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Alternative Fuel Makers Struggle As Gasoline Prices Drop

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By KEVIN WIATROWSKI | The Tampa Tribune

Published: November 28, 2008

DADE CITY - In a corner of what once was an orange juice plant, dozens of towering stainless steel tanks have found a new purpose: storing the raw materials and finished product of Florida's largest biodiesel factory.

Since opening in October 2007, Pensacola-based Agri-Source Fuels has turned rendered chicken fat – the castoff of poultry processors across the Southeast – into a fuel supporters hope will help wean the United States off foreign oil.

Those hopes rose with the soaring price of oil this year. During the summer, when diesel prices in the Tampa Bay area averaged nearly $5 a gallon, Agri-Source cranked out about 3 million gallons of the tea-colored, low-pollution fuel. A Georgia-based oil company blended Agri-Source's product with petroleum diesel to make B20 – a fuel that's 20 percent biodiesel – and sold it to bulk users.

At the time, producers said they were limited only by how much $3-a-gallon chicken fat they could truck to the plant.

Agri-Source's investment earned it an Industry of the Year award from the Pasco Economic Development Council. Two months later, though, Agri-Source has slashed its production by half as plummeting oil prices – combined with its fixed cost for raw materials – have turned the company's bottom line from black to red.

"The profitability has really weakened," Agri-Source President Rick Higdon said. "We have the ability to ride it out, but it's no fun."

Such is the state of biodiesel these days.

Biodiesel is part of an array of alternate energy sources environmentalists and others see as a way to curb global climate change and reduce the country's dependence on the Middle East and other oil-rich global hot spots. But high production costs and low commercial demand have become hurdles to making the fuels a viable alternative to oil. Manufacturers hope federal subsidies and mandates will bolster the industry in coming years.

In the overall mix of the U.S. fuel supply, though, biodiesel has struggled to make headway compared with ethanol, which is made from crops such as corn. According to a U.S. Census Bureau report, biodiesel production was about 7 percent of ethanol levels in 2007.

Nevertheless, biodiesel has won support from federal and state legislators in recent years. A federal $1-per-gallon tax credit was renewed in 2007 to support biodiesel production. The same legislation set a goal of blending 1 billion gallons of biodiesel into the nation's fuel supply annually by 2012. So far, the entire industry produces about 600 million gallons a year, according to the National Biodiesel Board.

The competition for raw materials has become a major factor in the success or failure of biodiesel operations. The biodiesel industry used 4 percent of the 173 million pounds of animal fats and grease produced in 2007; the rest went to other uses, ranging from road paving to cosmetics.

The key to the industry's future will be to develop sources of raw materials, said Robert McCormick, principle engineer in the fuel performance group at the National Renewable Fuels Laboratory in Colorado.

"If you could sell B20 for a nickel or 3 cents less than petroleum diesel, you could probably sell all you could make," McCormick said. "They haven't been able to do that."

The escalating price of soybeans forced the owner of a Lakeland biodiesel plant to stop production in 2007. The factory has spent this year processing glycerine – a biodiesel byproduct -- and retooling to use other raw materials, said John Kellogg, spokesman for plant owner World Energy Alternatives.

"Right now, [biodiesel] is not as competitive with petroleum because the cost of production is high," Kellogg said. "Even with that tax credit, it's challenging for people to produce biodiesel at a profit now."

Kellogg and other biodiesel makers are pinning their hopes on the 2007 federal Energy and Security Act, which mandates oil refineries mix an increasing amount of renewable fuels into the national supply in coming years. The plan's aim is to reduce pollution and the amount of oil the United States imports.

The mandate kicks in come 2009 year at 500 million gallons.

"It'll create a floor under the market that will support it going into next year," Kellogg said.

Developing a customer base is another issue. Even when a substantial customer such as Florida comes along, a host of practical considerations can complicate matters.

In 2007, Gov. Charlie Crist signed an executive order mandating the use of biodiesel and ethanol whenever possible.

State officials say they use as much biodiesel as they can – mostly, at the state's 46 fuel depots, which primarily supply Department of Transportation machinery. Those depots dispense B20 and E10, which is 90 percent gasoline and 10 percent ethanol and also available at commercial stations.

The DOT used slightly more than 500,000 gallons of biodiesel in the first 10 months of 2008. Nearly half of that went into vehicles in DOT District 2, which encompasses Gainesville, Jacksonville and the rest of Northeast Florida. Tampa-based District 7 used 17,137 gallons, starting in August.

Most state vehicles use gasoline, though – not diesel – and those are fueled at commercial stations, most of which don't carry biodiesel.

Nationwide, 166 gas stations carry biodiesel, according to analysts with GasBuddy.com. Only three of those are in Florida.

Reporter Kevin Wiatrowski can be reached at (813) 948-4201 or kwiatrowski@tampatrib.com.

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