I suppose it is possible that local towns will want to make a statement about environmental issues and start going hybrid. But at twice the price, that’s going to be a hard pill to swallow at your local town meeting.

Even at 40 percent savings on fuel costs, without grants from the state or federal level, I can’t imagine most schools will choose to go elsewhere with their budgets.

Source:WTEN, Albany, NY: Hybrid Bus Highlights “Super Bowl” for School Bus Junkies

The cost of a hybrid is double what you would pay for a normal diesel bus; 160-thousand bucks for one of the buses on display.

Shenendehowa, the largest district in the area, will try out the hybrid for several months. Because Shen’s bill for diesel fuel is up 50 percent this year, that is an extra 200-grand.

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More Hybrid Car information can be found at http://hybridreview.blogspot.com
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As someone said to me just now by e-mail, “It ain’t about the fuel… it’s about a piece of the pie.”

Democrats Plan to Reverse Tax Break for ConocoPhillips, Tyson

April 20 (Bloomberg) — Democrats in Congress plan to reverse an Internal Revenue Service ruling that allowed ConocoPhillips and Tyson Foods Inc. to benefit from a tax break for producing alternative energy.

If adopted, the legislation would threaten a joint venture announced this week by ConocoPhillips and Tyson to produce diesel fuel from animal fat.

ConocoPhillips Chief Executive Jim Mulva said the companies wouldn’t proceed if they didn’t qualify for the tax credit, worth $1 per gallon of renewable diesel produced.

“It’s not profitable without the $1 tax credit,” Mulva said April 16 at a news conference in Houston. “It’s very important and significant in going forward at this point in time.”

It also angered the American Soybean Association, which fears refiners may begin shipping in less-expensive foreign palm oil to replace U.S. soy oil at the government’s expense.

Yeah, don’t try to tell me it’s about supporting alternative energy. It is about special interests. This tax credit will increase the renewable fuel in the U.S. It would decrease our reliance on foreign oil. And it wouldn’t take one dime away from current biodiesel producers. They just don’t want any competition.

I would have guessed Iceland, but it’s actually the U.S.:

Beyond the sun, a new wave of clean energy

As policymakers promote alternative energy sources to reduce the United States’ emissions of greenhouse gases and its dependence on foreign oil, entrepreneurs are becoming increasingly inventive about finding novel ways to power the economy.

Beyond solar power and wind, which is America’s most developed renewable-energy sector, a host of companies are exploring a variety of more obscure technologies. Researchers are trying to come up with ways to turn algae into diesel fuel. In landfills, startups are attempting to wring energy out of waste such as leaves, tires and “car fluff” from junked automobiles.

It is hard to predict what portion of the country’s needs could be met by these emerging technologies. The United States is already the world’s largest producer of geothermal electricity, with 212 plants generating 3,119 megawatts. A panel convened by the Massachusetts Institute of Technology concluded in a recent report that by 2050, geothermal plants could produce 100 gigawatts, which would be equivalent to 10 percent of current U.S. electricity capacity.

To be honest, I never think too much about geothermal, because I always thought of it as a niche application. I had no idea the U.S. produced that much geothermal energy. To put the 3,119 geothermal megawatts in perspective, installed wind capacity is about 12,000 megawatts in the U.S., and installed solar PV is about 6,000 megawatts. And to put those numbers in perspective, installed nuclear capacity is 100,000 megawatts, and installed coal capacity is 335,000 megawatts.

2nd Update:

Well, we got that big surprise, primarily because crude imports were sharply down from last week. Some excerpts:

U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending November 16, down 151,000 barrels per day from the previous week’s average. Refineries operated at 87.0 percent of their operable capacity last week.

U.S. crude oil imports averaged over 9.8 million barrels per day last week, down 667,000 barrels per day from the previous week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 1.1 million barrels compared to the previous week. At 313.6 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year.

Total motor gasoline inventories increased by 0.2 million barrels last week, and are below the lower end of the average range. Distillate fuel inventories decreased by 2.4 million barrels, but are in the middle of the average range for this time of year. Total commercial petroleum inventories decreased by 6.9 million barrels last week, and are in the upper half of the average range for this time of year.

Updated: As oil stands again at the cusp of $100, here is what analysts expect for this week’s report report:

Analysts surveyed by Dow Jones Newswires, on average, predict that crude oil inventories rose by 800,000 barrels last week, while refinery use grew by 0.4 percentage point to 88.1 percent of capacity.

Gasoline inventories likely grew by 700,000 barrels, the analysts predicted, while inventories of distillates, which include heating oil and diesel fuel, fell by 400,000 barrels.

