by Jim Lane (Biofuels Digest) … It’s been a couple of years since we visited REG and the difference is palpable. The company has become a little ADM, rather than a big Amyris or TerraVia. You see the trading desks at the bigger ethanol operations like Green Plains — relatively massive and certainly lively trading ops. But it’s not something we’ve seen in companies like REG. It used to be a company you could safely describe as a biodiesel company, just as you could safely think about biodiesel as a market for the soybean oil byproduct of a soymeal crush.
But no more.
The old biodiesel paradigm gone by
The problem with biodiesel companies, for a long time, has been the volatility of raw material prices and energy prices.
Biodiesel has long been America’s favorite advanced biofuel, but they don’t call the spread between soybean prices and biodiesel prices “the crush spread” for nothing. You can get crushed. Favorable economic winds can turn on you lickety-split, leaving you with upside down economics (high input, low output prices) and working capital that burns faster than firecrackers on the 4th of July.
More than a decade ago, biodiesel was an answer to a problem for soybean growers. Their soymeal had been approved and successfully trialed as livestock feed, and orders were up, up, up. But after the soy was crushed to make meal, the oil piled up, and after a while there’s no place to store it, and dumping is neither eco-friendly nor economically viable. Now, you can run a diesel engine on straight veggie oil, but it’s gummy. But throw in some methanol and a sodium-based catalyst under heat and pressure, and you break the oil molecule into pure B100 biodiesel and a glycerine by-product. The technology is complex enough, but costs less than a dollar a gallon for the capex.
Then, soybean oil was trading at something like 10-11 cents a pound, or around dollar a gallon for the raw materials in a gallon of biodiesel, and energy prices were far higher. And an industry was born.
Back then, there were a lot of companies that wanted to become what REG has become today. A multi-plant, multi-feedstock, multi-product producer with operations across the US and now reaching into Europe.
Fast-forward to 2008/09, when soybean oil prices skyrocketed as high as 70 cents a pound, and the easy good times were over. Plenty of producers went idle.
REG, however, found the answer in a technology so critical that even today, on a public plant tour, they don’t like to talk about it. It’s a FFA stripper. This takes free fatty acids, which are difficult to process, out of alternative feedstocks like fish oil, choice white grease, yellow grease, brown grease, and inedible corn oil. The technology allowed REG to manage its input costs through supply diversification — and with a superior price structure, came a series of mergers and acquisitions that brough the company to 11 plants today, worldwide.
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Three legs to the REG stool
1. Diversification. …
2. Flat management structure. …
3. Good outlook for biobased. …
The rap on REG
1. Biofuels companies are not Wall Street darlings on the equity side. …
2. Size matters. …
3 big news items
1. Expansion in life sciences. …
2. Acquisition in biodiesel. …
3. Building the capital stack. …