Biodiesel plant to restart amid market pessimism

Call it a comeback. Ed Vescovi is busy preparing for the opening of a biodiesel plant in Monaca, the same plant he ran from 2007 through 2011 before it shut down and was repossesed by the bank.

It’s not clear why Pennsylvania Biodiesel shut its doors in 2011. Mr. Vescovi said he doesn’t know if the plant was profitable, since financial information was kept under wraps by the former owner. He can tick off a list of variables that turned against the biodiesel industry at the time: the expiration of a 75-cent-per-gallon state tax credit given to biodiesel producers; a federal tax credit available some years and lapsed during others; and the state's 2 percent biodiesel mandate that didn’t kick in until 2010.

In the end, he can’t say definitively that any of those doomed the operation. It was clear then as it is today that the market for biodiesel isn’t brimming with opportunities.

If Mr. Vescovi is at all optimistic today, he leavens it with an abundance of caution.

“I don’t think we’re going be millionaires on it,” he said. “But I think it can survive.”

In 2013, Weavertown Environmental, a hazardous materials transportation company, bought the former bioidiesel plant as part of a larger land grab in Beaver County. The company also plans to build a barge terminal and treatment plant for water used in the hydraulic fracturing process.

Mr. Vescovi had been helping the bank market the biodiesel asset and, when Weavertown agreed to buy it, he was invited to run the facility. Again.

With permits in the works, the plant should be up and running by the end of the first quarter next year, he said.

“I believe the plant is a very good plant. I know that it makes good quality biodiesel. The issue is, is the biodiesel market a good, stable market?”

A market of shifting mandates

The market for biodiesel is entirely driven by state and federal mandates, which have been in flux.

Nationally, the Environmental Protection Agency through its renewable fuel standards, requires oil companies to blend biodiesel into their product or buy renewable fuel credits from others that do.

For the first time since the mandates went into effect in 2007, the EPA is considering lowering the biofuel thresholds in the face of incredible oil industry opposition. The agency still hasn't said what the 2014 target should be and hasn't settled on one for next year.

Also on the federal level, a $1 credit given to blenders for each gallon of biodiesel mixed into their fuel products was available until the end of 2013. While there’s talk of reinstating that credit, it’s uncertain.

With so many variables governing the viability of biodiesel production up in the air, there’s even an app called, “RINs Around the Rosy,” that allows users to set or dismantle mandates, play with feedstocks and see the impact it has on the biodiesel market. (RINs are renewable identification numbers, which are sold as credits to oil companies).

The uncertainty has impacted even the most successful biodiesel producers in the state.

Lake Erie Biofuels, by far the largest and most consistently producing biodiesel outfit in Pennsylvania, has, for the first time, cut its production in response to federal wavering.

“Now the economics get murky too,” said Chris Peterson, vice president at the Erie facility. “The people who need to comply with these regulations — they don’t know what they need to do. A lot of people are moving as slowly as possible, sitting on their hands, making educated guesses.”

Lake Erie Biofuels already has had its business model challenged by shifting political realities. When it began producing soybean oil-based biodiesel in 2007, more than 90 percent of its customers were in Europe.

A year later, the European Union slapped a prohibitive tariff on biodiesel imports from the U.S., and Lake Erie had to rethink its entire operation. It redesigned its plant to run on waste cooking oil and animal fat and now sells about half of its product in central and western Pennsylvania, and the remainder to customers in the Mid-Atlantic and the East Coast.

The Pennsylvania biodiesel market was set by a 2008 state law, which dictated that a year after in-state production of the fuel reaches 40 million gallons, all diesel fuel sold in the state must contain 2 percent biodiesel. That milestone was reached in 2009. In late 2010, the 2 percent mandate went into effect.

The next threshold — 5 percent biodiesel after 100 million gallons of the fuel is produced — has not been reached. Last year, state production hovered just above 50 million gallons, with 99 percent of that coming from Lake Erie Biofuels. This year, with the company’s tempered forecast, it’s likely to slump below that.

In prior years, Lake Erie Biofuels’ very distant runner up in production was Keystone Biofuels Inc., a Camp Hill company that filed to reorganize under a Chapter 11 bankruptcy last year. The company said it was looking for a buyer or joint venture partner for its facility.

In 2013, the only other company making biodiesel, as reported to the Pennsylvania Department of Agriculture, was United Oil Co. But the North Side-based firm was making the fuel to blend into its own products, such as specialty oils and lubricants.

“We’re not trying to sell that out in the street,” said United Oil President Lane Feike. “We’d love to, but ... the market has dried up. There’s no tax subsidy. We just don’t control the market enough on the feedstock.”

The cost of feedstock, which for United Oil is mostly pig fat sometimes supplemented with soybean oil, makes up 85 percent of the overhead, Mr. Feike said.

“That’s where a lot of producers have been struggling,” said Daniel Ciolkosz, a research associate at Penn State University who works on biofuels.

According to the Energy Information Administration, the vast majority of biodiesel made in the U.S. uses soybean oil as the feedstock. But successful operations in Pennsylvania have steered to other feedstocks, mainly animal fats and used cooking oils.

“It’s all about economies of scale, and you really need that to be successful in this business,” Mr. Peterson said. “Size does matter.”

Mr. Vescovi said the Monaca biodiesel plant, renamed Advanced Biofuels, will begin producing between 5 million and 10 million gallons of the fuel annually, with plans to ramp up to 20 million or 30 million.

The primary feedstock is likely to be soybean oil, he said, although the facility can run on other oils as well. That will drive up the price of the product, Mr. Vescovi acknowledged, but it’s by customer preference. A large potential client in Pennsylvania has asked that all of its biodiesel come from soybean oil, Mr. Vescovi said.

“The economics are not as good for soy-based unless you have a customer that’s willing to pay a premium for it,” he said.

Even as work on the site is bustling and permits are being completed, nothing is set in stone, Mr. Vescovi warned. The market, however uncertain, will dictate the Monaca plant’s revival.

“Maybe we’ll run the facility when times are great, and when they’re not great and a customer backs down, we don’t run it,” he said.

Anya Litvak: or 412-263-1455.

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