While oil supplies likely rose last week, prices were being supported Tuesday by concerns there would be a bullish surprise in the EIA report, such as an unexpected decline in inventories.

If we see that unexpected decline, then WTI should break $100.

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Last week, I noted that even though there was a very big surprise with respect to crude inventories, the market seemed slow to react. I indicated that it may have just been an artifact, and that was in fact what it turned out to be. I get my quotes from the NYMEX site, and those quotes are delayed by 15 minutes. So, no opportunities to make money as a result of a slow-moving market. Actually, I would have been stunned if traders weren’t poised to react to a large surprise in the report, but it seemed as if they weren’t. That’s why I posed the question.

In fact, someone posted a very interesting graph that suggests that in fact the movement in price happened prior to the release of the report:

December WTI Following Last Week’s TWIP Release

I know that graph is hard to read. Here is the link for the original graphic, in case you want to see the fine details. What it looks like is that about 4 minutes prior to the release of the inventory report, the price rapidly dropped over $1/bbl, implying that contracts were being dumped. This could of course be innocent; someone could have rolled the dice and guessed that the report would be bearish. That could also be due to the resolution on that graph (i.e., what you see above may have actually happened just after the report’s release).

But for a suspicious person like me, I started wondering about just how many people have access to this data. It would be very lucrative to sell some advance information, so I am curious as to how the EIA safeguards the early release of the numbers. How many people know the numbers before they are released? What safeguards exist to prevent someone from selling the information? Do any of the EIA’s employees drive a Ferrari? (kidding)

I asked Doug MacIntyre, author of This Week in Petroleum, if he could comment on this. Doug wrote:

Robert,

EIA understands completely the seriousness of our data and carefully safeguard it before it gets released. We know that a lot of money can be made if the data were known prematurely, and everyone involved is very careful not to divulge ANY information to ANYONE before the release. In fact, we even go a little farther and try not to comment on the data to the press until at least 1 hour after the data are released. I am confident that the data were not, and have not been compromised.

EIA will not discuss the specific procedures we do to safeguard the data or divulge the number of people that have access to the data, as we believe that any information regarding the procedures we follow should be safeguarded as much as the data.

Thanks for explaining that, Doug.

The following story posed a bit of a dilemma for me. In my new role, there will be potential conflicts of interest in some of the stories I may post, and until I elaborate on what I am doing, I am trying to avoid posting anything that might fall into that category.

When I first saw this story earlier today – and in fact received the press release from Rentech (RTK) – my first thought was that this sort of fell into that category. Why? Two reasons. First, Rentech’s Senior Vice President and Chief Technology Officer Harold Wright is my former manager and a friend. Second, in my new role I have interests that are of the same nature as some of Rentech’s. That means that we could be allies or we could be competitors, but I can’t say I am a disinterested party. So I finally decided that I should simply declare this, and post the story, which is really a culmination of several Rentech developments.

Having said that, Rentech has really been generating a lot of buzz lately. They are currently operating the only fully-integrated synthetic transportation fuels production facility in the U.S., and in partnership with ClearFuels Technology Inc., they are building a “20 ton-per-day biomass gasifier designed to produce syngas from bagasse, virgin wood waste and other cellulosic feedstocks at Rentech’s Product Demonstration Unit (PDU) in Colorado. The gasifier will be integrated with Rentech’s Fischer-Tropsch Process and UOP’s upgrading technology to produce renewable drop-in synthetic jet and diesel fuel at demonstration scale.”

Rentech also recently announced their Rialto Project, designed to “produce approximately 600 barrels per day of pure renewable synthetic fuels and export approximately 35 megawatts of renewable electric power.” They will use Rentech-SilvaGas biomass gasification technology, and green waste as the feedstock.

Today’s press release announced an off-take agreement with several airlines. You can read the press release below. Rentech stock was up 86% today on the news. They also announced a profit last week of $0.22 a share (triple analysts’ expectations), and were up 56% on that news.

I have strongly voiced my views that I believe the future belongs to gasification. Keep an eye on Rentech’s developments in this area.

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Rentech to Supply Renewable Synthetic Fuels to Eight Airlines for Ground Service Equipment Operations at Los Angeles International Airport

Initial Purchasers Include Alaska Airlines, American Airlines, Continental Airlines, Delta Air Lines, Southwest Airlines, United Airlines, UPS Airlines and US Airways, with Potential for Additional Purchasers

LOS ANGELES (August 18, 2009) – Rentech, Inc. (NYSE AMEX: RTK) announced today that it has signed an unprecedented multi-year agreement to supply eight airlines with up to 1.5 million gallons per year of renewable synthetic diesel (RenDiesel®) for ground service equipment operations at Los Angeles International Airport (LAX) beginning in late 2012, when the plant that will produce the fuel is scheduled to go into service.

