Corrected: US biodiesel in disarray as Senate refuses to vote on tax credit

18 December 2009 17:50  [Source: ICIS news]

Correction: In the ICIS news story headlined “US biodiesel in disarray as Senate refuses to vote on tax credit” dated 18 December 2009, please read in the seventh paragraph … each of the nine plants in its network … instead of … each of the 11 plants it owns and manages …. A corrected story follows.

HOUSTON (ICIS news)--US biodiesel producers are contemplating their next steps after Congress declined to vote on extending the renewable fuel tax credit the industry considered crucial for its business, sources said on Friday.

The US Senate said on 17 December it would not vote on the bill until next year, leaving the $1/gal blending credit to expire on 31 December. That leaves many producers having to sell their product for un-subsidised prices, which they say will slash sales volumes even lower than they are now and could lead to layoffs.

This was the first year Congress did not extend the one-year credit since it was introduced in 2004. That has left the industry in a state of confusion, said Kevin McGeeney, CEO of the Chicago-based biodiesel brokerage firm SCB & Associates.

“This wasn’t baked in,” McGeeney said of Congress’ inaction. “With the brinksmanship we saw last year, most of the industry expected the legislation to go through at the last minute. This is going to be damaging for volumes and damaging for us.”

McGeeney said his firm did not plan to lay off traders yet, but that the industry would weaken further unless Congress passed a multi-year extension instead of its usual annual vote.

Two bills currently in Congress - SB 1589 in the Senate and HR 4070 in the House - would extend the credit for five years. Those bills could see a vote in 2010, a National Biodiesel Board (NBB) spokesman said.

Daniel Oh, president and CEO of Renewable Energy Group (REG) in Iowa, the largest supplier of biodiesel in the US, said his company was currently reviewing operations at each of the nine plants in its network in this country. 

“The news that the biodiesel tax credit won’t be extended has put our industry in a state of turmoil,” Oh said through a spokeswoman. “REG is evaluating feedstock pricing, demand opportunities, production levels and, in turn, staffing options for each one of the biodiesel plants in our nationwide network to determine the best outcome for our customers and company.”

At the industry’s height in mid-2008, there were nearly 180 biodiesel refiners in the US producing an average of 60-70m gal/month, according to Energy Information Administration (EIA) information. Then the commodity bubble burst late in the year, and EU tariffs choked off shipments to what had been the US industry’s main consumer market.

The industry has since seen major players such as Nova Biosource close their doors. Overall production is now at about 15% of its 2.9bn/gal year capacity, with state mandates providing the only dependable demand. As of August, production was about 40% lower than it had been during the same period the year before, the EIA said.

NBB spokesman Michael Frohlich said some of the damage could be reversed if the Senate approves the extension in January, though reconciling the bill with the one the House passed on 9 December could lengthen the process.

Even then, the industry as a whole could go through a lot of hurt before the extension becomes law, Frohlich said.

“The news is still fresh and companies are digesting it,” he said “Some companies may wait until after Christmas to hand out pink slips.” 

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