The Biodiesel Game Plan

Earth Biofuels Inc. has partnered with a public oil company in a bid to distribute its brand-name biodiesel to every corner of the South. The company has a bold game plan and a convincing leader who's so far delivering on his promises.
By Robert Reed | October 01, 2005
We have a regional plan," explains Tommy Johnson, co-founder and CEO of Earth Biofuels Inc. "It takes Texas and Oklahoma as the westernmost states and Tennessee as the northernmost." Johnson is referencing a huge, laminated map of the United States, which hangs on a wall in front of him. "Then go straight across the southeastern part of the country," he continues, making cutting motions with his hands in basically carving out a swath of territory. "Mississippi, Arkansas, Alabama, South Carolina, Georgia and Florida. That's the part of the country where we'll focus."

We're in a boardroom at parent company Apollo Resources International Inc. The magnificent view of downtown Dallas seems apropos, except for the fact that Johnson is wearing a baseball cap with shorts and a short-sleeve dress shirt. Suffice it to say, this isn't your statesman-like chief executive. Rather, with a trimmed mustache and slight belly-one that conveys more age and success than overindulgence-he comes across more like a seasoned football coach. This observation, as I discover, also applies to his business style. Indeed, having defined the playing field as if the map were a chalkboard and this were a locker room, Johnson proceeds to outline the game plan.

Founded in 2004, in Jackson, Miss., Earth Biofuels started with a small test facility in nearby Meridian. The company's biodiesel fuel was refined exclusively from waste vegetable oil and sold to local school bus fleets. When demand grew, they switched to soybean oil feedstock and ramped up production to a current capacity of about 2 mmgy. What happened in that time, however, might be an omen for the burgeoning biodiesel industry: Apollo, which is a publicly traded oil and gas company (AOOR.OB) with assets ranging from a pipeline in Oklahoma to an oil company in Kaliningrad, Russia, has acquired a controlling interest of Earth Biofuels, 80 percent as of August.

For Apollo's Chairman and CEO Dennis McLaughlin III, biodiesel is essential to his corporate vision and energy philosophy. "Biodiesel plays a vital role in the 'decarbonization' of fuels," he says, referring to the trend away from carbon-rich energy sources-such as dirty coal and oil-toward cleaner fuels like natural gas and biofuels. "It's also essential," he adds, "that we dramatically reduce our dependence on foreign oil through whatever means necessary." McLaughlin, a passionate entrepreneur, has 20 years experience in the oil and gas industry. In 1995, at the age of 30, he was recognized by Entrepreneur Magazine for building and managing one of the fastest growing small businesses of the year. He sees biodiesel as a bridge to the hydrogen economy, evidenced by Apollo's stake in Energy Ventures LLC. a hydrogen technology company.

So with an infusion of public funds and the expertise to back it up, Earth Biofuels set out on its current path, one that includes building or acquiring no fewer than 10 biodiesel refineries in the next five years and expanding its distribution network in the form of Earth Biofuels gas stations, truck stops and franchise pump locations.

"Just north of Houston," Johnson says with a finger on the city, "we have a terminal that we'll close on this Tuesday. In Arkansas, we're working with a crushing facility to buy half of their company. In Memphis we're working on a joint venture for a 10 mmgy facility. There's a facility in Jackson [Mississippi] we're trying to close on, and together with Meridian, that fills a pretty good size of that market." These, of course, are in addition to the most pressing phase of the company's development plan: Oklahoma.

With support from Apollo, Johnson successfully lobbied in the state for a 20-cent tax credit. Passing unanimously, the bill prompted immediate plans for a 10 mmgy plant in Durant, Okla., a rural town of about 13,000 in the Chocktaw Nation just 95 miles north of Dallas. Scheduled for completion this quarter, it will mark the first step in a strategy to serve the entire state. "We're looking up in Tulsa, and a third one will be in the far western part of the state," Johnson says. "That will give us 30 mmgy and will more or less cover that state."