The initial purchasers under the agreement with Aircraft Service International Group (ASIG), the entity that provides fueling services to many airlines that operate at LAX, are Alaska Airlines, American Airlines, Continental Airlines, Delta Air Lines, Southwest Airlines, United Airlines, UPS Airlines and US Airways. Additional airline purchasers of RenDiesel® can be added under the agreement with ASIG.

The agreement is the first of its kind to supply renewable synthetic fuels to multiple domestic airlines. The renewable RenDiesel® fuel to be supplied to the airlines would be produced from green waste at Rentech’s proposed Rialto Renewable Energy Center (Rialto Project). The renewable diesel fuel will have a carbon footprint of near zero. RenDiesel® exceeds all applicable fuels standards, is biodegradable and is virtually free of particulates, sulfur and aromatics. RenDiesel® is compatible with existing engines and pipelines, providing an immediate solution to the transportation sector’s requirements to meet targets established by California’s Low Carbon Fuel Standard.

D. Hunt Ramsbottom, President and Chief Executive Officer of Rentech said, “This commercial purchase contract among Rentech, ASIG and the airlines validates the growing demand for synthetic fuels produced by the Rentech Process. The low-emissions profile and near-zero carbon footprint of our renewable RenDiesel will guarantee that the LAX ground service vehicles using this fuel will be among the cleanest and greenest of their kind.” Mr. Ramsbottom continued, “We expect this agreement to serve as a model for future supply relationships at other airports and for other fuels, including Rentech’s synthetic jet fuel, which was recently approved for commercial airline use.”

Glenn F. Tilton, Air Transport Association of America (ATA) Board Chairman and UAL Corporation Chairman, President and Chief Executive Officer, said, “We are proud to take part in this innovative, collective endeavor that, over time, will further reduce greenhouse gas emissions and improve local air quality through the use of greener fuels.” Mr. Tilton continued, “This transaction promises to be the first of many such green fuel purchase agreements by the commercial aviation industry. It exemplifies the ongoing commitment of airlines and energy suppliers to diversify our fuel sources while contributing to a cleaner environment and adding new jobs to the economy.”

ASIG is thrilled to have been instrumental in reaching this landmark deal with the airlines and Rentech, reinforcing our strong commitment to our airline customers and environmental stewardship,” said ASIG President Keith P. Ryan. “We are proud to be on the forefront of this innovative effort to advance aviation environmental progress.”

Gina Marie Lindsey, Executive Director of Los Angeles World Airports (LAWA), commented, “This collaborative effort is yet another environmentally friendly initiative that we and the airlines are pursuing at Los Angeles-area airports. It shows what we can accomplish by working together toward a common and necessary goal.”

Rentech is developing a commercial-scale facility in Rialto, California, to produce renewable electric power and the cleanest diesel in California, each with a carbon footprint near zero. The project is currently designed to produce approximately 600 barrels per day of renewable, ultra-clean synthetic fuels and 35 megawatts of renewable electricity (enough to power approximately. 30,000 homes), primarily from urban woody green waste, such as yard clippings. The facility is expected to come online in 2012.

The following is an essay I wrote by request for another website. Regular readers won’t see anything they haven’t seen before, but I figured I would go ahead and post here as well. It is a condensed version of some of the topics I have hit here several times.

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Every president since Nixon has promised to make the U.S. energy independent. Yet each successive administration has seen us become ever more dependent upon fossil fuels extracted from foreign lands. Why does a noble goal such as energy independence elude the U.S.? Let’s investigate.

Money Talks

The U.S. is an energy hog. We are 5% of the world’s population, and we consume 25% of the world’s oil. We consume on average double the amount of oil of the average European, and six times the amount of oil of the average Brazilian. I will get to Brazil in a moment, but why should we consume so much more oil than Europeans? Are they simply that much more enlightened than we Americans? One could make that argument, but as someone who has lived in Europe on multiple occasions, I don’t think that’s it. I think it’s simply that people respond to price.

European governments have placed very high taxes on gasoline for many years. And in order to favor more efficient diesel engines, they provided favorable tax treatment for diesel fuel. These policies have had the effect of causing people to demand mass transit, it caused them to drive more efficient vehicles (with far more diesels operating than in the U.S.), and it caused them to live close to where they work. The overall impact is that Europeans use less oil, which also means their economies aren’t quite as sensitive to spiraling oil prices. They are not immune to higher prices, but if gasoline prices increase by $1/gallon, the impact on the average European is far less than on the average American.

