Biodiesel demand ahead of refinery

By Shelley Strom
The Business Journal of Portland

With equipment and investors waiting at the door, the innovators at SeQuential-Pacific Biodiesel didn't wait to launch their fuel manufacturing operation.

When progress on building a refinery in North Portland took longer than expected, the company -- a joint venture between Portland-based SeQuential Biofuels and Hawaii-based Pacific Biodiesel -- decided to set up a fuel-refining operation on a tiny slice of industrial land in Salem.

"We were behind schedule and thinking about whether there was someplace where we could set up now," said Tomas Endicott.

Endicott is co-founder of SeQuential Biofuels, a 3-year-old marketer and distributor of biodiesel and biodiesel-petroleum blended fuels. SeQuential-Pacific hopes eventually to produce and sell annually at least 1 million gallons of the fuel.

Endicott said his investors got antsy as the development timeline for the Portland refinery stretched. All the while, expensive stainless steel tanks that arrived according to the original timeline sat useless.

An investor in the joint venture had room to spare on his Salem industrial site. The permitting process to set up such an operation, Endicott said, was simple compared with the arduous process of developing a facility from the dirt.

"We thought, 'Here's an opportunity,'" Endicott said.

Biodiesel -- which can be burned in most diesel vehicles -- is gaining a following.

Attractive because it is significantly less polluting than petroleum fuel, biodiesel roughly amounts to fat-free vegetable oil.

"This industry has the potential to create jobs in Oregon and keep dollars in Oregon," said Ashley Henry, Oregon Business Association environmental and economic development program manager.

SeQuential Biofuels is on track to generate $600,000 in revenue this year and anticpates increases to $1 million next year. The company employs five, and the joint venture employs four.

Oregon customers spend a daily average of an estimated $9 million on nonlocal sources of petroleum and natural gas, according to Seattle-based Northwest Environment Watch. That figure is based on the average prices of petroleum and natural gas in 2004.

OBA and the Oregon Environmental Council are backing a state legislative proposal that would provide the same tax incentives to developers of biodiesel production operations as those available to developers of ethanol facilities.

In addition, backers are looking for the state to require minimum levels of biodiesel in order to build demand and reduce air pollution.

That proposal has received approvals from both the Oregon House and Senate but a final version has yet to be hammered out.

The Salem manufacturing operation is the first on the West Coast. Previously, the closest suppliers were in the Midwest.

"We considered building a refinery in 2003 but the market just wasn't there," Endicott said.

But West Coast demand for biodiesel has increased rapidly in recent years.

Public agencies that require biodiesel for their vehicles have been key drivers.

A growing number of companies -- Endicott cited a landscaping business that purchases biodiesel for its fleet -- are seeking biofuel.

SeQuential started out selling biodiesel that was a blend of 20 percent vegetable oil and 80 percent petroleum diesel. That is known as "B20" and it costs about 60 cents more per gallon than the approximate $2.55 for which regular diesel sells today.

"We didn't think anyone would be willing to pay $3 a gallon for gas," Endicott said.

But, "when people came to fill up their cars with B20, they said, 'We want B100,'" he said.

SeQuential later began selling "B100" -- which does not contain petroleum diesel and costs about $3.10 a gallon. SeQuential supplies 15 pumps scattered mostly along Oregon's Interstate 5 corridor.

In 2004, Endicott and his partners began putting together plans for a refinery.

In addition to the Hawaii company, investors include Kettle Foods Founder Cameron Healy and musician Willie Nelson.

Salem-based Kettle Foods is on tap annually to contribute roughly 35,000 gallons of oil in which it has fried potato chips.Portland International Airport, with more than a dozen restaurant tenants, annually will contribute thousands of gallons of oil.

In fact, all of the fuel made at the facility will be from used cooking oil collected from food processors, restaurants, grocery stores and other food preparers.

SeQuential-Pacific has an agreement with a grease collector to provide oil. Metro Rooter and Plumbing picks up waste oil from customers as far north as Bellingham, Wash., and as far south as the California border.

Meantime, the joint venture continues development at a 1-acre site in Portland's Rivergate industrial district.

"What we're doing in Portland is just much more complicated" than the arrangement on already-developed land in Salem, said SeQuential-Pacific Operations Manager Bjorn Ansbro.