Iowa Biodiesel plant reopens after four idle years

Source: Dan Piller • Des Moines Register  • Posted: Monday, January 30, 2012

While Algona cheers the move, industry struggles remain.

ALGONA, IA. — Folks in Kossuth County are feeling good now that the biodiesel plant east of Algona has emerged from bankruptcy, has reopened and is employing 30 workers putting out 60 million gallons of biodiesel per year.

The old East Fork plant sat idle for four years, a poster boy for the difficulties of biodiesel. Unlike its cousin ethanol, biodiesel has known mostly struggle as it tries to establish itself as the renewable biofuels alternative to diesel in the truck/heavy equipment market.

“This was tough for the town, and we’re just thrilled that the plant is opened,” said Algona Mayor Lynn Kueck as its new owner, AGP Processors of Omaha, showed visitors around the plant.

East Fork was one of the more prominent victims of a doubling of soybean oil prices from 2005 through 2008, part of the general commodities boom. Unlike ethanol, biodiesel didn’t enjoy a federal mandate for use until last year.

When biodiesel’s $1-per-gallon tax credit lapsed at the end of 2009, most of Iowa’s 13 biodiesel plants went idle for lack of market.

“I remember going to the Western Iowa biodiesel plant at Wall Lake two years ago, and I saw that same fear in the eyes of the people there that I recalled from the farm crisis in the 1980s,” said U.S. Rep. Steve King, R-Ia., who dropped by the Algona plant last week.

One biodiesel plant that continued to run through the trough was the AGP Processors plant at Sergeant Bluff.

AGP, an Omaha-based cooperative, is Iowa’s largest soybean crusher with plants at Eagle Grove, Manning, Mason City, Sergeant Bluff and Sheldon. It could take advantage of its ready-made soybean oil stock to cut out middleman costs and work through the downturn.

That integration emboldened AGP to buy East Fork from the lenders who owned it and reopen the plant last fall.

“We can bring soybean oil from our crush plant at Eagle Grove and process it to biodiesel,” said John Campbell, senior vice president of Industrial Products and Government relations.

AGP as such parallels the model of Green Plains Energy, another Omaha firm with several grain elevators in Iowa and ethanol production plants at Superior and Shenandoah

The struggles of 2008-10 gave way to a good year for biodiesel in 2011, as the $1-per-gallon tax credit was reinstated by Congress and an 800 million gallon federal mandate kicked in.

The industry produced a record 1.1 billion gallons last year, nearly triple the 2010 output. Iowa’s production was 169 million gallons.

“We’re at full production, and I’m hopeful this will be a good year,” said Jeff Johannesmeyer, general manager of the Western Iowa biodiesel plant at Wall Lake, which last year recalled its 40 employees and returned to full production after being idled a year earlier.

Earlier this month Renewable Energy Group in Ames, owner or manager of biodiesel production plants at Ralston and Newton in Iowa, as well as at Albert Lea, Minn., Danville and Seneca, Ill., and Seabrook, Texas, raised $72 million in a public stock offering that had been scuttled in 2008 because of poor market conditions.

For all the happiness at Algona, the fortunes of REG stock are reflective of the wariness with which the industry — and investors — view biodiesel’s future. After opening at $10 per share on Jan. 18, REG has traded in the $9.80-$9.85 per share range.

Once again, the $1-per-gallon tax credit for biodiesel has lapsed. That makes profit difficult when costs for an integrated producer like AGP are as much as $4.50 per gallon, thanks to soybeans selling in the $12-$13 price range.

Campbell noted that while regular diesel now sells for about $3.75 per gallon at truck stops, “we would be competitive with the $1 tax credit. Without it, we need the Renewable Fuel Standard.”

The RFS II last year required 800 million gallons of biodiesel use, blended by the major oil companies. That mandated number went up to 1 billion gallons this year and was supposed to be announced at almost 1.3 billion gallons for 2013.

“That announcement about the 2013 mandate was supposed to have been made more than a month ago,” King said. “We’re still waiting.”

King worries that biodiesel has developed the same political problems that ethanol endured beginning in 2008.

“Three years ago I was asked if ethanol had political problems, and I replied ‘no way.’ Well, within three months I learned I was wrong,” King said.

Biodiesel could trip over the same political land mines that snagged ethanol: a reluctance by Congress to renew tax breaks, as well as a new aversion to mandates.

“Without the mandate there will be no biodiesel industry,” Campbell said.

Another problem biodiesel may encounter is the sudden emergence of natural gas as a cheaper transportation fuel now that natural gas is in plentiful supply and prices have dropped to a 10-year low.

A company backed by Texas energy billionaire T. Boone Pickens is rolling out a nationwide network of natural gas fueling stations, one of which is planned for the Flying J truck stop along Interstate Highway 35 in Urbandale at Douglas Avenue.

Even as Algonans were celebrating the opening of their biodiesel plant, President Barack Obama was in Las Vegas last week touting natural gas as a transportation fuel and promoting tax breaks for natural gas dispensers.

Campbell said AGP is keeping an eye on natural gas as it rises in the transportation continuum.

“I think there’s room for both ourselves and natural gas. Diesel is a 50 billion gallon business and we’re just 1 billion gallons,” Campbell said. “There’s room for both.”