True to their Texas roots, Johnson and Apollo are, indeed, thinking big. Their cradle-to-grave vision includes every step of the supply chain from co-op farming contracts and bean crushing to blending and selling biodiesel at the pump. "We have a huge appetite for capital," Johnson admits, stepping away from the map, "and we're gonna get big fast through growth and acquisitions."

The big picture presentation is no doubt impressive. And through the tone of a halftime pep talk, Johnson is thoroughly convincing. But there's more to see than maps and cityscapes. The thrust of my trip is to visit the Durant site to see some action and gauge the company's role in the biodiesel industry. Having arranged to test drive a 2005 Hummer H1 Alpha, Johnson and I climb aboard and head north. Powered by a 6.5-liter Duramax turbo diesel, the $140,000 assault vehicle feels uniquely suited to this task.

Biodiesel Ph.D.

Durant was chosen, in part, because of its proximity to Dallas-to Apollo headquarters and a huge market. The fundamental plan follows the hub-and-spoke model with central production facilities distributing to retail locations within a 100-mile radius. Setting out on the hour-and-a-half drive north, Johnson delves deeper into the company's philosophies-namely, the value of human resources and getting the right people on board.

To this end, they've recruited Dr. Miquel J. Dabdoub, a Brazilian professor from the University of São Paulo, who's name is virtually synonymous with biodiesel across South America and Europe. Dabdoub will consult on technology and plant design. In turn, the company will license his highly sought-after technology in the United States. "He's the foremost authority on biodiesel in the world," Johnson states matter-of-factly, over the din of the H1's engine, "and he's a part of our team."

With 13 years of lab and field research, Dabdoub has been instrumental in the design and construction of Europe's biggest facilities. "It is very important to establish this connection between Europe and advance technology," Daboub told the Durant Daily Democrat. "And I am furthering that by working on a research program of a fleet of 140 trucks for Coca-Cola in São Paulo." The professor also works closely with the major auto manufacturers-GM, Ford, DaimlerChrysler, Volkswagen, Peugot, and others-to test and develop their engines with biodiesel.
"He's got a massive coalition of the industry that he works for to standardize biodiesel in the world," Johnson says. "And he views the United States as the missing piece. When we build an industry, the whole world will be complete."

Though the Durant plant will be Dabdoub's first major project in the United States, he recently toured some existing plants to get a feel for the industry. "We took him to a plant in Pearl, Mississippi," Johnson remembers. "In five minutes, he tours the plant and comes back and says, 'If you change this pipe and stand it up, and if you change something on the filtration system on the centrifuge, and if you'll take your filter press and expand it to this far … for less than $50,000, you'll double your production immediately.' And now they're gonna do it."
The bottom line for both Dabdoub and Johnson, however, is not quantity. "His big angle-and he sells this in every speech he gives-is quality," Johnson says. "So we'll be meeting both the ASTM standard and the BQ-9000 standard for handling biodiesel."

Whole fuel
Earlier this year, the company took first steps toward building its retail distribution network. The vision sees 170 refueling locations within the next year, 10 percent of which would be operated exclusively by Earth Biofuels. A pilot program near Jackson opened for business in January. As a rebranded filling station under the Earth Biofuels name, Johnson devoted four of its pumps to B20. Situated along Interstate 55, just south of I-20, it's a prime spot for diesel traffic. And though it's said that the three keys to retail success are location, location, location, Johnson favors his own trifecta: product, price, and people.

"We found that consumers will go way out of their way to find alternative fuel," he says. According to Johnson, Earth Biofuels customers are driving south from I-20 just to fill up with biodiesel. What they discover is that it's worth the trip, since Earth Biofuels B20 is actually cheaper than diesel.

