Imperium says new plant slashes cost of biodiesel production

With the opening of a large-scale plant in western Washington, biodiesel is about to go big time.

Imperium Renewables will cut the ribbon Wednesday on a biodiesel plant it says will be capable of churning out 100 million gallons of fuel annually by the end of this year. It's the first in a series of large plants coming from Imperium and others over the next few years.

In addition to putting out large quantities of biodiesel, the Grays Harbor, Wash., plant will cost less than what competitors have to spend on their plants, claims Imperium CEO Martin Tobias. The company has come up with a proprietary process that cuts the cost of turning vegetable oil into car fuel, he said.

Imperium will spend approximately $78 million on the plant, and $45 million of the cost is associated with holding tanks and distribution infrastructure. Only $30 million goes to equipment for processing fuel. Put another way, that's 30 cents per gallon in capital equipment for producing fuel--relatively low, Tobias says.

Imperium's capital costs are lower than smaller plants that only produce a few million gallons a year, and slightly lower than published estimates of capital costs for larger plants (PDF). Others, though, will be dropping their building costs too.

Cost is king in the biodiesel world. Biodiesel comes from plant matter or animal fat from farms in various parts of the world. Regular diesel comes from deep holes in exotic locales like Kazakhstan, and exploration costs have been climbing.

Biodiesel refiners, however, have to contend with high commodity prices. It takes 7.35 pounds of degummed soybean oil to make 1 gallon of biodiesel, according to Vernon Eidman, a professor at the University of Minnesota. (Vegetable oil is measured in pounds at wholesale.) And vegetable oil has been rising in price. Options on soybean oil futures, for instance, are selling for around 37 cents a pound. Thus, the raw material alone can cost more than $2.50 a gallon, above the wholesale price of refined, regular diesel. That now hovers around $2.40 per gallon. Without the federal subsidy (the federal government gives subsidies of 50 cents per gallon for used oil and animal fat and $1.00 a gallon for fresh oil) most biodiesel manufacturers would lose money.

Keeping capital costs down, therefore, is a big issue for these companies. Despite all the risks, industrial giants are jumping into the market because of rising demand and increasingly stringent emissions requirements. ConocoPhillips and Tyson Foods are building a 175-million gallon facility set to be fully operational in 2009 that will turn animal fat into biodiesel. Conoco will invest $100 million alone into the project. Meanwhile, ChevronTexaco is building one in Texas with Standard Renewable Energy that will have access to pipelines.

Archer Daniels Midland, which has more than 100 million gallons of biodiesel capacity in various plants, sells fuel in the U.S. and Europe, and plans to expand.

Imperium is on the move too. After Grays Harbor, the company hopes to build identical plants in Hawaii, Argentina and on the East Coast of the U.S. By the end of the first quarter of 2009, it wants to have facilities capable of churning out 405 million gallons.

"At this scale we can make a meaningful dent in petroleum consumption," Tobias said. The U.S. consumes more than 60 billion gallons of diesel a year, and biodiesel makes up less than 1 percent of the supply.

Imperium has been tinkering with its processes at its Seattle plant, which is capable of churning out 5 million gallons a year. The company ships its product via rail and ship through a network of distributors. Big customers include Royal Caribbean Cruise Lines, which has agreed to buy 15 million gallons in 2007 and 18 million for the next three years.

At the tailpipe, biodiesel emits 78.45 percent less carbon dioxide than regular diesel, according to a report from the Department of Energy.

"About 11 percent of the weight of B100 is oxygen. The presence of oxygen in biodiesel improves combustion and therefore reduces hydrocarbon, carbon monoxide and particulate emissions," the report states.

The presence of oxygen, however, also increases nitrogen oxide emissions and reduces mileage. Researchers are trying to find additives or processes to ameliorate these side effects.