Biofuel Myths

One thing high gas taxes in Europe didn’t do was to enable biofuels to gain solid footing as an alternative fuel source. Only mandates have boosted the market share for biofuels. Why? When gasoline prices reached $10/gallon this summer in parts of Europe, why didn’t we see biofuels ride to the rescue? Two reasons. First, the energy inputs into most biofuels amount to a large fraction of their overall energy content. Thus, when oil prices rise, the cost to produce biofuels rises in tandem. Second, the true cost to produce biofuels in most locations is substantially greater than it is to produce oil. Of course many producers and hypesters will claim otherwise. But the truth is that we have directly subsidized corn ethanol for 30 years. It is no closer to being able to stand on its own, subsidy and mandate-free, than it was 30 years ago. We have been working on cellulosic ethanol for 40 years. But the cost of production is too closely tied to the cost of fossil fuels like oil and natural gas because the energy inputs are so substantial.

Brazil Did It

Sugarcane ethanol can be produced efficiently and sustainably. I have been to a sugarcane ethanol plant in India, and I quizzed them intensely on their energy inputs into the process. Their energy inputs consist mainly of bagasse (sugarcane residue) that is burned for boiler fuel. Sugarcane is removed from the field during harvesting, and the bagasse is waste left at the factory after processing. The bagasse is burned for fuel, and the ash is mixed with compost from the process and returned to the soil.

Some claim that this is how Brazil reached energy independence, and the U.S. should follow Brazil’s lead. This is a myth. While Brazil is the #2 producer of ethanol in the world (the U.S. is already the #1 producer of ethanol), fossil fuels still provide 90% of their energy requirements. Brazil did recently declare energy independence – but not because of ethanol. Brazilian President Luiz da Silva made the announcement of energy independence in 2006 on the P-50 oil rig in the Albacora Leste field in the Atlantic Ocean.

So what of it? Ethanol still played a vital role in helping Brazil achieve energy independence. But the U.S. is a different ballgame entirely. The biggest problem is that in the U.S., each person uses 25 barrels of oil each year, but we produce only 6. In Brazil, each person uses 4, but they produce 3. They produce 75% of the oil they use, and in the U.S. we produce 25% of what we use. So sugarcane ethanol – which is produced with much lower fossil fuel inputs than corn ethanol – has a very small gap to fill in Brazil. In the U.S., we have a huge gap between what we use and what we produce. There is no proven biofuel technology that can economically bridge that gap.

Tax Fossil Fuels

If we can’t bridge the gap, perhaps we can make the gap smaller. How? There are many things we need to do, but I will focus on one. This summer when gasoline prices were setting new records, Americans began to conserve. They drove fewer miles. They bought more efficient cars. They embraced mass transit. As a result of high prices, we finally responded. Thus, I would argue that we need to keep fossil fuel prices high. I have proposed that we increase taxes on fossil fuels, and at the same time reduce income tax rates to prevent the taxes from being regressive. I would strive to make the fossil fuel tax revenue neutral, while providing an incentive to conserve.

There are two major advantages. First, people will know that fossil fuels are going to continue to be more expensive, and they can begin to plan accordingly. People who have been holding out for lower gas prices can finally join the people who have already begun major conservation efforts. Second, it levels the playing field for alternatives and for mass transit. Alternative energy is currently expensive relative to fossil fuels, but I would argue that this is partly because we don’t pay the true price for fossil fuels. For instance, we pay no price for carbon emissions. By raising fossil fuel taxes, those alternatives with low fossil fuel inputs will gain an advantage.

Conclusion

Why does energy independence elude us? In a nutshell, because we are unwilling to pay the price. The political parties make energy independence promises, because 1). We love to hear them; and 2). They (and we) are naïve about the difficulty of achieving the goal. Republicans tend to think we can drill our way to independence, and Democrats overrate the ease at which alternative energy can displace fossil fuels. The fact is, we love our cheap fossil fuels (and ironically loathe the companies that bring them to us).

But if we are to achieve energy independence we will need to use less. We will need to sacrifice. We will most importantly require bold leadership, because there is no easy way to get there. This is clear, given the inability of one administration after another to make headway in that direction. The thing that these administrations lacked was a serious policy designed to cut into our fossil fuel consumption. And the only proven method of getting us to collectively use less gasoline is by making it more expensive.

I am still trying to extract myself from underneath an avalanche of e-mails, but thought I would post just a bit on oil prices, which are again in record territory:

Oil passes $130 for the first time

In the past year, crude oil prices have more than doubled, pushing retail gas prices higher.

The price of a gallon of regular unleaded gasoline hit a record high for the 14th straight day, according to AAA’s Web site.

The nationwide average for a gallon of regular unleaded rose to $3.807, up from $3.80 the previous day and up 19% from year-ago levels.

