Industry consolidation playing out

By Ron Kotrba | June 09, 2009
The U.S. oil industry witnessed considerable consolidation among its refineries years ago, and there's evidence today of this happening to the biodiesel business. Renewable Energy Group Inc. entered into a consolidation arrangement with three biodiesel plants in May. The plants are the 30-MMgy Western Iowa Energy in Wall Lake, Iowa; the 30-MMgy Central Iowa Energy LLC in Newton, Iowa; and the 45-MMgy Blackhawk Biofuels LLC in Danville, Ill. All four entities are now organized under a new holding company with the REG name.

"Given current industry consolidation and production economics, it is difficult for stand-alone facilities like our plant to succeed on their own in the 67-billion-gallon distillate market," said Jim Johnston, board chairman for Central Iowa Energy. Jeff Stroburg, REG chairman and CEO, said the consolidation maneuver was a pure stock transaction. "We're exchanging REG stock for the plants rather than cash," Stroburg said.

The new consolidated company will be owned by current members of the three biodiesel refineries and current REG investors, including Bunge North America, ED&F Man, Natural Gas Partners, NGP Energy Technology Partners, US Renewables Group and West Central Cooperative.

"All three of the plants have good logistics they're on good rail lines, they have good feedstock availability, and are nicely positioned to hit the Midwest markets," Stroburg said. REG built and has been operating the two Iowa plants involved in the deal for a couple of years and, according to Stroburg, REG helped complete the Illinois biodiesel refinery, which is located next to a Bunge crush plant.

REG president and chief operating officer Daniel Oh said, "We believe this proposed consolidation brings greater economies of scale, streamlined central management of complex logistics and decision-making processes, and enhanced risk management opportunities. By more efficiently managing our business and strengthening distribution channels, REG will continue to partner with obligated parties of the renewable fuels standard."

Stroburg added that as the RFS goes into effect "the distillate market is demanding technical expertise, dependable supply, more efficient distribution and creative pricing options from major biodiesel partners."

In other industry consolidation news, Encore Energy Systems, a company that calls itself an "international aggregator of biodiesel reactor technology," released a statement in May regarding its intention to acquire five biodiesel plants-four in Mississippi and the other in Texas. Encore Energy Systems did not return phone calls from Biodiesel Magazine, but in its May 11 press release the company stated, "These locations are in conjunction with the company's recently announced business development partner, Hardin Fuels Fuel distribution and feedstock allocations have been located for these projects and will be further announced as shipping commences." Encore Energy Systems anticipates "explosive demand," and will continue targeting distressed biodiesel asset purchases and biofuel production and distribution agreements, the announcement said.
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