March 19, 2008

Farmers High on Soy, BiodieselMakers Not so Much, Brazil and S.A. Boom, Alabama Gets Texas Oil

The economics of soybean oil for biodiesel has committed market suicide. Even with rising gas (and diesel) prices, it is nearly impossible to make a profit from biodiesel production with soy oil as the feedstock. At least that is the conclusion of someone a lot closer to the ground than I am. The Farmers' Guardian published a story dated March 14, 2008 saying, "Two years ago soy oil was in the low 20s (cents per pound),"" says Ed Ulch, a soybean farmer from Solon, Iowa. ""Now it´s 52 cents per pound. The break-even price for these biodiesel plants is 43 cents.""

Now, in truth, I don't necessarily subscribe to the above stated conclusions, but considering other feedstocks (as the story goes on to discuss, including using rapeseed (canola), animal fats and waste fryer grease) is an essential strategy for survival of the many biodiesel production facilities that are still springing up like toadstools all around the world. Indeed, biodiesel producers have to realize that even if they find a much cheaper feedstock today, the demand for their product is rising so fast that the primary feedstock of tomorrow will rapidly rise in price, too, in all likelihood. By all means we need to turn more attention (and quickly, I might add) to jatropha, neam, and perhaps even cellulosic biodiesel (umm, I think that one would be one we'd have to call "synthetic diesel" according to the technical definitions that exist today). But beyond that, we need to turn our eyes (again, rapidly) toward the one biological source that appears to hold the most promise, which is algae.

On the other hand, the evidence is in that at least some biodiesel facilities are grinding to a halt as a result of the rising price of soy oil. The Albert Lea Tribune (in Minnesota) reports that the Board of Governors of SoyMor Biodiesel LLC are suspending the production of biodiesel at this time in hopes of preserving the longer term health of the company that employs 30 people. This source quotes soy oil pricing this way: "The Chicago Board of Trade closing price Friday for March soybean oil was 62 cents per pound; January soybean oil closed at 64 cents." Which a SoyMor spokesman called 10 cents too high to be viable. (Seems that the SoyMor spokesman and Mr Ulch, at least, can agree.) Yet they remain optimistic in the true tradition of mid-Western farm communities. Board Chairman Gary Pestorius, is also quoted as saying, "High prices cure high prices."

Clearly there are signs that businesses still have faith that soy can be a viable route for biodiesel. In South Africa, EngineeringNews (of South Africa) reports a R1.5 billion (US$213 million) biodiesel plant has been announced, claiming expected operational date some time in late 2009. Investors in this company are mainly from Australia, and have not yet sold an interest [as required by law] to South Africans, but, "Rainbow Nation Renewable Fuels (RNRF) was in the "final stages" of applying for a licence from government to produce 288-million litres a year of biodiesel from a R1.5-billion plant it was building at Coega in the Eastern Cape." Although the company has targeted domestic crops of soy from the South African nation as their eventual feedstock, they anticipate that they will initially be importing much of the required 250,000 tonnes a year since the entire domestic soybean crop is approximately just 300,000 tonnes per year according to the Engineering News report.

Another company, LG Biodiesel has announced what, "they believe is a first in South Africa, a fully self contained and mobile Biodiesel manufacturing unit." It may well be the first in South Africa, but there are numerous versions available around the world. However, "the news" IS what you can get reported, so I guess it is newsworthy, or at least the price of R80,000 (which is just US$10,000) does seem like it might be viable for the purpose for which it was intended, which is to provide locally generated fuel for local electric generation in "off grid" remote locations. Provided local farmers are willing to grow the oil crops necessary, this really is likely to be the long term hope for eco-friendly modernization in much of Africa. While these mobile, trailer mounted units can provide fuel to power electric generators in isolated regions, they could also be used to accelerate development of villages as suburbs of the larger metropolitan regions too, temporarily extending the reach of electric services in advance of the arrival of a more interconnected power grid. There are those, too, who see the future of electric power as residing in distributed generation capabilities in general, and the addition of "smart grid" architecture is a hot topic in Europe at the moment.

Reportedly Brazil is considering advancing the target date of B5 manadatory blending to 2010. The report from Rio de Janeiro says (via the Estado newswire service, according to the website, which came from the Dow Jones newswire service)(sorry, I like to have more direct resources, but although I am sometimes re-published in Brazil, I don't read Portuguese myself) Mines and Energy Minister Edison Lobao wants to push up the starting lines for 3% biodiesel blends as a mandatory regulation for Brazil as early as July this year, with another increment to 4% next year before the 5% in 2010. According to this story, the country now consumes 840 million liters with the current regulations that require all diesel to be blended at least as B2 (2% biodiesel), so that would boost domestic consumption to 1260 million liters per year. The Minister indicated that this level was not a problem for the country since current capacity it to produce 2.5 billion liters per year, which, according to my math says that they could theoretically bump that up to 5% immediately without creating a shortage.

Ah, but THEN the newswire story goes on to say that: "Much of Brazil's biodiesel output capacity lies idle, however, due to high prices of raw materials, such as soy oil." You see? I told you.

Ah, BUT, that's not the whole picture, and as I suggested above, let's now turn our eyes to algae.

Last month PetroSun BioFuels, Inc., a wholly owned subsidiary of PetroSun, Inc. (Other OTC:PSUD.PK - News), acquired an 87.5% ownership interest in Fleet Biodiesel, Inc. located in Bridgeport, Alabama. This facility is located with access to the Kentucky river, and is currently producing at about an annual rate of 720,000 gallons according to the news release from Petrosun. Now, if everybody else is moaning and groaning about biodiesel being squeezed out of the market by rising soy prices, what does Petrosun know that everybody else does not?

Petrosun has also (and more recently) announced that they are opening a facility near South Padre Island (South East of Houston, TX), that will be producing algae, and from that, algal oil. Indeed, production plans for the Bridgeport facility are to boost production to 2.4 million gallons per year, using algal oil. The open pond method being employed by Petrosun allows them to get started with a huge facility (well, huge compared to anything anyone else in the continental United States is operating currently) (to the best of my knowledge, though if you know about one that is larger, please tell me about it). The photo at the top of this article shows some of the ten acre open pond cultivation areas, in full bloom on the left and not active on the right.

Petrosun says they expect to be operational by April 1st, 2008. The "farm" as they call it has 94 ponds of five acre size and 63 ponds of ten acre size on the 1,831 acre site. By Petrosun's calculation that is 1,100 acres under "cultivation" in the ponds. With their commitment to the Bridgeport facility I don't know how much oil they will have left over, but their press release tantalizingly promised, "PetroSun will conduct algae-to-jet fuel and algae-to-bioplastics research and development projects." If that's true, I applaud their aim, and will look forward to meeting and talking with them.

I don't know where I found the self-restraint to avoid mentioning politics this week, except that it is already Tuesday, and I still haven't submitted this to my editors, so, I will postpone politics and entertainment "bon mots" until next time.


Stafford "Doc" Williamson

p.s. Oh, yes, part of the reason I have been so slow getting this week's musings together is that I have been working on a government bid, and revamping my "printer supply" shop at , where prices are better than ever to the public and the corporate and government trade has been isolated out of sight (more or less).

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