodiesel cottage industry, many still face challenges developing large-scale production and distribution systems to meet the projected demand.

Last week, the price of biodiesel reached a record $5.26 a gallon at some Portland-area gas stations, surpassing the price of petroleum diesel even with tax breaks to consumers meant to spur the industry’s development.

If prices keep climbing, consumers could stop buying, just as the biodiesel bandwagon gains traction. Oregon’s biodiesel industry might burn up before it ever catches flame — turning to ashes the green dreams of environmentalists, politicians and investors.

“I am as skeptical as anyone in this business now,” Rodgers says. Her company, Lookout Mountain Biofuels, is just weeks from certification by the Oregon Department of Agriculture. She worries whether her company — and the state — will be able to sustain the momentum.

“It’s pretty volatile. It’s a really critical time for this industry. If we don’t find other sources, biodiesel will be just another additive.”

What is biodiesel?

Environmentalists and politicians alike have heralded biodiesel as the ultimate renewable energy source. Biodiesel supporters say the fuel reduces reliance on foreign countries by pumping dollars into local agricultural economies. It is less toxic than table salt and biodegrades as fast as sugar. And, it has lower emissions and better gas mileage than petroleum, according to the National Biodiesel Board, an industry group.

Biodiesel’s main ingredients are oil from crops like soy, canola or palm, and used vegetable oil from restaurants.

The problem is, none of biodiesel’s renewable ingredients are renewing fast enough to keep up with global demand.

Less than three years ago, Vancouver-based Burgerville would have felt lucky to have the stuff taken off their hands.

The company, with 39 restaurants, generates 4,400 gallons of used cooking and frying oil each month, which used to cost up to $2,400 to remove, says Jack Graves, head cultural officer at Burgerville.

But the demand for biodiesel means a complete flip-flop in the marketplace.

“We’ve been approached by several firms offering to pay for it,” Graves said. “The value is shifting. It’s a matter of supply and demand.”

Burgerville’s grease translates to 3,330 gallons of biodiesel a month. But it’s not just biodiesel producers who are trying to get their hands on it. Other industries need it as an ingredient in dog food and cattle feed. It’s also a component of cosmetics and lipstick, with most of the demand coming from Asia.

“You’re basically putting french fries on your lips,” Graves says.

As its value has increased, so have thefts of yellow grease, which now sells on the commodity market for about $2.50 a gallon, up from 57 cents a gallon in 2000.

Some grease collectors, such as Eugene Chemical and Rendering Works, say as much as 40 percent of their grease is stolen weekly.

Bill Frye, branch manager for Baker Commodities Inc., which collects restaurant grease across Oregon, says the thefts have gotten so bad that the company is buying padlocks for its containers. Some weeks, Frye says, he’ll show up at a restaurant to find an entire 900-pound drum pumped dry. That means restaurant owners don’t get paid for the oil and Frye has nothing to sell to biodiesel producers.

“It’s like going into someone’s house and robbing them,” Frye says. “This is not a high margin industry, so losing a little bit impacts you quite a bit.”

Never enough grease

Tyson Keever, co-founder of SeQuential Biofuels, needs a lot of grease to help carry out the state’s green dream of producing 15 million gallons a year.

SeQuential, Oregon’s largest producer of biodiesel, plans to increase output from 1 million gallons a year to 5 million by August. Workers are just putting the finishing touches on the company’s new plant in Salem.

But while the company doesn’t have any problems selling every last drop of biodiesel from its 34 retail pumps throughout Oregon, it does, however, face a problem that many biodiesel producers are facing: How to get enough grease?

Each Oregonian produces only about one gallon of used grease each year. If all the state’s used grease went to biodiesel production, SeQuential would have only half what it needs.

“Supersize the meal,” Keever says, “we need the grease.”

In addition, biodiesel producers, fearing a backlash by consumers confused by the conflict over crops raised for biofuels, are increasingly returning to restaurant grease as a sole ingredient. More than 90 percent of SeQuential’s biodiesel comes from wasted vegetable oil.

