A 20-Year-Old Startup
A friend of mine turned me on to a great Bobby Pinson song called Don’t Ask Me How I Know. He said he thought I would understand why he suggested it. The song is a series of simple, unrelated phrases that just about anyone can relate to. But if you’re in the biodiesel business, the phrases sound like a metaphor about learning lessons the hard way. Trying to make a living in biodiesel for two decades now, the hard way is about the only way it happens. The song starts out, “Don’t ride your bike off a ramp that’s more than three bricks high … Don’t take the candy from the store if you don’t have the dime … And don’t sneak out of a two story house using bed sheets for a rope … Don’t ask me how I know.” The song is about the lessons taken from experiences that worked out very differently than planned.
2016 was a breakthrough year for the biodiesel industry, and for World Energy. We brought our third and fourth biodiesel plants online to become the second largest producer in the U.S. with 230 MMgy of capacity. The year also marked my 20th anniversary working in the biodiesel industry. I was honored to be invited to contribute to this issue of Biodiesel Magazine to provide some insights on World Energy’s 20 years of overnight success. Ours is a story of survival, determination, adversity, failure, setbacks, lessons learned the hard way, and progress.
In 1994, while serving as an economic development official in Massachusetts, I helped structure a deal for a visionary entrepreneur to purchase a Procter & Gamble soap production plant in Quincy, Massachusetts, where he intended to make and market a brand new product. It was the first time I had heard that word, “biodiesel.” I had been interested in alternative fuels all my life. Even as a kid growing up in Toledo, Ohio, I had done my seventh-grade science fair project on the then new gasoline made from corn called gasohol. Then in eighth grade, my project was on electric cars. I even went so far as to build a very crude electric vehicle fashioned from lantern flashlight batteries, leftover wood and random parts strewn around my dad’s basement work bench.
“Biodiesel”—I was fascinated from the first time I heard the word. It just made sense. If gasoline has ethanol, shouldn’t diesel have something too? In the wake of Desert Storm I was convinced that Americans were finally really ready to press for alternatives to fossil fuels. In 1996, I finished graduate school knowing there was one place I wanted to work, and soon I joined the fledgling team at Twin Rivers Technologies, the first standalone biodiesel business in the U.S.
Within days of starting at TRT, I attended the July 1996 meeting of my new industry’s new trade group—the National Biodiesel Board—led by America’s soybean farmers and funded by the soybean checkoff. It was clear from the beginning that biodiesel would require public policy support to succeed and that NBB would have to be the vehicle to mobilize farm leadership support. Before long I would meet a young NBB staffer named Joe Jobe who would go on to lead the NBB for the subsequent two decades. Working closely with Joe, the NBB team and the American Soybean Association, we slowly started to make some progress.
In 1998, the Energy Policy Act (EPAct) amendments were passed, which opened the first market opportunity for biodiesel-blended fuel in public fleets. That year I bought Twin Rivers’ biodiesel business on maxed-out credit cards and started World Energy specifically to open EPAct-enabled markets. At that time a close pal was one of the originals at Boston Beer, the company known for making Sam Adams. On long weekend drives to go skiing we would talk about the work we were both doing. He explained that Sam Adams was taking a brand new approach to beer. They were focused like a laser on selling a better beer, he would say—not making one. The trick he said was selling and supplying the stuff. There were others out there who would gladly brew whatever they could sell.
That sounded familiar and World Energy was founded on the Sam Adams business model. Just like Sam Adams, World Energy would focus everything we had on amassing a customer base and getting our product to market. Like them, World Energy would contract for manufacturing rather than “brewing” our own. The approach gave us the freedom to be relentlessly focused on our target customers: EPAct-regulated fleet managers. We hounded those poor people. That year crude oil bottomed out at $10 per barrel and diesel fuel was under $1 per gallon, but we persisted. Biodiesel was a specialty fuel that sold for many times the price of diesel so it was difficult to educate fleet managers about how the new, special biodiesel provisions of EPAct made the use of biodiesel fuel in existing diesel engines the most cost-effective way to comply with their alternative vehicle purchase requirements. Still, we kept pushing.
We called and called and visited with virtually every one of them at least once. We heard the word “no” so often it started to sound like the annoying chirp from a broken office fan. Then, finally, probably because some of those tired souls wanted to get us off their backs, we started to hear a few “maybes,” then “yeses” and we began to break through. By 2001, we had become a licensed fuel distributor in 40 states selling B20 blends directly to fleets in every corner of the country. By establishing and aggregating demand, we were able to work backwards to supply when everyone else was doing the opposite. Sales were still small, but we were growing and making payroll. We went on to source production from Germany, Italy and Indonesia, as well as the few U.S. plants that could produce quality fuel here at that time.
By 2003 we were growing steadily. We bought our first plant in Lakeland, Florida, but continued to rely mostly on contract manufacturing to supply nearly every corner of the developing U.S. market. In late 2004, NBB and our soybean and industry allies were successful in getting the biodiesel tax credit passed. In 2005, World Energy initiated the first U.S. biodiesel exports to the U.K. and then expanded further to continental Europe. By 2006, the company was importing material to fill much of the business’ domestic sales and using nearly all the domestic production we could get to continue to grow the export business. That year we ended our first decade in business with more than 50 percent market share, having grown by 50 percent or more each year of our existence, and ending each of our first 10 years in the black.
