Biodiesel – On Empty Run

Two thirds of US biodiesel production capacity now sits unused, reports the National Biodiesel Board. Key reasons – (i) global credit crisis, (ii) a glut in capacity, (iii) lower oil prices and (iv) delayed government rules changes on fuel mixes are now threatening the viability of two of the three main biofuel sectors – biodiesel and next generation fuels derived from feedstocks other than food. Ethanol, the largest biofuel sector, is also in financial trouble.

Earlier this year, GreenHunter Energy Inc, operator of the nation’s largest biodiesel refinery stopped production and it may have to sell its Houston plant. Dozens of other new biodiesel plants, which make a diesel substitute from vegetable oils and animal fats, have stopped operating because diodiesel production is no longer economical and numerous established producers have filed for Chapter 11 bankruptcy-court protection.

Producers of next generation biofuels – those using non-food renewable materials such as grasses, cornstalks and sugarcane stalks – are finding it tough to attract investment and ramp up production to an industrial scale.

In 2007, Congress set targets for the US to blend 36 billion gallons of biofuels a year into the US fuel supply in 2022, from 11.1 billion in 2009. That would increase biofuels’ share of the liquid-fuel mix to roughly 16% from 5%, based on US Energy Information Administration fuel-demand projections. Corn ethanol, which has been supported by government blended mandates and other subsidies for years, has come under fire for driving up the price of corn and other basic foodstuffs.

The mandate to blend next-generation fuels, which kicks-in next year, is unlikely to be met because of lack of enough viable production. The EPA, which implements the congressional blending mandates, still hasn’t issue any regulations to allow biodiesel blending, though they supposed to start in January.

The business models for most biofuel companies were predicated on a much higher price of crude oil and government-guaranteed is the central to business plans. Thus far, the survival of this industry depends on the commitment and support of Mr Obama. He has supported biofuels throughout his campaign, and is working to roll out grants and loan guarantees for bio-refineries and green fuel projects.

In the meantime, carcasses are everywhere.