On Swan Island, Jon Norling, a lawyer who started making biodiesel on the side, is finishing his own plant, which will pump 1.4 million gallons of biodiesel as soon as next week. He, too, hopes Portland Biodiesel will be entirely dependent on recycled vegetable oil. It’s not only the best raw material for environmental reasons, it’s also the cheapest feedstock available.

“That’s the only way we can survive,” Norling says.

Over the past year, the price of canola seed tripled, from 9 cents a pound to 30 cents, says Brent Searle, an economist with the Oregon Department of Agriculture.

“It’s close to $4 a gallon just for the feedstock,” Searle says. “And the export market has gone nuts.”

Oregon has limited regions for growing soy and canola, which are considered invasive to some areas. The commodities face stiff competition with markets overseas, China being one of the biggest buyers of oil and soy products.

Kent Madison, of Madison Farms in eastern Oregon, grows canola for biodiesel for the Portland Water Bureau’s fleet. He says he’s able to do it because of a contract that ensures a small profit to him, which gets him out of the commodity market.

For most farmers, profit margins for canola haven’t been high enough to attract them.

“When I plant a seed and raise it, I don’t know what I’m going to get paid for it in the end,” Madison says. “The contract with the Water Bureau guarantees us the cost of production. When the public is willing to pay a premium, we’ll raise biodiesel.”

Making more diesel cars

Over the past three years, biodiesel has gone from the fuel of renegade tree-huggers to the mainstream. Urban professionals use it to power their Mercedes Benzes. Families use it to fill up their Volkswagens. Farmers tap it for their John Deere tractors.

The city of Portland requires 5 percent of all diesel sold in the city to be biodiesel. Oregon lawmakers last year began requiring 2 percent of all diesel sold in the state to be biodiesel, accounting for 5 million gallons a year.

They hope to increase that to 5 percent as soon as Oregon producers can make 15 million gallons a year.

Starting next year, a federal mandate will require at least 500 million gallons of biodiesel to be produced — and consumed — in the U.S., a growing but small fraction of the 60 billion gallons of regular diesel consumed each year.

Though only about 4 percent of passenger cars and trucks in the U.S. run on diesel, that number is likely to climb to 11 percent by 2012. Carmakers, to meet the growing popularity of diesel engines in the U.S., plan to release dozens of models starting this year. Diesel engines get about 30 percent better gas mileage than gasoline engines.

Biodiesel advocates have high hopes that new technologies will supply the demand beyond used vegetable oil or crop oils. Scientists are experimenting with algaes and other types of fast-growing crops, says Amber Pearson Thurlo, a spokeswoman for the National Biodiesel Board.

“There’s new, exciting feedstock being developed to help the supply,” Pearson Thurlo says. “But it will be a couple of years out.” Until then, a shortage of expensive raw materials poses big challenges for the fledgling industry.

In Washington, the nation’s largest biodiesel refinery announced it would scale back after less than a year. Imperium Renewables opened a new plant August 2007 at the Port of Grays Harbor on the Washington coast, close enough to ship in vegetable oil from across the seas and to ship biodiesel out. Much of the biodiesel it produces goes overseas to Europe, home to the largest biodiesel industry in the world.

“There’s been a bandwagon effect,” says Bill Jaeger, professor of agricultural and resource economics at Oregon State University. “There’s so much capacity now and not enough feedstock to fill the capacity. That means you can’t cover the cost of the plant and some businesses will close.”

Though most biodiesel users fill up out of environmental or philosophical reasons, cost is becoming more of an issue as biodiesel prices rise. The state gives a tax credit for biodiesel burners up to $200 a year.

With a tightening economy, price will either drive demand or squelch it, Jaeger says.

At Jay’s Garage in Southeast Portland, Rodney Wojtanik, 40, watches the price gauge going up and up for biodiesel. Past $50 to $55 a tankful, and up from there.

Wojtanik hasn’t decided to stop buying biodiesel yet. The Portlander still feels strongly that biodiesel is better for the local economy than petroleum. Instead of switching, he considers driving less and taking fewer trips this year.

“It’s painful, very painful,” Wojtanik says. “I struggle with this question every day.”