The biodiesel boom

By January 15, 2008

The U.S. market for the biodiesel has grown over 50% every year since 2004 and will reach $1 billion in 2008. There’s today over a thousand of retail pumps all over the country when only 350 in 2005. Biodiesel IPOs are happening

, and opportunities flourish. “Biodiesel is the rock star of fuels”, says Will Thurmond, author of Biodiesel 2020: A Global Market Survey. “It has moved from Woodstock to Wall Street.” Will 2008 be year of the biodiesel boom?

It’s not complicated to figure out why is all of this happening.

Biodiesel is 30 percent more fuel-efficient than gasoline, which in turn is 30 percent more efficient than ethanol.

Ethanol produced in the United States comes from a single feedstock, corn. In another hand, biodiesel has many sources: the oil of seed plants like soy and canola, french-fry grease, and animal fat. That indicates that the market can condition a price increase in any one raw material.

Solazyme, a South San Francisco biotech firm, has even started making biodiesel genetically modified algae. Better yet, biodiesel can be manufactured in large quantities today – unlike fuels such as hydrogen.

The entire production blasted up from 25 million gallons in 2004 to 250 million last year.

Nearly 100 new plants are now under construction; even Chevron has joined in, cutting the ribbon on a 20-million-gallon plant in Galveston, Texas, in May.

The biggest actor in the biodiesel market is Renewable Energy Group (REG), an offshoot of a 3,000-member Iowa farm cooperative.

REG accounts from 27 percent of U.S. biodiesel production and, thanks to its relationship with the soy growers, says it can increase its total capacity to 340 million gallons by the end of 2008. The company sells branded SoyPower fuel through a nationwide network of stations, some operated by grocery monster Safeway. REG should be the first biodiesel company to hit Wall Street, having filed for an IPO in July 2007. But REG won’t be the last: Also mulling a stock offering is Seattle-based Imperium Renewables, founded three years ago by former commercial jet pilot John Plawa. Imperium operates the largest American biodiesel plant and plans to cut a production business deal with Washington’s canola farmers.

For all that production capacity, biodiesel is still an infant industry.

It currently accounts for less than 0.5 percent of the total us diesel –fuel market. So there will likely be plenty more REGs and Imperiums. “It’s such an entrepreneurial success story,” says Jenna Higgins, communications director at the National Biodiesel Board, a trade association. “Most of the companies out there are small businesses. There really aren’t any traditional paths to success.”

As a perfect example, Philadelphia based Fry-o-Diesel, founded by Yake business graduate Nadia Adawi. The startup has a patent pending on a process it developed to make fuel from trap grease, which restaurants currently pay to have hauled off.

An estimated 495 million gallons of trap grease gets trashed every year. “We’re working with something that’s essentially a pollutant,” Adawi says. “But it makes a great fuel.” She is currently talking to investors and hopes to build a 3-million-gallon plant this year.

The past few months have seen plenty of major corporations rush to hop on the biodiesel bandwagon. In July 2007, U.S. Steel announced that it will use a 10 percent mix of biodiesel at its plant in Gary, Ind. Berkeley-based Clif Bar has started subsidizing employees who drive biodiesel cars.

Any diesel car can run on bio-diesel, with no conversion necessary. This year just 4 percent of US passenger cars run on diesel, but analysts expect that number to rise fast, in lockstep with rising oil prices.

J.D. Power Automotive Forecasting predicts that diesel’s share of the market will increase to more than 10% by the middle of the next decade – fueled in large part by the surge in biodiesel’s production and popularity.

Mathieu Ramage
Media and Editorial Manager of Atelier North America

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