Global demand has been increasing much faster than supply. In particular, demand for diesel fuel in China, India, the Middle East and South America has made it very difficult for suppliers to keep pace.

The direction of prices has not been a surprise to me, but the speed that they have climbed has been. Last summer, when oil was still bouncing in the $60’s, I said I thought it would crack $100 in 2008. It only missed one trading day by cracking that in 2007, and has been on a tear since fall. Right now prices are about a year ahead of where I had forecast them.

How high will prices go? In the long run, I can’t make a good case for any particular top. They could go much higher. In the short term, I never try to guess the direction. But I am certainly not in the $40 oil camp. Those days are history. The days of $80 oil may even be history, and if that is the case the economy will continue to be in for a rough ride.

Hypothetical question: If a group of farmers in Iowa cut a deal with Tyson Foods to produce 2nd generation renewable diesel via a hydrotreating process, would Congress step in to stop them from receiving the renewable diesel credit? Anyone?

But it wasn’t a group of farmers in Iowa. It was an oil company in Texas, and so Congress is attempting to stop the credit and protect the first generation biodiesel producers.

Measure targets fatty fuel tax break

WASHINGTON — In language buried deep in an energy tax bill approved Saturday night, the House took direct aim at a plan by ConocoPhillips and Tyson Foods to take advantage of a federal tax credit that could save them $175 million a year.

On page 46, under Sec. 203. Extension and Modification of Credits for Biodiesel and Renewable Diesel, paragraph (b), subparagraph (1), the bill would strike language from the Energy Policy Act of 2005 that reads “using a thermal depolymerization process.”

In April, ConocoPhillips and Tyson announced they were teaming up to use Tyson’s beef, pork and poultry waste to produce 175 million gallons — or 4.2 million barrels — of renewable diesel fuel annually at existing ConocoPhillips refineries.

But the partners insist the project would not be economical without the tax credit.

Don Duncan, ConocoPhillips’ vice president for federal and international affairs, said company officials were “stunned” that lawmakers, who have criticized the oil companies for not doing enough to promote use of renewable sources, would throw up a roadblock to a project that would help reduce the nation’s dependence on foreign crude.

“They chastised the industry for doing nothing, and then they want to stop us when we do propose doing something,” Duncan said.

To be honest, I have been expecting this. After watching the energy policy debates play out over the past several years, I have become very cynical of the motives (and energy IQ) of our leaders. By providing a credit for biodiesel, and denying a credit for green diesel, congress is attempting to pander to various constituencies, and pick technology winners. What they are not trying to do with this measure is diversify the energy supply and encourage new technologies.

I think first generation biodiesels will (and should) go the way of the dinosaur. The product has very inferior cold-weather properties, has lower energy density than conventional diesel, and loses part of the energy content during processing as a low-value glycerin by-product. Second generation diesels – the so-called “green diesels” are identical to petroleum diesels in cold weather properties and energy density (and can therefore be mixed in any proportion), and the by-product is propane. (Biomass gasification is also called “2nd generation diesel”, but I would really call it 3rd generation). But none of the renewable diesels are cost-competitive with petroleum diesel, so Congress can attempt to pick technology winners by offering a credit to one technology and denying it to another.

So, due to special interests, we will discourage oil companies from the biofuels market and tell them we would rather they continue to produce oil. But let’s also put punitive measures in place that make them think twice about producing more oil. Then, let’s convene again in 2 years and try to figure out why we still have high energy prices and why we depend on petroleum more than ever before.

We have a completely disjointed energy policy. Major projects have long lead times and ultimately long completion times. Adopting a new energy bill every two years in which there is no long-term consistency on energy policy just ensures that many projects will not go forward. How can they, when the economics are liable to drastically change in the middle of construction?

Let me be clear that I strongly support biodiesel. It has a better energy return than does corn ethanol, and diesel engines are far more efficient than gasoline engines. Each gallon of biodiesel displaces far more fossil fuel than a gallon of ethanol. Therefore, I am much more in favor of biodiesel production than I am of corn ethanol production. I am also not opposed to subsidies directed at giving alternative fuels a boost. (However, in order to avoid picking technology winners, I think a better system would be to boost carbon taxes on fossil fuels. That would mean all alternatives competed on equal footing).

So, I was quite pleased to read the announcement yesterday of the collaboration between Tyson Foods and ConocoPhillips to produce biodiesel from animal fats (technically, the term used is “green diesel” to differentiate it from the product made from reacting vegetable oil with methanol and caustic. This is defined as biodiesel).

