High oil costs help alternative energy compete, but high commodity prices hurt
Published: March 31,2008
High oil prices can make alternative fuels more competitive in the marketplace. The problem is that prices for commodities like soybeans and corn used to make alternative fuels are also high at present.
“We’re doing fine,” says Clint Vegas, president of Delta BioFuels (http://www.deltabiofuels.com/), Natchez, a new biodiesel refinery that primarily uses soybean oil to make biodiesel. “Energy prices actually help us. If we are having a struggle right now, it is high commodity prices. The industry as a whole is struggling a little bit.”
Right now soybean oil costs approximately 70¢ per pound range, and it takes eight pounds of soybean oil to make a gallon of biodiesel. That input costs $5.60. A dollar per gallon rebate puts costs at $4.60 per gallon.
“And we haven’t even made it yet,” Vegas says. “That is strictly the cost of soybean oil. Off-highway diesel without taxes is $3.20 to $3.30 per gallon. As you can see, we are really upside down right now.”
But the company has a market in Europe, which is an area accustomed to paying more for diesel and other fuels. Europe has more vehicles that run on diesel, approximately 70%. So, Europe needs a larger supply of diesel.
Vegas says the weak dollar is helping in prices for the finished product, but hurting it in purchasing the products to refine. As for high commodity prices, some people are blaming renewable fuels. But Vegas says the alternative fuels industry doesn’t really have that much to do with it.
Biodiesel can be popular as a way to cut emissions from diesel, which is a fuel that pollutes more than gasoline. A full blend of biodiesel can cut emissions approximately 80%. When 20% biodiesel is blending with 80% diesel, emissions are reduced by approximately 40%.
Alternative fuels may have challenges to profitability at present, but could be considered an important investment in a future when fossil fuels become more rare and expensive.
“Our industry is in such infancy it is going to take time to work on the logistics of everything,” Vegas says. “We are in a pendulum business right now, but I think there is a very bright future.”
While he doesn’t see any “silver bullet” answers to the high prices for petroleum products today, he thinks renewable fuels are something that can make a difference.
Another new biodiesel facility in the state is the Scott Petroleum Refinery that opened in Greenville in October 2007 employing 28 people. So far, the plant has produced 1.1 million gallons of biodiesel, which is being sold as an 80-20 blend through Scott Convenience stores and through bulk customers.
Johnny Saulters, operations manager for the Scott Biodiesel Refinery, says the plant can produce 20 million gallons per year. The company invested approximately $20 million to $25 million including the terminal tank farm and the biodiesel plant.
“There is no doubt that the high prices are concerning a lot of folks, us as well,” Saulters says. “I do think this is the only option we have. There are research people all over the U.S. trying to find other alternatives, but at this point this is an option. And it is one I think we should utilize and explore more and more.”
Biodiesel production is welcomed by Delta farmers to have another outlet to sell their crops. Saulters says there has been good feedback from farmers who are happy to see the refinery operating.
Another major alternative fuel project underway in the state
is a $100-million ethanol plant under construction in Vicksburg, a joint venture between Ergon Ethanol Inc. and Bunge North America Inc. The facility will have the capacity to produce 54 million gallons of ethanol per year.
“This will consume 20 million to 21 million bushels of corn in a calendar year and will produce 180,000 tons of dried distillers grains,” says Jim Temple, communications manager for Ergon. “Anticipated start up is early summer 2008. We have flexibility with transportation as we are located on the Vicksburg Harbor and have access to the Mississippi River. We also have access to the KCS railroad and we can transport via truck. Anticipated markets for Bunge-Ergon Vicksburg’s ethanol are the Gulf Coast market via barge and area distribution terminals via truck.”
While high commodity prices aren’t favorable to the ethanol
producer, prices for denatured ethanol have also increased. Temple says this price appreciation of the end product has helped offset the negative impact of the increased price of their feed stock — corn. If this trend continues, ethanol producers should be able to continue to operate profitably.
“The ethanol plant could have major beneficial impacts as Bunge-Ergon Vicksburg becomes an additional end user market, thus creating stronger demand, which may provide strong grain prices,” Temple says.
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.
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