Biodiesel use and debate set to rise

Minnesota was the first state in the nation to require biodiesel when a 2 percent mandate took effect in 2005. Now, that's going up to 5 percent. And it keeps increasing to 20 percent by 2015.

The increases will boost sales for Minnesota's financially troubled biodiesel producers. One of those companies is Minnesota Soybean Processors in southwest Minnesota.

Ron Marr helps market the biodiesel produced at the plant in the town of Brewster. He said Minnesota's 5 percent requirement will help boost demand, and maybe prices, for the fuel.

He said right now the industry is struggling. The cost of its main ingredient, soybean oil, is too high and the sale price of biodiesel is too low. The big profit margins of recent years have disappeared.

"When the biodiesel really first came on in '05 and '06 we saw very much a tremendous margin," Marr said, "which led to a lot of bad decisions being made on where to locate biodiesels. A little Alan Greenspan effect -- 'irrational exuberance.'"

Marr said the Brewster plant is one of the lucky ones, it's managed to keep making biodiesel despite often selling it at a loss. A company newsletter said the plant lost $2.7 million last year on its biodiesel production. Those losses were offset by a profitable side business, crushing soybeans.

In recent months the company has seen profits return to its biodiesel business. Ron Marr said the new state mandate should help that continue.

Other plants haven't been so fortunate, many have closed across the U.S. Marr estimates that right now about two-thirds of the nation's biodiesel production capacity is idle. One of the plants still shut down is the SoyMor operation in the southern Minnesota town of Glenville. SoyMor President Gary Pestorious likes Minnesota's 5 percent mandate. But he said it alone won't help reopen the SoyMor plant, because it won't fix the economics of biodiesel's main ingredient.

"Soybean oil today, does not work," Pestorious said.

He said soybean oil simply costs too much to make money converting it to biodiesel.

Pestorious said the company has applied for a U.S. Agriculture Department guaranteed loan. He said if SoyMor gets the money the plant will be retro-fitted so it can make biodiesel with other oils.

"Like corn oil or canola oil as well as soybean oil," Pestorious said, "because those other oils are economically feasible right now."

Economics are not the only hurdle facing the biodiesel industry. Skeptics are another.

When Minnesota's 2 percent mandate took effect in 2005 there were problems with the fuel. Later it was determined some of the early batches of biodiesel were not refined to industry specifications.

Jake Reint of Flint Hills Resources, which runs the state's largest oil refinery in the southern part of the Twin Cities, said the company has concerns about 5 percent biodiesel.

"This is uncharted territory for the state of Minnesota -- really for the entire nation," said Reint.

Reint said Flint Hills Resources is working with the state to make the 5 percent switchover as smooth as possible. He said the company's concern is over how the fuel will perform in extreme cold.

"Biodiesel has a tendency to kind of gum up or gel up," Reint said.

Biodiesel backers dispute that. They say any diesel fuel, whether bio or petroleum, can gel if the proper precautions are not taken. Supporters say biodiesel has proven itself capable of handling Minnesota cold snaps.

The alternative fuel even scored a victory of sorts in the debate last January. On one of the coldest days of the year several Twin Cities' school buses had engine problems. Initially, biodiesel gelling was blamed.

A subsequent investigation vindicated the fuel. The problem was found to be in the fuel filters instead.

But the incident demonstrated that even after several winters, there's still a lot of skepticism about biodiesel.

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