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Originally published August 16, 2007 at 12:00 AM | Page modified August 16, 2007 at 2:07 AM

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Biodiesel plant stirs hopes in Grays Harbor

The economy of this remote timber community almost collapsed in the early '90s when authorities sharply restricted local logging to save...

Seattle Times business reporter

Imperium's empire

Plants

Grays Harbor: Completed in August 2007, with output capacity of 100 million gallons a year.

Seattle: A small plant, able to produce 5 million gallons a year, was completed in April 2005.

On the drawing board: The company plans to have three additional 100-million-gallon-a-year plants — in Hawaii, Argentina and Philadelphia — completed in late 2008 or early 2009.

Customers

Royal Caribbean Cruises: Company that operates Alaska cruises from Seattle agreed to buy 15 million gallons of biodiesel in 2007 and 18 million gallons annually during the next four years.

Constellation Energy: Power-plant operator in the Eastern U.S. will buy biodiesel exclusively from Imperium until at least mid-2010, if Imperium can meet its commitments.

Sales from Seattle plant

Biodiesel sold in first quarter of 2006: 429,000 gallons, at an average price of $3.24 per gallon and an average gross loss of $1.16 per gallon.

Source: Imperium Renewables

HOQUIAM — The economy of this remote timber community almost collapsed in the early '90s when authorities sharply restricted local logging to save the spotted owl.

Now residents hope that new life will be breathed into the area by a different kind of environmental concern — the national push for cleaner fuels.

"I remember a lot of people being upset because of the spotted owl," said Pamela Boothe, 52, who owns a flower shop in nearby Aberdeen. "Half of my family were loggers." The recent shutdown of a Weyerhaeuser mill further harmed the region, she said.

The nation's largest biodiesel plant, nestled between a lumber storage yard and a paper mill on Port of Grays Harbor land, looks to Boothe like a portent of better times. Her niece's boyfriend found a job at the plant, Boothe said.

Imperium Renewables formally inaugurated the plant Wednesday, as company executives filled vials with the olive oil-colored substance and dignitaries including both of Washington's U.S. senators applauded. Between 50 and 60 people will be employed permanently at the plant, and more than 250 participated in its construction, said general manager Sid Watts.

But biodiesel has its own set of economic and environmental challenges. Raw materials are expensive and getting harder to secure. Also, only a minority of American automobiles are equipped to run on biodiesel, while most can run on a blend of ethanol and gasoline.

Imperium's 100-million-gallon-per-year facility opens amid ample unused capacity, as refiners struggle with finding supplies and carving out new markets.

"There's a significant amount of overcapacity today," said Aaron Brady, a consultant with Cambridge Energy Research Associates in Boston. Biodiesel "has the potential to grow, but it's also sort of a niche market right now."

Founder is optimistic

Imperium founder John Plaza, however, is bullish. "There is no glut," he said, because industrywide capacity estimates are overstated. Imperium plans to operate the $78 million plant at full capacity by the end of the year, officials said.

So far, however, Imperium's small biodiesel plant in Seattle is running far below its 5 million-gallon capacity, and at a loss.

The company is counting on the new plant's large scale and strategic location to give it a competitive edge, according to regulatory filings for its pending $345 million initial public offering of stock. It's been recruiting big customers: Royal Caribbean Cruises plans to buy 15 to 18 million gallons annually, the filing said.

Alternative-energy entrepreneurs like Imperium also count on the government to help buoy their ventures. Biodiesel blenders can get a tax break of up to $1 a gallon, which lets Imperium sell biodiesel at higher prices than what ordinary petroleum-based diesel costs. The biofuel currently costs 20 to 30 cents more than petroleum diesel, Plaza said.

For biodiesel to keep growing in the short term, "the government is going to have to continue mandates and production incentives," said Marie LaRiviere, a biodiesel analyst at the federal Energy Information Administration.

The big news at Grays Harbor underscores how the U.S. landscape is being transformed by the rush toward alternative energy. Skyrocketing fuel prices, a desire for reliance on domestic energy sources and concerns over greenhouse gases have created a perfect climate for biofuel development.

The agricultural states of the Midwest have cashed in on high corn prices, as ethanol production increases there. Biodiesel, although a much less popular fuel than ethanol, is now leaving its mark on this Western Washington region.

Grays Harbor Chamber of Commerce president LeRoy Tipton said he hopes the plant will generate two to five indirect jobs for every employee — a boon for a county where unemployment runs above 6 percent due to its traditional reliance on the shaky lumber sector.

"We've been struggling and working really hard to diversify," Tipton said.

Good access to site

Imperium chose Grays Harbor for its first large biodiesel facility for its "logistical benefits," said Plaza. The deepwater port puts it within reach of Asia, which can provide both hungry markets and the plant's raw materials, or "feedstock," since most of the world's palm oil is produced in Indonesia and Malaysia. From the port, Imperium can also send out shipments to California and to the interior of the country via rail.

The company expects to add 300 million gallons a year of capacity with three additional plants — in Hawaii, Argentina and Philadelphia.

But its growth plans come at a tough time for the biodiesel industry: Producers face big problems securing enough feedstock at an affordable price. Part of the shortage is due to ethanol's success, as more farmers abandon soybeans — the main source of biodiesel in the U.S. — for corn.

"Feedstock is hard to come by," said Bob McCormick, an engineer and biodiesel researcher at the National Renewable Energy Laboratory in Golden, Colo. "In some cases they're having a hard time getting feedstocks at any price."

McCormick said that he knows of a half-dozen small biodiesel plants that have shut down at least temporarily rather than continue operating at a loss. Larger ones can operate more efficiently, he said.

The feedstock crunch is one reason that nationwide biodiesel production this year is expected to total 300 to 350 million gallons, substantially below existing plants' total capacity of about 1.4 billion gallons.

Imperium's Plaza said the company has managed to secure enough Canadian canola oil to feed almost all of its production for the next 18 months. Feedstock makes up the principal cost of refining biodiesel, he said.

Feeding the biodiesel beast also creates its own environmental issues. Environmentalists say that high demand for palm oil — an abundant, energy-rich biodiesel feedstock — has led to the burning of tropical rainforests that act as natural carbon sinks, thereby canceling biodiesel's greenhouse benefits.

The company said in a regulatory filing that it could potentially use palm oil at Grays Harbor and future facilities, but Chief Executive Martin Tobias said the Grays Harbor plant won't use palm oil "for the foreseeable future."

Sustainability goals

Imperium is a founding member of the Roundtable for Sustainable Palm oil, a joint industry and nonprofit effort to develop sustainability criteria for the crop. "We can use palm oil in a sustainable manner," said Plaza. "It's one of the many [energy] challenges facing society."

Some in Grays Harbor hope that if the Imperium venture succeeds, the area could attract other alternative-energy investments. State Rep. Brian Blake, D-Aberdeen, a former logger, said cellulosic ethanol made from wood could help continue the area's logging tradition.

"The potential for using biomass for producing cellulosic ethanol is huge," he said.

Seattle Times reporter Hal Bernton contributed to this story.

Ángel González: 206-515-5644 or agonzalez@seattletimes.com

Copyright © 2007 The Seattle Times Company

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