Big Hurdles Remain in ConocoPhillips-Tyson Biodiesel Venture

(MoneyWatch)  Tyson Foods and ConocoPhillips continue to move forward with plans to profitably convert animal fats into renewable diesel fuel, with a rollout planned for Spring 2009. Although demand for renewable fuels is high, it is doubtful the diesel will be shipped and distributed through existing pipelines from ConocoPhillips refineries, by the aforementioned target date.

No company has yet successfully turned a profit from converting fat into fuel. Nonetheless, combining Tyson's knowledge of protein chemistry and production with ConocoPhillips' core competence in fuel processing and marketing, Tyson CEO Richard L. Bond predicts the renewable diesel fuel initiative could add between 4 cents to 16 cents to bottom-line profits-dependent on variable prices, such as those of wholesale diesel and animal fats, and ongoing availability of tax credits.

Tyson Foods, which processes and markets chicken, beef and pork, produces about 2.3 billion pounds of animal fat from its rendering operations per year. The feedstock could be converted into an estimated 300 million gallons a year of biofuels, according to Jeff Webster, senior vice president of strategy and business development for Tyson's renewable energy division.

In 2007, the joint venture, Tyson Renewable Energy, successfully completed its testing protocols and the establishment of pre-processing conditions. Using beef tallow provided by a Tyson processing plant in Amarillo, Texas, initial refinery yields began in December 2007, at the oil company's Borger petroleum refinery in Texas, according to ConocoPhillips spokesman Bill Graham.

When asked by BNET if the joint venture was on schedule to ramp up refinery production by the 2009 target date, Libby Lawson, VP-Public Relations at Tyson Foods, responded: "We have been averaging around 300 barrels a day and have tested up to 1000 barrels per day and now we're jointly developing scale up plans for more output. The pace and extent to which we scale up will be driven by factors such as the price of diesel fuel, the cost of feedstock(s), and the status of the tax credit. (Congressional approval of an extension of the $1 per gallon biodiesel tax credit subsidy beyond 2008 is uncertain.) We are pleased with the progress we've made to date."

Lawson, however, did not address three critical factors that must be leveraged in order to maintain profitable biodiesel facilities and maintain a competitive advantage in the market:

1. Does Tyson's biodiesel distillation process ensure consistent removal of impurities?
2. Can the distillation technology ensure low production costs and process a multitude of oil and fat feedstock(s)?
3. Timeline to receive state and federal permits: Any problems with air emissions and/or wastewater runoff?

To the contrary, rated capacity of 300 barrels a day suggests the Texas biodiesel refinery under construction is not on pace to be mechanically complete and ready to commence commercial scale production of renewable fuel by the first-half of 2009.