DEXTER, MO. - Jerry Bagby is typical of the oil men who are prospecting for a fortune in the Midwestern biofuels boom. He’s convinced there’s oil in these hills — and he’s found a well that no one else is using.
Bagby and a longtime friend have cobbled together $5 million to build a new biodiesel plant on the lonely croplands outside this southeast Missouri town. They’re betting they can hit paydirt by exploiting a generally overlooked natural resource that’s abundant in these parts — chicken fat.
There’s a virtual gusher of the stuff at a nearby Tyson Foods Inc. poultry plant. Currently, the low-quality fat is shipped out of state to be rendered and used as a cheap ingredient in pet food, soap and other products.
Bagby and his partner Harold Williams plan to refine the gooey substance, mix it with soybean oil and produce about 3 million gallons of biodiesel annually.
Today, only a tiny fraction of U.S. biodiesel is made from chicken fat, but that seems likely to change. The rising cost of soybean oil — which accounts for roughly 90 percent of all biodiesel fuel stock — is pushing the industry to exploit cheap and plentiful animal fats.
The nation’s biggest meat corporations have taken notice. Tyson Foods announced in November it has established a renewable energy division that will be up and running during 2007. Competitors Perdue Farms Inc. and Smithfield Foods Inc. are making similar moves.
As meatpackers enter the field, they bring massive amounts of fuel stock that could make biodiesel cheaper and more plentiful.
The shift to animal fat as a fuel stock could be key to making the budding biodiesel industry a reliable fuel source for U.S. trucking fleets, said Vernon Eidman, a professor of economics at the University of Minnesota who has extensively studied the biofuels industry.
Eidman estimates that within five years, the U.S. will produce 1 billion gallons of biodiesel, and half of it will be made from animal fat. By that time soybean-based biodiesel will account for about 20 percent of the total, he said.
For fuel refiners like Bagby, the allure of animal fat is clear. Soybean oil costs 33 cents a pound while chicken fat costs 19 cents. He only plans to include soybean oil in his blend because it adds necessary lubrication for engine parts.
“Soybean oil is more expensive than other products, so we just use enough of it to make the system run clean,” Bagby said, gesturing toward a row of pipes and vats being installed in his new refinery.
For companies like Tyson, the attraction is simple. Being the nation’s biggest meat company, Tyson is also the biggest producer of leftover fat from chicken, cattle and hogs.
Tyson is keeping the specifics of its renewable fuels division under tight wraps. But Tyson Vice President Jeff Webster told a recent investment conference the potential is clear. Tyson produces about 2.3 billion pounds of chicken fat annually from its poultry plants. That’s about 300 million gallons that could be converted to fuel.
The market for biodiesel and ethanol really started to boom in August 2005, after passage of the federal Energy Policy Act, experts say.
The bill set a new standard requiring the U.S. to use 7 billion gallons of renewable fuels by 2012.
While it’s always been cheaper, animal fat was initially overlooked as a biodiesel fuel stock because of its uneven quality, Eidman said.
When the energy bill passed, soybean oil was already widely sold as a food additive.
Biodiesel refiners could depend on its quality because the oil was marketed and certified under strict guidelines, Eidman said.
Animal fat also has its technical drawbacks. It clouds up at higher temperatures than soy-based biodiesel, which means it might thicken up when used in colder, northern cities, Eidman said.
That might limit distribution to southern areas where temperatures don’t often drop below 40 degrees or so.
While these factors kept animal fat in the background, the biodiesel industry has hit a turning point.
Increasing demand for soybean oil as a fuel and as a food is making the price creep up. It now makes economic sense to invest in new technology to process animal fat into usable form as a fuel stock.
Tyson and Perdue are already experimenting with biodiesel. Both companies have started using biodiesel in their trucking fleets.
Salisbury, Md.-based Perdue is also selling soybean oil as a biodiesel fuel stock through the company’s Grain and Oilseed Division. The company also said this summer it’s studying plans to build its own biofuels plants or invest in others.
Smithfield Foods has established its own biofuels division.
The Smithfield BioEnergy group is studying how to turn hog waste into fuel and has also started producing biodiesel from vegetable oil.
The company didn’t comment on the division, but recent financial filings say the biodiesel program is still losing money because of startup costs.
Having a massive new source of fuel stock is a welcome development for the biodiesel industry, said Amber Thurlo Pearson, a spokeswoman for the National Biodiesel Board.
“More biodiesel in the marketplace could help make biodiesel’s cost even more competitive with diesel fuel,” Pearson said.
The board estimates that U.S. biodiesel production is tripling annually, going from 25 million gallons in 2004 to 75 million gallons last year. The final tally for 2006 should be between 150 million and 225 million.
Biodiesel costs about $1 a gallon more to produce than conventional diesel, but federal tax breaks for fuel distributors help hide that cost from consumers.
Bagby said his plant will be up and running by the end of January. His equipment can refine soybean oil, cotton seed oil and animal fat. That gives him flexibility to use whatever’s cheapest on the commodity markets.
His first batches will be made from soybean oil because it’s easiest to get the equipment calibrated.
After that? Soybean oil has a long way to drop before it’s as affordable as chicken fat.
“You can see the difference in cost,” he said.