"I always keep my price three or four cents lower than the guy across the street who's just selling diesel," he explains. "Because I know he's only making a penny and a quarter per gallon. I'm staying two or three cents lower than him, and I'm still making 38 cents." Seven months later, the guy across the street goes out of business. "I told him about biodiesel," Johnson recounts with noticeable pride, "and that the day would come that whenever you see an Earth Biofuels station, there will be a closed Exxon across the street. Because you can't compete with me on price. We have a better quality product at a lower price."

In August, the company purchased its first truck stop in northern Mississippi along I-55. For these, Johnson envisions a biodiesel experience akin to that of upscale markets. "The people who know about alternative fuels are the people who go to Whole Foods," he theorizes. "They'll know that they can get their biodiesel, and they can find the food they're used to buying. If they come and pay my 30 percent margin on my biodiesel, they'll pay my 40 percent margin on potato chips and my Starbucks coffee at 900 percent."

But you won't find just anyone working the pump or behind the cash register at an Earth Biofuels station. "I'm not going to hire a $5-an-hour employee to sit in there and talk [to their friends] all day," he says. "I'll pay 'em $10 an hour and get a quality person. They'll be able to answer the questions about biodiesel because we get thousands of them. People all want to know. So you'll have a real person there. They're gonna smile and try to up-sell, and you're gonna have a good experience."

Durant Biofuels LLC
Crossing the border into Oklahoma, the landscape becomes noticeably more rural. Johnson points out a bulk storage depot along the highway where they will eventually store biodiesel. "We have five places to take our fuel, and none of them are farther than 100 miles from Durant," he says. "So all we have to do is get the fuel there. And from there, it goes to retail."

The Durant facility will service the local Choctaw market and parts of northern Texas. Earth Biofuels entered an exclusive franchise agreement with an Oklahoma distribution company that will sell branded B20 pumps to no fewer than 50 stations in the area. "The minute we start making fuel in Durant," Johnson says, "everything's in place to sell 30,000 gallons per day. And that's the idea: nothing sits, everything goes."

As we pull up to the construction site, which once served as a feed mill, the existing structures are in various states of being torn down and rebuilt. The offices have been completed, and a massive, turn-of-the-century grain silo has been nearly demolished to make way for a new rail spur. This will allow rail tankers to directly unload feedstock oil (from locally grown soy and canola) into awaiting storage tanks.

Fortunately for Earth Biofuels, the town of Durant pledged $500,000 to build the spur, since it will become a permanent part of the town's infrastructure. When fully operational, the plant will employ more than 100 people to the tune of $2.5 million in annual salaries, a large portion of which will be subsidized by the town itself. During lunch at the local Mexican restaurant, we're joined by Tommy Kramer, executive director of the Durant Industrial Authority, who's been instrumental in approving such measures.

"We couldn't be more excited about this project," Kramer says. "We had a city council meeting this morning that was supposed to run for an hour. It went more than two because everyone wanted to talk about biodiesel."

On the drive back to Dallas, Johnson muses once again about the long-term game plan, only it's less about Earth Biofuels and more about the greater industry. For one, he's proud to have joined forces with a forward-thinking petroleum company such as Apollo. "The one thing about biodiesel is that you can make it in your backyard," he says. "But there's a group of people that I'm a part of-the business people-who feel we can really make an industry here and really do it right." While some may tend to resist the forces of "big oil," in fear of monopolization, Johnson chooses to embrace them.

What's more, big oil might be integral to his end game. "We'll get to a point where biodiesel is 2, 3, 4 percent of the market," he says. "Then we'll get the attention of Exxon. And either we're going be big enough as a company to stand up with them or charge 'em a lot of money when they come buy us. If we build our company like we're building it now, with a trading desk-soybean and canola-and retail outlets, they'll just come buy us. They'll pay the price. In the meantime, the companies that are not following a real business plan and [not] making quality biodiesel will just go away."

In other words, the biodiesel game will have its winners and losers. And for those not prepared to go head to head with players like Earth Biofuels and others, the game may be tough to win.

Robert Reed is a California-based freelance writer. This is the first article he has written for Biodiesel Magazine.
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