Editor's Note

Big Oil doesn't need another gift from U.S. taxpayers
By Tom Bryan | May 25, 2007
As I was writing this column, Big Oil went on the defensive, taking heat from a U.S. House panel and denying accusations that so-called mismanagement and a lack of competition caused this spring's record-high gas prices. As that debate waged on, the U.S. average gas price hit $3.10 a gallon and showed no signs of letting up. The cause: a lack of refining capacity exacerbated by unplanned maintenance shutdowns and accidents at a couple of plants. Diesel prices have been less vulnerable-distillate stocks are holding strong-but it remains to be seen how long that will actually last. The fact of the matter is, America's energy security is as shaky as ever. It's clear that a few refinery setbacks at the start of peak driving season can easily send fuel prices trending toward the $4 mark. What if something even more serious happened?

America's limited refining capacity is, in fact, at the heart of what some believe is the biggest challenge the U.S. biodiesel industry has ever faced. As most of our readers know, renewable diesel-a fuel produced from a process called thermal depolymerization (TDP)-now qualifies for the dollar-per-gallon biodiesel tax credit, and the Internal Revenue Service has ruled in the oil companies' favor to expand the TDP definition to include the conventional petroleum refining process.

To be clear, U.S. biodiesel producers aren't necessarily opposed to renewable diesel as a fuel, but rather the favorable tax treatment the oil industry is eligible to receive. From what I know about renewable diesel, it appears to have some advantageous properties-very high cetane, improved cloud point, etc. However, I am concerned that allowing major oil companies to essentially add raw oils to their existing refineries will only serve to make the richest companies in the world richer, while adding no new U.S. refining capacity and possibly causing real harm to the rapidly growing biodiesel industry.

Five companies now control 61 percent of the nation's gas stations and half of its refinery capacity. Oil companies are bringing in obscene profits again this year. First quarter profits for ExxonMobil were $9.3 billion. Royal Dutch Shell reported $7.3 billion in profit and the list goes on. Renewable diesel production-as it would be carried out by the biggest players-would not increase U.S. refining capacity. That stands in sharp contrast to the U.S. biodiesel industry, which is adding to America's transportation fuel production capacity every day. In fact, as you will see in this month's Proposed Biodiesel Plant List, on page 42, there is now at least 2.2 billion gallons of biodiesel production capacity represented by proposed projects around the country. In addition, there's about 1 billion gallons of capacity already on line and another 1 billion gallons under construction. As always, we must be careful to point out the stark difference between U.S. biodiesel plant capacity and actual production, which is significantly lower. What this unprecedented growth tells us is that despite the tight production margins that producers currently face, the biodiesel industry is booming. This existing, under construction and proposed capacity represents twice the amount of crude oil refined into diesel imported from Iraq each year. That's real capacity, and a real contribution to U.S. energy security. While I don't think it is necessary to draw a battle line in the sand between biodiesel and renewable diesel, I do think lawmakers should protect a growing industry that is adding new U.S. refining capacity at a time when our nation so desperately needs it. At the very least, tax credits for renewable diesel should be limited to new, stand-alone facilities not owned or controlled by Big Oil.

Tom Bryan
Editorial Director
[email protected]
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