Latest Imperium Woes Could Spell Trouble for the Biodiesel Market

8/19/08Follow @gthuang

It’s been a rough year for Imperium Renewables, the Seattle-based refiner of biodiesel fuel. Back in December, CEO Martin Tobias abruptly resigned and left the board, just weeks before the company announced it was canceling plans for a $345 million IPO and reducing its corporate work force. Then last month, Imperium went through another round of corporate layoffs. Now in the past week, Royal Caribbean, Imperium’s largest customer, has confirmed that its contract with the biodiesel maker ended as of July 1, as reported in the Seattle P-I.

What happened? Imperium was once the crown jewel of Seattle cleantech, having raised a whopping $214 million in Series B funding in February 2007, led by investors like Technology Partners and Nth Power, both based in the Bay Area. Renewable biodiesel, made from vegetable oils and waste oils, was touted as a way to reduce both emissions and our dependence on petroleum. Since then, the company has faced protests by a Seattle environmental group over its possible use of palm oil from Malaysia, and some criticism in the business community about its management in the wake of Tobias’s departure. (Reached for this story, Tobias said he couldn’t comment on Imperium.)

I put in a call to the company to get its side of the story. “There’s a lot of things being written and speculation,” said Imperium spokesman John Williams in an e-mail. “But Imperium is solely focused right now on getting through some big challenges facing them as well as the industry as a whole.”

Those challenges would seem to include cash flow, high production costs, and lack of consumer demand. Michael Butler, chairman of Seattle-based Cascadia Capital and a leading cleantech supporter, places the blame for Imperium’s woes squarely on the biodiesel market. “The cost of input—primarily soy and corn—costs too much given the price they get for their biodiesel,” says Butler.

Another energy expert is more blunt about what it all means. “The biodiesel market is in trouble,” says Jesse Berst, managing director of GlobalSmartEnergy, a Redmond, WA-based consulting firm. “The only long-term future for biodiesel is for 18-wheelers, hybrid vehicles, and maybe airlines.” Berst, an Xconomist, says questions remain about the current technology’s conversion efficiency and the “food versus fuel” debate—whether using crops for biofuels may harm the global food supply. “It’s a first-generation technology. You’re squeezing oil out of a plant, versus gasification [which is more efficient],” he says. “I never believed in first-generation biofuels.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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  • http://www.icis.com/blogs/biofuels/ Biofuelsimon

    The biofuel industry suffers mainly because it is not integrated from the plant to the engine. Leaving aside the morality of using foodstuffs to produce fuel, if the biofuel companies had stakes in the palm oil business, for example, then rising food prices could be used to generate profits. This would reduce the pressure on the fuel production part of the business, and the higher price of food could subsidise biofuel production. As it is they’re being squeezed between the feedstock cost and the price at the pump. You don’t see Exxon, Shell, BP or any of the integrated fuel producers suffering in quite this way.

  • Steve Stout

    It’s all about the feedstock. Feedstock oil can account for as much as 90% of the recurring cost of producing biodiesel. If you don’t control this cost you are not in control of your business. With all the money Imperium raised, they could have thrown some of it toward feedstock production, but they didn’t.

    Imperium’s problem is they tried to run their business as if it were Microsoft, with lots of high paid executives. Their company could run efficiently with less than 50 people, but they hired hundreds. A software company’s “engine” runs on people, so you have to hire lots of them — they are both your largest recurring cost and largest asset. A biodiesel company’s “engine” is feedstock oil, so you have to find a way to control it or it will control you.

    As for demand, most people only think of passenger cars, but in the USA the primary users of diesel are farms, construction companies, trains, ships, buses and electrical power generators. The US Navy is the largest consumer of biodiesel in the world. With diesel cars now being 50-state legal, the number of diesel cars is expected to grow from under 3% of sales to 15% by 2015. This will grow biodiesel’s market even further.

    The Food vs. Fuel debate is fabricated. Biodiesel has very little to do with rising food prices. The media needs to stop fueling this lie. The real cause of rising food prices is the rising cost of petroleum and the answer to this problem is alternative fuels.

  • http://www.icis.com/blogs/biofuels Biofuelsimon

    Steve, I don’t know about the staffing levels at Imperium. But there is a real chance that the price of food in some parts of the world has risen because of failing crops and because the US has taken a large amount of corn out of the market by producing ethanol. This corn would have been used for aid and could have helped lower the price of food grains in the worst hit areas.

    The whole food market is immensely complex,with the farmer at its heart. How does that differ from the current corn ethanol situation?

  • Steve Stout

    My comments were focused on biodiesel, but much of it is still applicable to ethanol. Most of the corn grown in the USA is for feed and seed, not direct human consumption. We do not send feed corn to starving people in the 3rd world. Most often we send rice, which has gone up as much as corn, but we don’t make biofuels from rice. Feed corn prices affect the price of meat, dairy and eggs, none of which are sent to starving people. Biodiesel uses soy oil, but not soy meal. The oil is removed before the meal is fed to livestock. Soy oil used to be an unwanted byproduct and was sent to landfills because there was no market for it. If we increase soybean production to get more oil, we increase the amount of meal produced. Soybeans are only 10% oil, so for every extra pound of oil we produce we produce 9 extra pounds of soy meal. An increased supply of meal should actually lower its cost, not raise it.

    Everything has gone up in price, primarily because of the increased price of petroleum. The biofuel industry is less than 1% the size of the petroleum industry, so any affect biofuels have on food prices is insignificant next to the increases from petroleum.

    I’m not a big advocate of corn ethanol, but it is a gateway to better biofuels. Second generation feedstocks for ethanol (wood/paper waste, switchgrass,…) and biodiesel (jatropha, algae,…) will replace corn and soy.

    The entire Food vs. Fuel debate was fabricated by the Grocery Manufacturers of America and others to kill biofuels in their infancy. If we give into special interest groups like this, we’ll never make it to second generation biofuels. By saying “no” to biofuels we are saying “yes” to petroleum, the real cause of increased food prices, the wars in the Middle East, our trade deficit and our declining economy.

  • http://www.seattletree.com John Hushagen

    In 1967 calculators were about the size of a notebook and cost hundreds of dollars. Computers filled entire rooms. The high tech items we take for granted now were in their infancy in the 60′s. Biofuels are in a similar place today. My main question for Imperium is why they decided to build such a huge plant when the local and regional markets for biodiesel were soft and there was talk of a generally slowing economy. Didn’t they try to go from producing 10 million gallons a year to 100,000,000 a year? That seems like quite a leap–not one that I, as a small business owner would be comfortable with. Nevertheless, we need to support the biofuels industry and speak out ag against the lies and disinformation put out by Big Oil, Big Coal, and the food industry. As one other writer wrote, most people don’t realize that the vast majority of corn and soybeans grown in the USA is fed to livestock–another 800# gorilla in the room that no one wants to talk about.

  • Bill Richardson

    Thank you to thiose who have commented already for your interesting comments.