Pinnacle Biofuels in Crossett is about to enter a second month of running at reduced capacity -- a course plant manager Brad Dobson said he hopes to end by March.
But getting the biodiesel facility back to full production will depend on a turbulent oil market that has already reduced Pinnacle Biofuels' volume by 250,000 gallons since December.
"That's what we've had to do this year so far," Dobson said. "Just because we don't have as many outlets to move our biodiesel right now because the market is flooded with regular petroleum fuel and biodiesel."
The tailspin in oil prices is starting to hurt makers and suppliers of biodiesel, a fuel made from vegetable oil or animal fats, as retail gasoline and diesel prices drop at the pump. Industry members say it is also adding to the sting they feel from the delay of a federal rule requiring biodiesel blending with conventional diesel fuel.
The oil market has been in turmoil since the past summer as a result of declining global demand and a supply augmented by record production from U.S. shale producers. Crude prices have fallen about 50 percent since the summer.
West Texas Intermediate crude closed at $45.59 a barrel on the New York Mercantile Exchange on Friday, down 6.4 percent for the week. Brent ended at $48.79 a barrel on the ICE Futures Europe exchange.
The drop in the price of oil has resulted in the cheapest retail fuel prices in almost six years. Regular-grade gasoline Friday was selling for an average price of $2.04 a gallon nationwide and $1.91 a gallon in Arkansas. Diesel prices were $2.86 a gallon nationally and $2.67 a gallon in Arkansas, according to auto club AAA. Gasoline prices have fallen for 16 consecutive weeks.
The U.S. Energy Information Administration predicts the average household will spend $750 less on gasoline this year as a result of the decline.
As prices at the pump continue to drop, there is less incentive for customers to buy biodiesel, industry members said.
"It has certainly not helped the alternative fuel industry as a whole because now gas is cheaper," said Wayne Lee, chief executive officer of Lee Enterprises Consulting Inc., an alternative fuel consulting group in Sherwood. "I think we produced less in 2014 then we did in 2013."
The biodiesel industry in Arkansas is "not huge by national standards, but it's certainly significant," he said.
There were 1.8 billion gallons of biodiesel produced in the United States in 2013, up from 1.1 billion in 2012, according to the National Biodiesel Board.
Arkansas' two biodiesel plants have the ability to produce up to 63 million gallons per year, according to a report by the U.S. Energy Information Administration.
"The smaller producers, which oftentime are farmers ... those guys are the ones that really get hurt," Lee said. "They'll shut down. That means laying off people, selling equipment."
Pinnacle Biofuels can produce 40,000 gallons per day. The facility primarily uses poultry oil and sends its production to blending terminals and refineries, including Lion Oil Co. in El Dorado, Dobson said.
Demand for biodiesel and conventional petroleum fuels is weak this time of year, much as it is with gasoline, but there is still a notable difference in demand after the drop in oil prices, Dobson said.
"This time last year, it was slow, but the crude oil prices were up higher and I think there was higher usage," he said.
The appeal of biodiesel is its price, which is typically lower then petroleum diesel, said Jeffery Magness, vice president of Magness Oil Co. in Mountain Home, adding that the company runs its own trucks on biodiesel.
The growth of the biodiesel industry is going to be stifled if prices don't remain lower than petroleum diesel, he said.
"I'm concerned it's going to affect [the industry's] ability to be profitable," Magness said.
Magness Oil is a reseller of fuel. The company buys fuel from manufacturing plants or refineries that produce biodiesel and then sells it to customers.
Magness said the company hasn't seen a drop in orders for biodiesel yet -- partly because demand weakens during the first of the year.
But as the company is "proactive in the renewable business," any replacement of biodiesel could hurt it.
The trucking industry will be the first to pull away from using higher biodiesel blends because the primary incentive for using biodiesel is the cost, he said.
Even farmers, who favor biodiesel as it often supports their crops, might be forced to make the decision if prices fall far enough, Magness said.
"All in all it's been cheaper," Magness said. "But now it's going to be tough on that industry to continue."
Even at current prices, biodiesel is 30 percent to 40 percent cheaper then regular diesel fuel, said Frank Lisko, who use to produce biodiesel on his farm north of Stuttgart, where he grows rice, corn, soybeans and wheat.
"It's really helped us out on our bottom line," said Lisko, who buys biodiesel to use in equipment such as tractors and his lawn mower.
Industry members said the U.S. Environmental Protection Agency's delay in announcing 2014 and 2015 quotas for using renewable fuels -- such as ethanol and biodiesel -- is making it harder for them to absorb the drop in crude prices.
Even with the delay in a new quota, the mandate set by the federal Renewable Fuels Standard still requires petroleum fuel companies to buy renewable fuels to blend with their product, said Pavel Molchanov, an analyst with Raymond James and Associates, in an email.
"While the low prices are clearly unhelpful for U.S. biodiesel producers, their impact is not as severe as might be perceived," he said.
Not having a quota makes it difficult for companies to know how much to produce, industry members said.
"It's challenging environment for all biodiesel producers," said Paul Flynn, executive vice president of business and marketing of producer FutureFuel in Batesville.
"I think as long as we have a good clear government policy that mandates a certain percentage of biodiesel into our diesel retail markets, the market should sort that out," he said.
SundayMonday Business on 01/26/2015