Money Cost is King Large vs. Small in the Biodiesel Processor World

Biodiesel producers are debating money cost in the biodiesel processor world vigorously. Why you say? What saves more money while maintaining maximum production? This is why investors are now considering building 5 – 1million gallon biodiesel plants vs.  1 – 5million gallon plant to save money cost.

Look at the potential cost investors must consider before opening a biodiesel processing plant: Market availability, cost of transportation, raw feedstock availability, cost of construction and contracting. Variable costs, including permits, utilities, bonds, waste disposal, and property rent. Local tax rates, Qualitative Employee Satisfaction, real estate availability cost are all things you have to consider when starting a new biodiesel processing plant.

Some processors will spend approximately $78 million on a single plant, and $45 million of the cost is associated with holding tanks and distribution infrastructure. Only $30 million goes to equipment for processing fuel. Put another way, that's 30 cents per gallon in capital equipment for producing fuel.

Cost is king in the biodiesel world. Biodiesel comes from plant matter or animal fat from farms in various parts of the world. Regular diesel comes from deep holes in exotic locales like Nigeria Africa, and exploration costs have been climbing.

Biodiesel refiners, however, have to contend with high commodity prices. It takes 7.35 pounds of degummed soybean oil to make 1 gallon of biodiesel, according to a professor at the University of Minnesota. (Vegetable oil is measured in pounds at wholesale.) And vegetable oil has been rising in price. Options on soybean oil futures, for instance, are selling for around 37 cents a pound. Thus, the raw material alone can cost more than $2.50 a gallon, above the wholesale price of refined, regular diesel. That now hovers around $2.40 per gallon. Without the federal subsidy (the federal government gives subsidies of 50 cents per gallon for used oil and animal fat and $1.00 a gallon for fresh oil) most biodiesel manufacturers would lose money.

Keeping biodiesel capital costs down, therefore, is a big issue for these companies. Despite all the risks, industrial giants like ConocoPhillips, Tyson Foods, ChevronTexaco and Standard Renewable Energy are all jumping into the market because of rising demand and increasingly stringent emissions requirements.

But smaller investors have a newer plan; why not locate 5 smaller plants in a region or state nearer your customers or feedstock sources? You can purchase a small commercial biodiesel plant that produces 2.3 gallons per year for $50,000 from companies like Biodiesel-Equipment.com and link them together digitally to monitor their production. The thought process is if you need to reduce production you can easily when business is not so good, and you can increase production easily because of the small size of the plants. With the right business model these smaller plants could potentially be franchised. Smaller cost to maintain larger production.

This is a great David vs. Goliath story where the smaller biodiesel biomass company will defeat the larger one by being the most nimble and cunning with its resources.