Analysis: Surviving Without Biodiesel Tax Credit

regdarlingWhile the expiration of the federal $1-per-gallon biodiesel tax credit (BTC) has been pretty tough on the industry this year, some biodiesel makers could survive without it. This analysis from The Motley Fool, a website that looks at investments, points to how biodiesel giant Renewable Energy Group and renderer and renewable diesel maker Darling International have business models that seem to make it possible, although not easy, to be successful without the credit that expired at the 2013.

REG, for example, anticipated the expiration and took that into account when doing their earnings forecast for the first quarter of 2014. And even while biodiesel production was even lower than the company anticipated, due to an abnormally cold winter that caused natural gas prices to spike, while feedstock costs rose and biodiesel prices fell, REG seems to be weathering the storm.

The silver lining is that Renewable Energy Group was able to produce positive adjusted EBITDA despite a barrage of unfavorable conditions. That can be chalked up to the company’s commitment to operational efficiency derived from willingness to invest in a national logistics network and the best process technology. And, of course, management’s focus on the long term.

Darling International is not focused solely on producing renewable fuels, but has taken advantage of its leading rendering business (animal fats and used cooking greases, or the inputs for diesel) to create the Diamond Green Diesel joint venture. Renewable diesel is a hydrocarbon, has a different molecular structure than biodiesel, and can capture higher RIN values as a next-generation fuel. Despite the advantages, it is still blended into the existing petroleum-based fuel supply, and therefore benefits from the BTC. Luckily, Darling International’s diverse business structure has insulated it from the expiration of the credit. In fact, the company has benefited from the increase in feedstocks since the end of last year.

The article goes on to say that while the return of the tax credit would be good news for REG and Darling, and of course, other biodiesel makers, at least these two companies show you could survive without the credit. In addition, the authors say this short-term uncertainty for biodiesel might present a great buying and investing opportunity if you’re looking at the long term.

Boeing Looks to Get Green Diesel Approval

boeing1Aircraft manufacturing giant Boeing wants the government to approve its plan of using renewable or “green” diesel. This story from TriplePundit.com says the company is appealing to the U.S. Federal Aviation Administration (FAA) and other stakeholders to get permission to fly its planes on biodiesel’s close (but chemically different) cousin.

“Boeing wants to establish new pathways for sustainable jet fuel, and this green diesel initiative is a groundbreaking step in that long journey,” said Julie Felgar, managing director of Boeing Commercial Airplanes Environmental Strategy and Integration, in a statement. “To support our customers, industry and communities, Boeing will continue to look for opportunities to reduce aviation’s environmental footprint.”

“Green diesel approval would be a major breakthrough in the availability of competitively priced, sustainable aviation fuel,” said Dr. James Kinder, a Technical Fellow in Boeing Commercial Airplanes Propulsion Systems Division. “We are collaborating with our industry partners and the aviation community to move this innovative solution forward and reduce the industry’s reliance on fossil fuel.”

Estimates are that there’s about 600 million gallons of green diesel produced in the U.S., Europe, and Singapore, about 1 percent of jet fuel demand.

Boeing is part of the Sustainable Aviation Fuel Users Group (SAFUG), which looks to develop sustainable jet fuels. Back in 2011, Lufthansa became the first airline to test biofuels in regular flight operations.

KiOR Breaks Ground, Signs FedEx

KiOR has had a busy week. They recently announced a ground fuel supply agreement with FedEx. Under the agreement, KiOR will supply renewable diesel blendstocks for purchase by affiliates of FedEx Corporate Services. This is the company’s first end-user agreement. The oil will be produced at the company’s first commercial production facility in Columbus, Mississippi that is scheduled to go online in the second half of 2012. KiOR has broken ground on the plant, and when in production will convert 500 tons of biomass a day into 11 million gallons of oil.

“We are excited to be working with a premier transportation company like FedEx,” said Fred Cannon, KiOR’s President and CEO. “This agreement with the services company of direct end users is another step toward delivering our fuel blendstocks to the market.”

In addition to the agreement with FedEx, KiOR also has an agreement with the Hunt Oil Refinery in Tuscaloosa, Alabama and Catchlight Energy, a joint venture between Weyerhaeuser and Chevron to provide oil. The oil can be processed at a refinery or used directly by cars, once the oil is refined into gasoline and diesel at the Columbus facility. This announcement was highlighted by Gov. Haley Barbour during a ceremonious groundbreaking ceremony.

The biorefinery has received local investments of $190 million and statewide more than $500 million. Once the first plant is complete, KiOR has plans to add four more sites, two in Mississippi and two with undetermined locations.

“This is an unbelievable accomplishment, and it’s a game changer for our country,” said Barbour.

Cannon added during the groundbreaking, “Every gallon or barrel of fuel we make in Columbus is a gallon or barrel of fuel we don’t have to import from another country, some of which don’t like America very much.”

Camelina-Based Biojet Fuel On Course For Success

According to a recent peer-reviewed paper published in the journal of Environmental Progress & Sustainable Energy, camelina-based biojet fuel reduces CO2 emissions by 75 percent compared to traditional petroleum-based jet fuel. The study also found that “green diesel” made through the same process reduces CO2 emissions by 80 percent.

“This peer-reviewed analysis proves what we’ve known for a long time – that camelina is an ideal feedstock for renewable jet fuel,” said Scott Johnson, President of Sustainable Oils. The company is working with both the U.S. Navy and the U.S. Air Force to develop camelina-based aviation fuels.“The peer-review process demonstrates without a doubt the significant CO2 reductions that camelina based jet fuel offers. Our airline and military partners can be even more confident about the benefits of using camelina-based fuels.”

The research was carried out at Michigan Tech University in conjunction with UOP, a Honeywell company and partner and a stakeholder in the camelina-based aviation fuel market. The research used camelina grown in Montana and processed into biojet fuel using UOP hydroprocessing technology.

Camelina-based biojet fuel is currently a leading contender to replace traditional jet fuel and various airlines as well as the U.S. military are testing the renewable fuel. In addition, the American Society for Testing and Materials (ASTM) is working on approvals for a specification of a renewable jet fuel, known as Hydrotreated Renewable Jet (HRJ). It is believed that standard will be fully approved by the end of 2011.

In November 2010, Sustainable Oils’ camelina-based biofuel met another key performance milestone with the Navy’s successful test of the camelina in a MH-60S helicopter. The test represented another step toward the certification of camelina-based fuels for use in all Navy and Marine aircraft.