ConocoPhillips, Tyson Team on Diesel Fuel Project From Animal Fat

Source: Associated Press

HOUSTON–Oil major ConocoPhillips and Tyson Foods Inc., the world’s largest meat producer, said they are teaming up to produce and market diesel fuel for U.S. vehicles using beef, pork and poultry fat.

The companies said Monday they have collaborated over the past year on ways to combine Tyson’s expertise in protein chemistry and production with ConocoPhillips’ processing and marketing knowledge to introduce a renewable diesel fuel with lower carbon emissions than conventional fuels.

ConocoPhillips said it planned to spend about $100 million over several years to produce the fuel, Chairman and Chief Executive Jim Mulva said at a news conference. It hopes to introduce the fuel at gas stations in the U.S. Midwest in the fourth quarter of this year.

The oil company and Tyson, based in Springdale, Arkansas, said the finished product will be renewable diesel fuel mixtures that meet all federal standards for ultra-low-sulfur diesel. They expect to ramp up production over the next couple of years to as much as 175 million gallons (662.4 million liters) a year – which Mulva said would amount to about 3 percent of ConocoPhillips’ total U.S. diesel production.

But the biodiesel lobby has cried foul, saying that it isn’t fair that an oil company is going to receive the $1/gallon tax credit that was designed to help the biodiesel industry. This raises the question: Is the credit designed to promote alternative fuels, or is it designed to only help certain biodiesel producers? The National Biodiesel Board seems to take the latter position. In a press release issued yesterday, they bemoaned the fact that an oil company could get the same credit that they have enjoyed:

IRS Ruling Could Leave Promising Biodiesel Industry on a “Bridge to Nowhere”

It was with an extreme sense of irony that I read this press release, because it brought to mind many of the arguments people have used against alternative energy subsidies in general. Let’s look at some excerpts from the press release:

JEFFERSON CITY, Mo. – When he first decided to open a biodiesel plant, Delaware farmer Marty Ross knew that it wouldn’t be easy. But he believed in biodiesel’s potential for both providing energy security and adding value to the Delaware soybean crop. Seven years later, his Clayton, Del. plant is in production, and beginning to enjoy some hard-earned success. The plant has the capacity to produce 5.5 million gallons of biodiesel a year, and Ross has plans to expand that as demand increases.

So, at a $1/gallon subsidy, Delaware farmer Marty Ross stands to pull in $5.5 million a year in just subsidies. But competition is on the horizon:

However, a dark cloud now hangs over his business and threatens to dampen the benefits that the biodiesel industry brings to all Americans. “There’s no question that the government has encouraged our plant and others like us through grant programs and a federal tax incentive for biodiesel,” said Ross, president and founder of Mid-Atlantic Biodiesel. “Now, we feel like we are about to be stranded on a bridge to nowhere.”

Yes, in fact it did not escape the attention of certain oil producers that there was a credit available for biofuels production. This credit, in my opinion, is designed to promote the use of biofuels, not to favor certain producers. Mr. Ross also has received (as he notes) funds from grant programs and probably low-interest small business loans designed to help the small producers.

Ross and many others in the biodiesel industry are under threat by some large integrated oil companies, who have aggressively pursued access to a federal tax incentive that was designed to stimulate an emerging technology. Special interests have successfully lobbied the U.S. Department of Treasury to exploit a loophole in a renewable diesel tax credit law for their own benefit.

This is where my irony meter pegged out. The biodiesel and ethanol lobbies successfully lobbied for these tax credits in the first place. If your interest is truly in promoting biofuels, then why shouldn’t anyone willing to invest in the necessary infrastructure be eligible for the credit? Again, there are plenty of other incentives that the small producer receives on top of this credit.

“Certain powerful oil companies have managed to get the government to expand the definition of a separate provision that was added into the biodiesel tax credit law late in the legislative process,” said Joe Jobe, CEO of the National Biodiesel Board (NBB). “It’s our belief that this credit was developed to help a specific emerging technology, and not to further subsidize existing petroleum refineries.”

The provision in question allows fuel made from a specific process called thermal de-polymerization (TDP) to qualify for the same dollar-per-gallon incentive that was created for biodiesel produced from agricultural resources. The TDP process is a new technology to turn hazardous wastes, plastics, and food wastes like poultry offal and carcasses into a boiler fuel. Congress never had a chance to debate the provision, but it passed, along with the biodiesel tax incentive extension, in the 2005 Energy Policy Act.

This provision was inserted by Missouri congressman Roy Blunt to help the CWT plant in his state. This was in fact an emerging technology to turn waste animal fats into “green diesel.” Now that an oil company plans to do the same thing, it is interesting to see the special interests line up in opposition. That really tells me that they aren’t so much interested in promoting biofuels, as they are in promoting a certain flavor of biodiesel. They are interested in protecting their special interests.

