Biodiesel Boom heading toward Wall Street

Thursday, September 27th, 2007

With a push from government subsidies, there’s a Biodiesel Boom heading toward Wall Street:

It’s not hard to see why. Biodiesel is 30 percent more fuel-efficient than gasoline, which in turn is 30 percent more efficient than ethanol. And while most ethanol produced in the United States comes from a single feedstock — corn — biodiesel has many sources: the oil of seed plants, such as soy and canola, french-fry grease and animal fat. That means the market can weather a price increase in any one raw material. Solazyme, a South San Francisco biotech firm, has even started making biodiesel from genetically modified algae.

Better yet, biodiesel can be manufactured in large quantities today — unlike fuels such as hydrogen. Total production shot 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 player in the biodiesel market is Renewable Energy Group, an offshoot of a 3,000-member Iowa farm cooperative. REG accounts for 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 giant Safeway. REG should be the first biodiesel company to hit Wall Street, having filed for an IPO in July. 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 Plaza. Imperium operates the largest U.S. biodiesel plant and plans to cut a production 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 U.S. 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.”

Take Philadelphia-based Fry-o-Diesel, founded by Yale 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 in 2008.

Adawi is in good company. The past few months have seen plenty of major corporations rush to hop on the biodiesel bandwagon. Oil giant ConocoPhillips has inked a deal with Tyson Foods to make diesel out of animal fats. In July, U.S. Steel announced that it will use a 10 percent mix of biodiesel at its plant in Gary, Ind. And Berkeley-based Clif Bar has started subsidizing employees who drive biodiesel cars.

Leave a Reply