FocusConsolidation seen for US biodiesel industry

13 June 2008 21:58  [Source: ICIS news]

By Ben LeFebvre

HOUSTON (ICIS news)--The US commercial biodiesel industry will undergo a wave of consolidation to reach the next step of development, producers and analysts said on Friday.

Although small and mid-sized commercial plants producing less than 35m gal/yr will play regional roles in the industry’s future, larger operations near major ports will come to dominate, market sources said.

“The biggest plants among the first generation that are most likely to survive,” said industry analyst and author Will Thurmond, whose 2006 report Biodiesel 2020 forecast consolidation to begin in earnest by decade’s end.

Thurmond said: “There will be mergers and consolidations, and those who will be left will be the ones best able to adapt to changes in feedstocks, government policies and technology.”

Thurmond pointed to the imminent second generation of plants, which will range in size of up to a hundred times larger than some current refineries. These include the 175m gal/year Tyson-Conoco renewable diesel plant in Texas and the 250m gal/year Neste Oil biodiesel plant in Singapore, he said.

As envisioned by industry leaders, the next generation of plants will be far from the stereotypical plant running off soybean oil in North Dakota, both figuratively and literally.

Unlike most first generation plants, they will be open to a variety of feedstocks, have vertically integrated processing units and will be much closer to deep sea ports, Thurmond said.

“They can produce in large volumes and take advantage of import/export, so they’re not vulnerable to soybean prices in the US,” he said.

Regional refineries can still hope to survive as local players if they use relatively cheap animal fat feedstock or can hold out until cheap alternatives like jatropha arrive, he said. But in the short run, many could fall by the wayside.

Smaller players in the midwest are already being winnowed from the field, victims of being too far from the lucrative overseas markets and volatile soybean oil prices that have jumped 86% since last year.

Meanwhile, a handful of companies such as GreenHunter Energy are either starting new, large-scale production plants near port systems or merging to form bigger entities.

Renewable Energy Group (REG) CEO Jeff Stroburg said consolidation will hasten since large fuel companies, obliged to follow the US government’s renewable fuel standards (RFS), won’t want to deal with the patchwork of small biodiesel suppliers currently dotting the country.

The new standards mandate that the US use 500m gallons of biomass-based diesel fuel in 2008 and 1bn gallons by 2012.

“I think there’s going to be more consolidation in the industry,” said Stroburg, whose Iowa-based company manages about 220m gal/year in biodiesel capacity.

Stroberg added: “In order to supply the big users, you can’t do with one or two or three 30m gallon plants. You have to have the scale and distribution to supply the big users with quantity they need when they need it.”

REG runs its own 12m gal/year plant and has two 60m gal/year plants under construction in Louisiana and Kansas, Stroburg said. But it has also formed partnerships to manage operations and markets material for other producers.

The company is also acquiring competitors, Stroburg said.

On 3 June it bought a 35m gal/year biodiesel refinery near Houston , Texas from US Biodiesel Group, while a few weeks earlier it partnered with Blackhawk Biofuels to attain a 45m gal/year plant in Dansville, Illinois.

As the industry matures, moves like this will become common, market players said.

“It’s happening now,” one analyst said of consolidation. “The small guys are being shaken out.”

($1=€0.65)

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By: Ben Lefebvre
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