Despite present troubles, the future of the biofuels industry remains bright. Speaking at the recent Mid-South Farm and Gin Show in Memphis, Tenn., Tommy Foltz, president of Foltz Co., and 15-year veteran of the alternative energy industry, analyzed current trends in biofuels and offered direction for future success.
“The reason biofuels has a bright future — almost by a process of elimination — is the oil industry's future is not so bright. The bottom line is that biofuels are inevitable. They are not just for tree-huggers anymore. They are a mainstream fuel that will fill the gap between fuel demand and petroleum supply.”
Foltz emphasized that as biofuels gain acceptance, ag producers will “farm our fuel” and agriculture will benefit.
Statistically, biofuels production has risen substantially. In 2007, a record 450 million gallons of biodiesel was produced. Compared with just 25 million gallons in 2004, the increase is remarkable.
But the surge in raw numbers hasn't produced the confidence that might be expected. For instance, Foltz estimates that of the 450 million gallons turned out in 2007, 75 percent was exported. “It's not necessarily a bad thing. If that's what biodiesel producers need to do to make money, that's ok.”
However, even more concerning is the 450 million gallons in relation to combined nameplate capacity (maximum amount a given plant is capable of producing) of all biodiesel plants nationwide. Total nameplate capacity of all U.S. biodiesel plants is 1.85 billion gallons per year. Therefore, the U.S. is currently producing about 25 percent of capacity. “That is not a good number and we need to be much higher than that. The big question is why are we making so little?”
The discrepancy between present production and nameplate capacity is largely due to feedstock prices, Foltz noted. February soybean oil is currently near 69.5 cents per pound. In 2006, February soybean oil was at 26 cents per pound. “It's great for soybean farmers. It's great for soybean crushers, and not so great for the biodiesel business.”
The high price of soybean oil, along with production costs, labor, freight, excise taxes, marketing costs, and various other outlays — combine to make biodiesel very expensive to produce.
Foltz bluntly addressed the problem. “It's not a very happy story … We all want the biodiesel industry to do well. We all want farmers to do well. Record prices are killing the biodiesel industry right now as we know it.”
Foltz offered two paths of direction that he believes must be pursued in order to push biodiesel toward success — industry and policy.
The biodiesel industry must place more focus on its byproduct — glycerin. The glycerin has significant value, but only in purified form. If it can be refined into pharmaceutical grade by removing the methanol and other impurities, then it becomes a valuable, marketable product.
Biodiesel plants would be more efficient if they had the capabilities to follow Foltz's industry direction, but Foltz acknowledges that this requires add-on technology, and therefore additional capital.
Foltz's other direction of emphasis deals with policy. “From a policy standpoint we have to extend the $1 ‘blender's credit’. That is the biggest no-brainer in this industry. It made the industry what it is.”
He believes the blender's credit must be extended to exported diesel as well. “Congress wants to rip away the dollar for exported biodiesel because they don't want to finance Europe's global climate change program. Frankly, that's one of the most ridiculous arguments I've heard.
“It's a good thing for American products to be exported. We export all sorts of products that are subsidized in some fashion.”
In addition, Foltz called for the reauthorization of the CCC Bioenergy Program, and advocated for extensive research on oilseeds (including foreign oilseeds) and algae.
Foltz's overall forecast for the biodiesel industry contains numerous challenges that will require change and innovation. But despite difficulties, Foltz remains optimistic, and a proponent of a national goal for the biodiesel industry. “The silver lining in all of this — the boom/bust cycles are nothing new to the agriculture business.
“Another silver lining is that the petroleum industry has its own challenges. Frankly, that creates a cushion for us that allows us to exist.”
Foltz is adamant that biodiesel will be a boon to farmers. “The bottom line — farmers will benefit. In the long-term, biofuels are a great bet.”