April 29, 2008

High soy oil costs give dismal outlook to the US biodiesel production

The rapidly increasing soy oil prices, which have tripled over the past two years, is stalling the expansion of biodiesel industry in the US, economists said.

Kenneth Clark, president of the East Fork Biodiesel Board, pointed out the new US$63-million plant in Algona, Iowa, as an example.

Clark said that construction was finished in December and a test run was conducted, but it has not run since due to very high operating costs.

In 2007, most US biodiesel plants found that they could not cover their operating expenses, noted Bruce Babcock, an economics professor at Iowa State University.

Babcock said that about 500 million gallons of biodiesel were expected to be produced in 2007, about 20 percent of the US capacity, according to the National Biodiesel Board.

Babcock said biodiesel's outlook is dismal, even with a federal mandate that pushes annual consumer use to 500 million gallons next year and ramps up to 1 billion gallons by 2012.

Randy Olson, executive director of the Iowa Biodiesel Board, said the biodiesel industry is relatively new, thus it would encounter some growing pains.

About 20 of 170 plants nationally have been idled, officials said. Others have reduced production.

Daniel Oh, chief operating officer for Ames-based Renewable Energy Group, said some plants will likely not restart.

However, many believe the high soy oil price is a temporary setback, due to cheaper raw materials under development, and some byproducts such as glycerin.