FocusFinancing shortfall trips US biodiesel industry

11 March 2009 16:12  [Source: ICIS news]

By Ben Lefebvre

HOUSTON (ICIS news)--Cash flow issues are hammering US biodiesel producers, causing them in turn to have problems financing their operations, sources said on Wednesday.

US renewable fuel producer Athens Biodiesel said a financing shortfall caused it to miss payroll for its employees.

Melvin Kilgore, who owns the Huntsville, Alabama-based Athens with his sister Beverly, said investors failed to deliver on $1.5m (€1.2m) in financing, leading to the company to suspend payroll for 13 of its employees as it looks for new capital.

“They got nervous about the economic times and current oil prices. It was a surprise move, and now we’re scrambling,” Kilgore said.

The business started production at its 40m gal/year Athens refinery in Alabama in July 2008, using animal fats and soy methyl ester (SME) as feedstocks. The company is currently not producing product, but Kilgore said it would not yet seek protection under Chapter 11.

While a scarcity capital has starved many companies throughout the business world, it is proving especially fatal to many in the biodiesel industry. Life for the market’s roughly 170 refiners was already difficult as crude oil prices below $60/bbl reduces demand for alternative fuels and trade arguments have cut access to key customers in Europe. US biodiesel refining rates are down by more than half compared with last year, sources said.

In February, investors fled Nova Biosource, forcing the Butte, Montana-based producer to idle its 30m gal/year commercial refining capabilities. The move surprised some in the market, who had considered Nova a sophisticated player in the relatively young industry.

A pullback of capital also hit GreenHunter Energy, whose Houston biodiesel refinery is the country’s largest. A financing shortfall caused it to cancel a planned acquisition of L&L Holdings and that company’s 17 Gulf coast marine terminals.  

Some in the industry are worried that risk-adverse banks are not just keeping their distance from the industry’s present-day operations, but also its future.

Jonathon Wolfson, president and CEO of Solazyme, a California-based company researching the use of algae as a raw material for biodiesel, told the audience at the National Biodiesel Conference in February that lack of financing “may be a bigger hurdle than anything else” in developing second-generation feedstocks.

"A lot of those folks have turtled, and they are hiding in their shells," Wolfson said.

John Urbanchuk, an agri-economist for LECG, said the biofuels industry will not recover until the US financial system gets its own house in order.

“The issue isn’t with biofuels,” Urbanchuk said. “It’s a great example of the problems the economy after the collapse of the financial industry. The most important condition for recovery in the biofuels industry is going to be a revitalisation of the banking system.”

Although some investors may have particular qualms about dealing with the young industry as a whole, lenders should still find specific projects worthy enough for their investment dollars, Urbanchuk added.

“Biodiesel is riskier because it is new, its scale isn’t as large as ethanol and there are questions about feedstocks. But when [the economy] recovers, biodiesel will be in line with other industries in gaining access to capital,” he said. 

($1 = €0.79)

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By: Ben Lefebvre
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