| Green Earth Fuels: Hot Commodities |
| Energy Executive Spotlight | |||
| Written by John Zorabedian | |||
| Tuesday, 01 April 2008 | |||
 Taking lessons from the oil industry, Greg Bafalis says his company can navigate the tumultuous commodities markets to profit on biodiesel.
 Greg Bafalis, President and CEO The company is also investing in the feedstock side of the business so it can control the source of fuel for its production facility. In February, the company announced that it formed a joint venture with Seattle-based Targeted Growth to grow camelina, a low-input, oil-rich grain similar to canola, in Montana. By controlling the entire value chain, from commodities to production of biodiesel, terminaling and distribution, and the production of high value green chemicals from byproducts such as glycerin, Bafalis said the company will profit at every stage of the business, as the oil industry has done. “We want to continue to expand the model based on the same vision that big oil had,” Bafalis said. “We really want to set ourselves up to be a green renewable company that is in all facets of the green economy, producing the feedstocks and making different kinds of fuels, producing green chemicals. That’s our vision and the direction we’re moving the company right now.” Crop controls GEF has purchased long-term hedges for vegetable oil to control the cost of feedstocks, and rather than building additional production facilities, the company is investing in producing feedstocks. “If you look at the market right now and where commodity prices are, it doesn’t justify adding capacity unless you control your inputs,” Bafalis said. “So we can produce profitably now where a lot of our competitors are riding this highly volatile wave of commodity prices. And, by controlling feedstocks, we will do so in the future as well.” The company’s investments in camelina should ensure a stable long-term supply under its control, if it can get farmers in Montana and elsewhere to grow the crop. Camelina requires less water and fertilizer than wheat and can be grown as a rotation crop, when fields for wheat would usually be left fallow to recover nutrients. Additionally, due to the low-input requirements, the crop can be grown on marginal land. The camelina plants are 40% oil by volume, making them more efficient than soy beans, which are 20% oil. And camelina is not used for human consumption, which means its prices are not driven by demand for food, as is true for corn. “With wheat at $12 a bushel right now, everything is being planted,” Bafalis said. “But even with these high prices, we’re getting traction. Our target is to plant commercial trial plots this year to get farmers comfortable with the crop so next year we can dramatically increase the acreage.” With its production facility on the Houston Ship Channel, GEF can receive shipments of feedstock from all over the globe. Bafalis explained that his vision for the company is based on the understanding that biodiesel is a commodities business. “When we got into the biodiesel business, we realized right off the bat that if we did not control our inputs, the market was going to squeeze all the margin out,” he said. “We invested upstream in the reserves so we can have our own feedstock. We invested in Sustainable Oils, our camelina company, so we have access to competitively priced oil to put into our biodiesel plants.” Growth industry Biodiesel is currently an immature industry in the US, but Bafalis expects demand to grow considerably in the next five years. The latest energy bill mandates that refineries increase their purchase of biodiesel to 1 billion to 2 billion gallons annually by 2012. The majority of the US market is now dominated by smaller distribution companies that supply bus and truck fleets, but the major oil companies will begin snapping up a larger share in the US, as they do now in Europe, according to Bafalis. “The one thing that always attracted me about this industry is it’s very immature,” Bafalis said. “It’s not often you can find an immature industry to get into and help to create.” Because of that immaturity, GEF has had some difficulties with small companies defaulting on contracts, and the company now requires securitized contracts and letters of credit. “You’re starting to see this industry evolve, but it will take a couple years,” he said. Bafalis plans to expand production as the company gains greater control of feedstocks and as the biodiesel market takes off. In the near-term, the company will begin construction of a chemical business using glycerin, a byproduct of biodiesel production. GEF will process the glycerin for use in pharmaceuticals such as cosmetics. Eventually, the company will look to expand to build other facilities in the US and in Central America. “We have all the bases covered. Now we need to add to the bases,” Bafalis said. GEF needs to focus on increasing its supply of feedstocks, investing in other feedstocks, and expanding in the agricultural sector. “We will start to build additional biodiesel facilities as we see the supply of feedstocks become more readily available.” |
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American Executive is a RedCoat Publishing publication.
American Executive is a RedCoat Publishing publication.
