Oregon's biofuels industry split over local producers' role

Now that Oregon has passed a renewable fuels standard, the state's biodiesel industry is debating how it can grow the market for green fuels and sustain itself.

Small Oregon producers argue for what they call a "community- scale" industry, where local companies sell biodiesel made from

It stands in contrast to Big Oil, they say, an industry of "centralized energy production and commodity markets and national debt," said Tyson Keever, co-manager of SeQuential-Pacific Biofuels' operations in Salem. "If you try to describe the opposite, it would be local resources (and) economic stimulus."

But the state's petroleum distributors, which import biofuels from the Midwest, say the community model won't lead to widespread use of the fuel - a necessity if the state is to meet its carbon emissions reduction goals.

Local production adds a few-cent premium per gallon to the cost of fuel at the pump, which makes the fuel a tough sell to consumers who have a choice between biodiesel and petroleum diesel, said Jeff Rouse, alternative fuels manager for Carson Oil Co. in Portland.

"I look at this as a U.S. issue, not a Northwest issue; we have to look at this as a country," Rouse said. "Let everyone compete. The market will dictate (adoption) by price."

Oregon legislators and officials so far favor the community- scale industry. The state renewable fuel standard calls for production of 5 million gallons of Northwest biodiesel, either from local feedstock or used cooking grease, before the mandate kicks in.

And the city of Portland will soon sign a $9 million fuel service contract with StarOil Co. that requires the company to supply the city's fleets with biodiesel made from Oregon-grown canola.

But community-scale biodiesel is off to a rough start in Oregon, where the industry so far has relied on government purchasing contracts to reach production goals.

Green Fuels of Oregon, one of two biodiesel producers in Klamath County, will not reach its 1 million gallon goal this year because the company was unable to purchase enough canola seed to crush into vegetable oil, owner Rick Walsh said. After failing to convince his neighbors to grow canola for biodiesel, Walsh planted his own crop.

"We were down for feedstock issues most of the summer," Walsh said. "We're trying to grow our own, but land is really tight and rents have gone up so much because of the price of wheat."

Unable to find local canola, Walsh tried to buy vegetable oil first from nearby states and then looked "wherever we can," he said. But pure oil is hard to come by at a price that makes biodiesel production profitable on a small scale, he said.

"I have to have local oil to make it work," Walsh said.

Upstart biodiesel companies also can't afford the strict fuel testing that cities and businesses require because they only produce a few thousand gallons at a time, said Jeff Brandt, co-owner of Sun Break Biodiesel in Canby. Testing, which costs about $1,400 per batch, eats away all the profit on small batches of biodiesel, he said.

"I'm not capable of producing as much as (companies like SeQuential) do, but when you work out annual cost of production I beat them by a factor of 10 to 20," Brandt said. "The local production works, but the small producers, because they're so small, can't afford to meet the testing compliance."

SeQuential-Pacific, Oregon's largest biodiesel producer, has no problems securing feedstock or vegetable oil for biodiesel production, Keever said.

"(For) the smaller, decentralized producers, it's about having direct relationships with suppliers to avoid the large commodities markets," Keever said. "But it's not easy. If it was, everybody would do it; there are economies of scale."

Oregon can't rival Midwest

The degree to which the community-scale biofuels model can be successful in Oregon isn't clear.

The small-scale model has worked well in Minnesota, where 81 percent of ethanol is produced by local companies, according to the Institute for Local Self-Reliance. And Minnesota has an in-state crop production that Oregon farmers only dream of. Several Midwestern states reported record production this month for corn, a crop grown for biofuel feedstock, according to the National Agricultural Statistics Service.

Local production in Oregon has its limits: 10 to 20 million gallons of biodiesel a year is the maximum the Northwest community- based industry can support, according to SeQuential-Pacific.

SeQuential already produces 1 million gallons each year and has plans to expand production to 5 million gallons annually. Almost 500,000 gallons of the company's biodiesel is made from Oregon- grown canola; the rest comes from used cooking oil.

The state mandate will eventually increase statewide demand for biodiesel by 100 million gallons a year, SeQuential believes.

But given the limited scale of production possible in Oregon, the potential effect of the biofuels industry in the state on greenhouse gas emissions is small, according to a study released in July by economist William Jaeger of Oregon State University.

"Nobody wants to see this in Big Oil's hands, but in a way that's what makes (consumers) feel comfortable," Brandt said. "For the companies up and coming, you're making it really hard for them."

Credit: Libby Tucker