Biodiesel Growth Opportunities

by Ron Kotrba (Biodiesel Magazine) A sit-down with Dave Elsenbast, vice president of supply chain management for Renewable Energy Group Inc. For more than 25 years, Dave Elsenbast has been a leader in agricultural business development, supply chain management, operations and purchasing.

Q: Tell me about how biodiesel feedstocks differ per region, and how does the same feedstock differ in quality and price per region?

A: When you think about different feedstocks around the country, it’s best to first look at livestock production maps. You can look at different production numbers of poultry, swine and cattle around the country to get a feel for what types of feedstocks you’re going to acquire in those regions, and the second area you look at is population maps, and you can make some extrapolations as to how much recycled waste restaurant grease could be available in those markets. Pricing between markets is something that, historically, companies such as the Jacobson report, would cover different fat markets around the country―we track them, and we watch the spread between the different markets. But also one of the positives is we have people on our purchasing teams who are trading in all the different markets on a daily basis so we’re watching the spreads in the different regions and trying to react to what the markets are doing.

Q: What are some mistakes that biodiesel companies make in procuring feedstock that end up hurting their bottom line? How could they correct these?

A: We would probably say, get to know your vendors very well. Sample and test their product to see what kind of quality parameters they are able to meet. Get to know your vendors. They’ll get to know you. But have a very good understanding of what your plant is capable of utilizing. We’ve all heard the stories out there in industry that startup plants start buying feedstocks before they know what their plants can process. Understand what your plant is capable of utilizing before you’re in the marketplace filling up the tanks.

Q: A couple years ago at the Fuel Ethanol Workshop, where you presented, you said corn oil extracted from the backend of the ethanol process made up slightly less than 10 percent of U.S. biodiesel production feedstock in 2010. What are those numbers today, and what do you project them to be in coming years?

A: First of all, inedible corn oil has been a great synergy story between the biodiesel industry and the ethanol industry. REG has been using inedible corn oil since 2007, and it’s a very [important] feedstock for us. And as the ethanol industry has expanded its production of inedible corn oil, we have made plant investments to put in the capability to use it. It’s a growing feedstock for us. Some of the numbers you might be looking for are, at the end of September 2012, the EIA data shows that we’ve used 414 million pounds of inedible corn oil in biodiesel production this year. If you extrapolate that into biodiesel gallons, it’s roughly maybe 6 to 7 percent of the overall gallons produced. But certainly the inedible corn oil used, having a growth feedstock, helps us and, in the process, is a story to point to as we work to grow the RVO in the forward years.

Q: Is there any concern about the current state of the ethanol industry now with plants idling due to the so-called blend wall having been reached? Obviously, the less ethanol that’s produced, the less inedible corn oil is available for biodiesel production.

A: We always are watching the ethanol industry closely, it’s a good partner for us, and their margin structure is challenged right now, which reinforces the need for many of the ethanol producers to have this capability installed in their plant. ...

Q: The concept of a multifeedstock biodiesel plant is to be able to take advantage of the feedstock markets so that when prices go up or down, the plant can maneuver and be flexible to buy cheaper available feedstocks. In reality though there are risk management decisions such as locking in prices on futures contracts, limited regional supplies and other elements that seem to make the ability to switch feedstocks on a dime more difficult than that. Can you describe how REG manages feedstock supply for its multifeedstock plants and explain what are the factors involved in making these decisions, and how are these decisions actually executed?

A: The risk management, procurement and biodiesel selling positions are all intertwined, which is why we have the open trading floor [in our Ames, Iowa, office]. We’re all looking at and sitting right next to one another so that the coordination and communication and speed of decisions, when it comes to feedstock and selling decisions, we’re all right next to each other, and it helps us make decisions that we need to make in the time we need to make them.

Q: What are some of the more promising feedstocks under development now that have real potential in biodiesel?

A: Pennycress, camelina, algae oil and jatropha are all oils that are under a lot of development and receiving a lot of R&D. We think that they’ll be potentially commercialized in the next one to three years. One of the positive things that REG has is, because of our experience and manufacturing expertise on using a very wide array of feedstock, we make very good commercialization partners for these companies to come to and work with, for them to bring their new oil to the market. That will be very helpful for us as we try and continue to grow the RVO each year going forward. READ MORE