In 2008, the company passed the $600 million revenue mark and had its most successful year to date—but all was not well. Big changes were afoot and it was clear that biodiesel’s first act would soon be coming to a close.
The U.S. economy collapsed, working capital lines dried up, crude oil fell from its highest level at $147 per barrel to hover at $30. A trade case by the European Commission followed, which imposed duties on U.S. product effectively closing U.S. export markets to Europe. World Energy shed almost everything including 90 percent of our work force, the Florida plant, the international offices, the 260-railcar fleet, tank storage positions in six states and three countries, the barge fleet, even the office space in Boston.
In the song, Don’t Ask Me How I Know, the refrain goes “Sell your truck while it’s still running—save the Jesus off the dash.” Yeah, it was like that. We were going to need that dashboard Jesus. But, the makings of the second act were already visible, even if faintly so.
The renewable fuel standard (RFS) had passed in December 2007. It would be years before regulations would be promulgated and even longer before the RFS would start creating meaningful demand. But even then it was clear that for the first time American biodiesel manufacturing would one day have a sustainable future. We used that time to reposition World Energy for a completely different market—one that would be all about low-cost production at scale and efficient domestic distribution. In the ensuing years it became clear that the RFS would not only reshape the biofuels industry in the U.S., but it would also have significant consequences for both the fossil fuels and agricultural sectors globally. The RFS would be the new market. There would be a future for biodiesel, but building it wasn’t going to be any easier than it had been the first time around.
We started into the RFS era by entering into management contracts to help manage distressed assets. In 2011, we bought a longtime supplier based in Rome, Georgia. In 2012, we entered into a deal to take over operations of a plant in Natchez, Mississippi. In 2013, we bought a mothballed plant in Harrisburg, Pennsylvania. In 2014, we extended the Mississippi deal, then expanded it again in 2015 and, finally, last year, we bought that plant too. We also forged a partnership mid-2016 with Canadian industry pioneer, Biox, to buy, refurbish and start up a 90 MMgy plant on the ship channel in Houston. As part of that deal, we established the adjacent World Energy Biox Houston Hub distribution center in Galena Park, designed to facilitate large-scale pipeline shipments to points throughout the U.S. Pipeline distribution stands now to revolutionize biofuel distribution. The project established a 360,000-barrel multimodal (truck, rail, barge, ship, pipe) distribution hub in the heart of the nation’s petroleum system. Our Texas, Mississippi, Pennsylvania and Georgia plants are now all running well and we are heading into 2017 focused on expansion and optimization at each of them.
Lessons Hard Learned
So here we are, 20 years in, and I have been asked to reflect on the lessons taken from World Energy’s journey. And just like in the song, I can only pass along what I’ve taken from experience. I’m no Bobby Pinson and I’ve never used a bed sheet to get out of a second-story window, but here are my truths.
First, whether it’s in beer or biodiesel, excellent suppliers improve upon the status quo even before the need to do so becomes obvious. A producer tends to be focused on his own work, and a good supplier works to know the customer’s needs—often before the customer even knows he has them. Obligated parties need scale, reliability and delivered efficiency. Just like with EPAct fleet managers long ago, we need to help obligated parties improve how they do what they currently do.
Second, we are drawn to this work not because it’s easy, but because it’s hard. We can’t shy away from complexity and we can never get complacent. We need to constantly be striving for what’s next, whether that is in the public policy realm or in finding new ways to move product more efficiently. The chirping fan of “no” cannot be allowed to stop us from making progress.
Third, nobody goes it alone and succeeds. Success in biodiesel is an exercise in collaboration. From our 20 years of work with NBB to the deal we put together just this year with Biox, we are only as good as our partnerships. We have been blessed to have great partners in all areas of our business and we have to continue to work to build value with our partners every day. Just like every bottle of Sam Adams is the result of an array of companies working seamlessly together, commercializing a new fuel is truly a team effort.
Today’s biodiesel challenges are opportunities too. Every major centrally fueled fleet in America should be using biodiesel blends up to B20. But many aren’t. We can save up to 90 percent of distribution costs by getting biodiesel into pipelines everywhere. Today, that is not the norm. U.S. biodiesel demand is growing each year thanks to the hard work of people across the country, but subsidized imports are growing at an even greater rate, depriving American workers of their full return on our biodiesel investments. A producer tax credit will fix that.
Work remains, but the RFS is on track for the first time ever at large scale. Now with conventional biofuels reaching their statutory maximum, all future RFS growth is targeted at advance biofuels. Twenty years on, our time has come.
That friend, the one who told me about the Bobby Pinson song, well that was Joe Jobe. The lamenting lyrics in the song conjure up the age-old notion that those of us who have been on this 20-year odyssey together can relate to—if I only knew then what I know now. The last line of the song goes, “Don’t go to Vegas with your heart broke, don’t bum your cousin for that first smoke, don’t drink the water in Mexico. Don’t ask me how I know … I just know.”
Having been through the enormous joys and gut-wrenching challenges of the past two decades, those of us who have survived are wiser. We will continue to learn our lessons the hard way—it’s the only way we know. But the industry’s future has never been brighter, and we have never been better-positioned to seize the opportunities before us. Don’t ask me how I know. I just know.
Author: Gene Gebolys
President, World Energy