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Odessa refinery helping meet demand for biodiesel

ODESSA, Wash. – It has been a rough go for Washington’s fledgling biodiesel industry, with only a handful of the announced projects actually coming into production and promised financial support from the state withering in the harsh economic climate.

Yet one regional refinery is successfully turning crops from regional farmers into fuel for cars, trucks, buses and ferries. Inland Empire Oilseeds is becoming another made-in-Washington success story through the alliance of tough business sense and green idealism.

The result is creating jobs and bringing new revenue to Odessa, rewarding farmers with a new crop that’s profitable and good for the soil, and offering the state’s diesel users a fuel that cuts carbon emissions and pollutants.

“As we’ve had to find out the hard way, this is a tough thing to do,” said Stephen Starr, general manger of Inland Empire Oilseeds, “but we’ve stuck with it and it’s working.”

The refinery has escaped the problems that befell some of its competitors in the state; a Grays Harbor plant that used a different refining process had an explosion that shut down production, and pollution troubles led to the closure of a refinery in Creston.

Instead, Inland Empire Oilseeds – a collaboration between two farmer cooperatives and a handful of private investors – hired 24 people last year and shipped 2 million barrels of oil extracted from canola.

By the end of 2010, Starr said, the refinery should be a $40-million-a-year enterprise running at capacity of 8 million gallons annually.

Right business, right location

Inland Empire Oilseeds occupies an old grain warehouse along the railroad tracks cutting through Odessa, a town some 70 miles west of Spokane that has become better known for its Oktoberfest celebration than its farming heritage.

From the beginning, the company set course for a refinery that would squeeze the oil from canola grown in Eastern Washington and the surrounding region. This gives local farmers a good crop that infuses the soil with nitrogen to help the next wheat planting. The leftover material, called meal, makes good feed for dairy cows.

The response has been solid and canola acreage across the region has doubled year over year as the refinery grabs all the canola farmers can grow. Massive concrete grain bins just yards from the refinery provide storage.

Atul Deshmane, chief executive officer of Whole Energy, an Anacortes biodiesel buyer, said the Odessa refinery has struck the right business model in the right state.

King County uses more biodiesel that any other county in the United States.

“People want this fuel. They can’t make it fast enough,” Deshmane said.

Deshmane noted, however, that buyers are fickle and price-driven. Their allegiance to biodiesel lasts only as long as it remains competitive with petroleum.

Federal tax credit expiring

The best bet for biodiesel may be if government continues to support two major benefits that aren’t reflected in prices at the pump: low carbon emissions and the direct economic benefits of a fuel produced locally.

There may be a snag, however, and it’s a big one: the expiration last month of a $1-per-gallon federal tax credit, said Peter Moulton, senior energy specialist with the Washington Department of Commerce.

“The industry needs to see that restored,” he said, preferably for a longer period so plant owners could build the credit into their financial projections.

Sen. Maria Cantwell, D-Wash., and Sen. Chuck Grassley, R-Iowa, are co-sponsoring a bill that would renew the credit, but Cantwell communications director John Diamond said there has been no agreement on how long the extension might last. Action is expected within the next few weeks.

Moulton said the industry could get another boost if the state Legislature modifies a 2006 law requiring that at least 2 percent of all the diesel sold in Washington be biodiesel. House Bill 2504 would require every gallon be at least 2 percent biodiesel, with implementation by Aug. 1 in Western Washington and Oct. 1 in Eastern Washington.

The standard climbs to 5 percent when Northwest refineries can produce 25 million gallons of fuel annually.

Unlike the 2006 legislation, the bill also allows the Department of Agriculture to fine fuel distributors that do not meet the standard. The governor can suspend the provisions if they become “economically unfeasible” or threaten public safety.

The bill helps most by synchronizing Washington’s standards with a new 2-percent rule in Oregon, Moulton said.

Oregon receives most of its fuel from Washington refineries, and uniform biodiesel standards would allow distributors to make and sell the same fuel in both states.

State funds had to be returned

Although Washington mandates the use of a biodiesel blend in the state fleet, the industry has suffered setbacks from the state’s budget woes.

State grants and low-interest loans had to be returned by projects that failed to get off the ground, including one proposed by the Spokane County Conservation District.

“The hard times of the past two years weeded out some of those that probably shouldn’t have been in business,” Deshmane said.

Although the returned funds were meant to be reallocated to other successful biodiesel projects, the money instead was vacuumed out by the state’s cash-starved general fund.

The Odessa refinery borrowed $4.3 million from the state. It is owned by two large farmer cooperatives: Odessa Union Warehouse and Reardan Grain Growers. Private investor Reardan Seed Co., run by farmer Fred Fleming, is the third major shareholder. There are other minor stockholders.

Starr, Inland Empire Oilseeds’ general manager, said Washington state’s commitment to use biodiesel in the state fleet, along with its financial assistance, has been a major factor in piecing together the financing and market stability needed for a successful business model. It also has been a crucial gesture of support in the face of critics who say biofuel farmers are choosing fuel over food crops and that production of biofuels consumes a large amount of fossil fuels.

Factoring in the fuel used to produce fertilizer and to run farm machinery and other needs, Starr said, the equation for biodiesel keeps it in the environmentally friendly column.

It takes about one gallon of fossil fuel to produce 4.5 gallons of biodiesel, he said.

Jet-fuel deal promising

Despite the rough start, other biofuel projects are showing promise in the state, too.

Spokane County Biodiesel, a private business, may be able to make a go of its plan to produce biodiesel from waste vegetable oil, Starr said.

And an agreement announced last month could take the industry to a much higher level of production.

Seattle-based AltAir Fuels said it has a memorandum of understanding with 14 airlines that will purchase up to 750 million gallons of renewable jet fuel to be produced at a new plant adjacent to Tesoro’s Anacortes refinery. The fuel, derived from oil pressed from camelina seed, has already been successfully tested in commercial airliners and in ground tests performed by the United States military, the company said.

Production could be under way in 2012.

“It’s been tough getting started. There’s a right way and a wrong way to go about biodiesel,” Starr said. “We found the model that works for us.”