For those interested in working with renewable fuels, here’s how I spent my Saturday:

1PM – Started my work day

• After eating breakfast and running personal errands, I went to Office Depot to get materials to make brochures and marketing materials. Then I went to Crump’s Plumbing to get a pressure reducing valve to repair a customer’s vegetable oil pumping station because the Fill Rite LP50 oil pump is not compatible with the Sotera 825 meter (made by Fill Rite and sold by them for this application).

• Replaced the vegetable oil filter in my converted 2004 Golf. Over the last week, I had started losing power at higher RPM’s, probably due to accidently bypassing the 1 micron filter on our retail pump, which allowed some extra crud to get into the system.

• Installed a 1 micron filter between our dewatering system and our retail pump to catch crud generated by the boiling process. Some non-oil particles carbonize, resulting in sludge build-up.

•  Drove to Round Rock and bought 2000 pounds of road base to even our our driveway, and to cover what used to be a grassy area in front of our tank farm, but is now a mess of dead grass from biodiesel spills. Spent a couple of hours shoveling it from the back of the truck.

• Pumped 1200 gallons of B100 out of our 10k tank to find out exactly how much inventory we have left. With the price of diesel at $4, we are burning through the fuel much faster than usual.

• Started a new batch of oil to dewater in order to be sold as fuel for converted vehicles

• Sold biodiesel to a group of people traveling the country in a school bus converted to run on solar power and waste vegetable oil -

10PM – Came home

With the price of diesel nearing $4, it’s a good time to reflect on the relative value of biodiesel and used cooking oil, and ultimately answer a difficult question: Why does the cost of biodiesel seem to creep up with diesel?

This is the first in what may become a series of topics – future articles may explain the value of a distributor in the fuel supply chain (why it’s not always a good idea to cut out the middle man); the effects of government intervention (subsidies, tax relief, and environmental legislation) on the biodiesel industry; sustainability in biodiesel production; and any other topics suggested by readers.

First, let’s talk about the biodiesel supply chain, in a somewhat simplified model. Crops are grown and harvested, seeds are crushed to extract oil, and the oil is made available for sale. From that point, the basics of biodiesel production:

1. Biodiesel producer invests in plant (typically millions, although possibly less for a very small plant)

2. Producer sources “feedstock” (oil), and other raw materials (methanol and catalyst)

3. Producer converts the raw materials into biodiesel and finds a buyer (usually a distributor)

4. Distributor takes the biodiesel in bulk, blends if appropriate, and finds a buyer (fleet customers, retail outlets, etc)

5. Customer fills up with biodiesel, breathes easier

Most people do not understand the complexities of the supply chain, and think it’s as simple as “marking up” a product in order to make a profit. Unfortunately, there are a number of factors that make it more complex than this. I can’t emphasize enough – the biggest factor in biodiesel production is the price of the feedstock oil. Soybean oil is currently over $4 per gallon – just for the oil! Subtract the $1 per gallon federal subsidy, then tack on production costs, and it’s easy to see why B100 at the pump is over $3.50 per gallon. Even the cost of used cooking oil is over $2.50 per gallon.

Aside from the feedstock, 20% of the biodiesel reaction is methanol – a toxic chemical that has fluctuated wildly in price. In the past two years, it’s gone from $2 a gallon, up to $5, and most points in between more than once. Interestingly, methanol use could be cut in half with the right production system, but that costs several hundred thousand or more – a cost only worthwhile if methanol goes above a certain threshold, which we are at today.

Several years ago, when oil and methanol were about $2 per gallon, biodiesel investors flooded the market with money for new plants. My phone rang daily with someone offering the promise of B100 at a competitive price, just as soon as the plant was finished. Fast forward to 2008, and more than half of all plants in the country are shut down or operating at massively reduced capacity. What happened? The feedstock providers looked at the downstream value of their products, saw massive growth in the biodiesel industry, and raised their prices to take a chunk. While biodiesel investors planned on major market growth, they didn’t seem to plan for their margins to be eroded out from under them.

This leads me to my next point – vegetable oil as a fuel. With the market price of used oil as a feedstock starting to approach $3, we can’t afford to sell it for less than its market value. Based on our calculations, we could turn every bit of oil we have into biodiesel, at a market price of $2.60 per gallon. Therefore, it will be our policy going forward to sell our WVO at this market price. It is assumed that the price of WVO will generally stay about $1 lower than B100, which will roughly track the price of diesel. This was a hard decision that we came to only after much discussion, and the realization that we are not in business to subsidize the public’s fuel cost.

So, here we are – selling B100 for $3.50 per gallon, AFTER the 50 cent subsidy. Our meager profit unchanged; meanwhile, the price of feedstock and other materials continues to climb. While writing this post, I was IM’ed by a broker offering me B99 from soy for $4.26. I hope our customers ride this out with us – without our loyal following of fanatical fuelers, we have nothing. I would not be surprised if our costs (and therefore, price) jump 40-50 cents in the next 90 days.

Final thought – biodiesel IS a replacement for diesel fuel. Therefore, it has roughly the same market value as diesel. Let’s forever dispel the notion that it should be cheaper than diesel. In fact, it’s a premium product, renewable, made in the US, better for the environment, better for your engine, and better for the world. Just like organic food costs more than mass produced, factory farmed food; biodiesel will generally cost more to make than petroleum diesel. If you’re an organic food shopper, biodiesel should be on your shopping list.Jason

Last month, as I was putting the finishing touches on a VIP customer’s vegetable oil fuel system (my own!), I was having trouble with intermittent stalling and hard starts. I pulled over as it died, and I cranked for minutes before it began a choppy idle. Of course, I was supposed to be meeting a customer at the shop, and I was within a hundred yards when I gave it that last rev, which killed it. I wanted to let it idle for awhile, so I locked up and ran to the shop to meet the customer. When I ran back to the car 10 minutes later, I found two police cars writing me a ticket!

 I tried explaining the situation to the police, but they didn’t understand or didn’t care. As I got my ticket ($150), I tried to drive away, but the car immediately died again. I flagged down the same cop, who expressed surprise when I said the car wasn’t working. She casually said “ah just go to court – the judge will throw it out”. So that’s just what I did – only to be told by the prosecutor that they only have to prove that I did indeed leave the car running, regardless of intent. Rather than face the prospect of $200 in court fees and even more in fines, I accepted the $65 fine and CONVICTION for leaving my car unattended.

 Quote of the day (as said by Izzy of Mean Green Trucking last year): “Shit, man, they should be paying US to do this stuff!”