Think $4 Gas Is Bad? Try $6 Biodiesel

Think $4 per gallon gas is bad? Try $6 per gallon biodiesel. While the prices for gas and diesel have been climbing higher and higher, biodiesel prices have been rising, too, crunching biodiesel makers and making large diesel purchasers rethink making the switch to biodiesel. Seattle-based biodiesel maker Imperium Renewables has had a 2 million gallon deal with King County Metro Transit put on “an indefinite pause” because the price has jumped so much since the agreement was signed less than a year ago, the Seattle Times reports.

Biodiesel prices are being pushed up by a confluence of events. With oil nearing $140 a barrel, all of the petroleum-powered biodiesel processing steps have become that much more expensive. Increased demand, including municipal contracts like that of King County, have pushed up prices. Also, farmers have been increasingly turning to the more profitable business of producing corn for ethanol, as opposed to growing soybeans for biodiesel, which has been shrinking the biodiesel supply. The Seattle Times estimates it takes $4.66 worth of soy to make one gallon of biodiesel, which doesn’t include any processing costs. Meanwhile, petro-diesel prices are around $4.80 a gallon.

Such market fluctuations will wreak havoc on young startups that don’t have the capital to weather the storm. Imperium’s move to withdraw its IPO earlier this year was likely a good one. (Even if Imperium’s former CEO, Martin Tobias, doesn’t think so). But unless diesel prices start climbing even faster or soy prices drop, the gulf between petro- and biodiesel could continue to grow. We’ll keep an eye out for more large contracted fleet customers backing out of their biodiesel deals.