Here is a bit more on the Roy Blunt angle from a Bloomberg article.

ConocoPhillips, Tyson Lobbied White House on Tax Rule

ConocoPhillips and Tyson Foods Inc. successfully lobbied the White House and other Bush administration officials to expand a tax break originally intended to help a plant in a top House Republican’s district.

The provision’s sponsor, Missouri Representative Roy Blunt, said he had wanted to provide a credit for diesel fuel produced with new technologies using animal carcasses and other food waste. Under rules issued by the Internal Revenue Service on April 2, the credit can now also be claimed by companies that use existing methods involving vegetable oil and animal fats.

The tax credit was “hijacked,” said Brian Appel, chief executive officer of West Hempstead, New York-based Changing World Technologies, the privately held company that owns the plant in Carthage, Missouri, that Blunt was attempting to help when he inserted the provision into an energy bill in 2005.

Jumping now back to the National Biodiesel Board press release:

Now the Internal Revenue Service (IRS) has ruled in the oil companies’ favor to expand the TDP definition to include the conventional petroleum refining process. Those companies want to add raw vegetable oils and fats at their existing oil refineries and qualify for the credit.

That is simply a false claim. You don’t just dump vegetable oil into the refinery. This is a hydrogenation process. It will require the installation of new equipment. Hydrotreaters are not cheap, and you also have to have a source of hydrogen. That may require investing in incremental hydrogen capacity, also not cheap. This will almost certainly be more expensive to produce than biodiesel produced conventionally, and this is not something that would make economic sense without the credit. So, do you favor biofuels or not? If so, you should have no problem with someone taking advantage of the incentive when without it the project would not have made economic sense.

They then list a number of reasons that oil companies should not be allowed to receive the credit. Listed among the reasons are these gems:

It will be an unanticipated drain on the U.S. Treasury.

It will be a fraction of the current amount paid to biodiesel producers, and an order of magnitude (or two) lower than the amount paid in ethanol subsidies.

It sends dangerous signals to other countries to engage in unsustainable agriculture practices to quickly meet the rising demand for raw vegetable oil.

I am not even sure what that is supposed to mean. How is a credit for animal-fat derived diesel sending dangerous signals? Wouldn’t the current biodiesel subsidy – based on vegetable oil – be more likely to send those signals?

Rather than helping our country achieve energy independence, this rule goes in the exact opposite direction…discouraging development of the renewable fuels industry.

Wow, talk about your hyperbole. Here we have an incentive for a company producing diesel from a renewable alternative source via an alternative method, and this is going to discourage the development of the renewable fuels industry? Give me a break! Nothing has been taken away from the current renewable fuels industry. They still get their subsidy. On top of that, they qualify for all kinds of small business tax breaks and grants. Yet they are worried about a company that is going to produce a fraction of the biofuel in the U.S. This is about nothing more than protectionism of special interests. It isn’t at all about the renewable fuels industry. They just don’t want the competition.

“This country has not built a new petroleum refinery in more than 30 years, and large oil companies use that to defend their prices and profits,” Jobe said. “Meanwhile, the biodiesel industry has been investing in the nation’s refining capacity with every plant that goes up.

Good grief, man. If your goal was to destroy your credibility, you are doing a great job. While there have been no new refineries built in the past 30 years, refining capacity has increased enormously. The increase in just the past 10 years has been 1.8 million barrels per day. This is around 28 billion gallons per year, as compared to the total biodiesel production of less than 1 billion gallons. So, I wonder if Mr. Jobe might like to rethink his argument that biodiesel production is expanding while oil companies are sitting around on their hands.

The petroleum industry as a whole has worked in partnership with the biodiesel industry. Many segments of the petroleum industry, especially on the distribution side, have embraced biodiesel and supported its growth,” he said.

Translation: Oil companies that buy our biodiesel for blending into conventional diesel are working with us. Those who have decided to produce their own biodiesel don’t embrace it, and don’t support its growth.

Public opinion research shows 82% of Americans support a federal tax incentive for biodiesel. They view energy security as the number one reason to support the growth of biodiesel, but also cite health, environmental and economic benefits. “I strongly doubt the American public would feel the same sentiment for another oil company subsidy,” said Mid-Atlantic Biodiesel’s Marty Ross.

Ah, who would have guessed they would try to fan the flames of hatred against oil companies? I never saw that coming. Again, it is the competition they fear. This is not an “oil company subsidy.” It is a subsidy that anyone can get. It is a biofuels subsidy. If you favor promotion of biofuels by tax incentives, then what difference does it make who is getting the credit? Unless of course the real issue isn’t promotion of biofuels.

