Biodiesel Fuels a Company’s Path to Ruin

EDISON—The fate of a New Jersey company has become an object lesson in the economic shortcomings of biodiesel, a renewable alternative to petroleum-based products that has been hailed as a fuel of the future. The company, BioEnergy of America in Edison, went out of business last month, leaving behind an unfinished plant that was to have produced up to 80 million gallons of biodiesel a year. The closing came even as the price of light sweet crude oil topped $100 a barrel.

BioEnergy produced biodiesel from soybean and other oils to create a mixture that could power trucks, buses and even electricity-generating plants, either by itself or in conjunction with regular diesel fuel. BioEnergy says it produced 15 percent of all the biodiesel sold in the United States in 2005.

But the company filed for Chapter 11 bankruptcy protection in January and closed its doors last month after its landlord regained possession of the Edison plant.

According to court papers, BioEnergy spent $6 million, beginning in 2006, to build the half-finished 89,000-square-foot plant. But the 4-year-old company, which operated two other plants in Colorado, says market conditions that included the soaring price of soybeans and soybean oil hurt its finances and caused a creditor to stop lending for the Edison facility.

When it filed for Chapter 11, Bioenergy listed debts of $10 million to $50 million, as compared with assets of $1 million to $10 million.

Experts says the cost of producing biodiesel limits broad acceptance of the fuel. Marty Burroso, CEO of 1-year-old Fuel: Bio Holdings LLC, a biodiesel producer in Elizabeth, says speculators drove up the price of soybean oil as a hedge against runaway petroleum prices.

The raw material for vegetable feedstock comes to about $5.35 per gallon, says Burroso. After production costs and profit margins are factored in, he says, biodiesel sells for about $6.15 per gallon. “Nobody’s going to buy the product at that price,” he says. “That’s been the challenge.”

Burroso says Fuel: Bio’s Elizabeth plant processes lower-cost animal greases and uses cooking oil to produce up to 50 million gallons of biodiesel a year. “We are in a position to sell product at a positive margin now and so we’re happy,” he says. “Our target market is [electric] power generation.” He adds that additional feedstocks being developed from algae and other sources may be ready to produce biodiesel in about

five years.

A combination of federal subsidies and enthusiasm for alternatives to oil have led to the construction of more than 100 biodiesel plants over the past two years, according to the Reuters news service.

The National Biodiesel Board in Jefferson City, Mo., says 450 million gallons of biodiesel were sold in the United States last year, up from 250 million gallons in 2006.

Mitrajit Mukherjee, president of Exelus Inc., a chemical company in Livingston, likens the initial interest in biodiesel to the Internet bubble. “It’s much like the dot-com era—only the fittest will survive,” says Mukherjee, whose company develops catalysts to improve biodiesel refining.

Mukherjee expects the shakeout of also-rans to continue as the biodesel market matures. “A lot of people have no real experience running these systems or lack the science fundamentals for what it takes to make these things go,” he says.

David Specca, acting director of Rutgers EcoComplex, a Rutgers University research center in Bordentown, says he, too, saw entrepreneurs rushing into the biodiesel market only to bow out after the costs rose.

“Used oil was cheap. Virgin oil was cheap. The technology to convert oil to biodiesel was pretty simple,” says Specca, who notes that the rising cost of feedstock forced ill-prepared newcomers out of the market. “There have been a number of startup plants that have shutdown,” he says.

Specca says he expects biodiesel to become one of several alternative fuel sources in general use. “I believe products like biodiesel and ethanol from crops are part of a mix of technologies to address our future energy needs,” he says. “None of them by themselves can supply all the fuel to replace what is currently being used.”

He says wider use of biodiesel will become more feasible as production and raw material costs come down. “As technology developers realize new ways to grow oil crops, or produce oil from existing crops, that will go a long way to help,” he says. “In the next three to five years, biodiesel will be a big percentage of our alternative fuel.”