I have said it before, and I will say it again: Oil companies are not just going to sit around and die while alternative energy companies take over. As it makes economic sense, they will start to produce biofuels. Here is a case – with the credit factored in – that did make sense. I think the reaction of the biodiesel lobby is probably not the last time you will see them (or the ethanol lobby) react negatively as oil companies continue to produce biofuels.

I have written periodically on ‘green diesel’, which should not be confused with biodiesel. Neste, Petrobras, and ConocoPhillips (in a venture with Tyson foods), have all entered the green diesel arena. (See a bit on the projects from these companies here; explore the green diesel stories I have written here).

Green diesel is produced either from hydrotreating or hydrocracking plant oils or animal fats (Neste, Petrobras, COP) or via the BTL reaction (Choren). Green diesel is chemically different from biodiesel. Green diesel has chemical properties identical to petroleum diesel, while biodiesel is not a pure hydrocarbon (it contain oxygen atoms, hence the somewhat different physical properties).

Today, Bob Rohantensky sent me the following story indicating that Neste just announced that they will build a facility in the Netherlands:

Neste Oil to build a NExBTL renewable diesel plant in Rotterdam

Neste Oil is to build an 800,000 t/a plant to produce NExBTL renewable diesel in Rotterdam in the Netherlands. Construction will start immediately and the facility is scheduled to be completed in 2011. Total cost of the investment is projected to be €670 million. Neste Oil announced its decision to go ahead with a similar-sized plant in Singapore in November 2007. Both plants are linked to Neste Oil’s goal of becoming the world’s leading producer of renewable diesel fuel.

NExBTL renewable diesel is based on Neste Oil’s proprietary technology, which can use a wide range of raw materials. In its plant in Finland, the company currently uses a mix of palm oil, rapeseed oil, and animal fat to produce renewable diesel. Offering excellent product quality – even better than fossil diesel – NExBTL can be used in all diesel engines.

Neste Oil has a major R&D program under way to develop new renewable raw materials for fuel production, and is working towards a target of completely non-food raw material use by 2020. Neste Oil is cooperating with over 20 universities and research institutions globally as part of this program, which is divided into six areas, including non-food vegetable oil, wood-based materials, and algae.

Regarding the NExBTL diesel, Neste says:

NExBTL renewable diesel is an advanced fuel based on renewable raw materials that performs more efficiently and has a lower level of environmental impact than fossil diesel or FAME-type biodiesel. Neste Oil requires its raw material suppliers to observe a responsible approach to sustainability. Feedstock of this type ensures that NExBTL renewable diesel has a 40-60% lower level of greenhouse gas emissions over its entire lifecycle compared to fossil diesel. NExBTL renewable diesel can be blended with conventional diesel fuel or used as such, and is suitable for all diesel engines.

Neste Oil is the leader in renewable diesel production. The company’s first NExBTL facility was commissioned in Finland at Neste Oil’s Porvoo refinery in summer 2007. Second facility is due to come on stream there in 2009. They both have a capacity of 170 000 t/a. In addition Neste Oil is building 800 000 t/a plants in Singapore and Rotterdam. Singapore facility is due to be completed by the end of 2010 and Rotterdam facility in 2011.

While this is an improvement, in my opinion, over biodiesel, they are still going to rely on oil crops such as palm oil. Destruction of rain forests in Malaysia and Indonesia to plant palm oil plantations poses a serious environmental threat. The future of green diesel needs to be based on non-food crops – especially those like jatropha that can be grown on marginal land – and waste materials such as biomass that is currently destined for landfills.

I am also curious about the costs per barrel. Let’s work that out. A barrel of oil weighs 0.137 metric tons (and has density similar to pure diesel). Then 800,000 t/yr is equal to 5.8 million bbl/year (16,000 bbl/day). For perspective, a mid-sized oil refinery will be around 250,000 bbl/day, but the Neste facility is certainly of a respectable size. The cost is projected to be €670 million. If I convert that to dollars, I can compare the cost to various other fuel technologies. A Euro is currently worth $1.53, so the project is going to cost US $1.025 billion. That works out to $64,000 per daily barrel. Again, for perspective the recently announced 400,000 bbl/day Jubail Refinery Project that Total is building with Saudi Aramco is currently estimated at $10 billion ($25,000/daily barrel).

To be honest, if Neste pulls the project off for that, it will come in at a competitive cost relative to other fuel technologies. See the above EIA figure for estimated costs of various fuel facilities. And that was from a couple of years ago, when stainless steel prices were significantly lower. So, on the one hand I hope Neste pulls this off, and on the other I hope they can source a different feedstock than palm oil for the plant.