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Where will the first plant be built and when?
While the companies have not yet chosen a specific plant site, we’re evaluating possible locations in the south and southeastern part of the United States. Potential plant sites must be evaluated in terms of their proximity to feedstock supply, end-use markets, transportation infrastructure, and local community interest in the plant. We expect to select a plant site before the end of 2007.
Why is Tyson willing to spend $75 million to build a synthetic fuel plant with Syntroleum when the company could instead send this fat to COP with little or no capital cost?
Tyson is building a broad renewable energy business. As we have stated, our strategic alliance with COP is a key component of our business plan. It allows us to quickly participate in the mass diesel market with a second generation renewable fuel. Our technology investment with Syntroleum allows us to broaden our participation by penetrating many premium markets which require a stand alone facility, capable of unique processing for these markets.
You have said the COP deal will use up to 58% of Tyson’s available fat. How much will the Syntroleum project use?
Tyson’s role in the JV is as a supply chain partner. Feedstock will be utilized from all available sources inside and outside Tyson to bring the lowest cost feedstock to the venture. The level used will depend upon cost and the availability of feedstocks from other sources outside the company.
Do you expect the National Biodiesel Board to oppose this project like it has opposed the COP alliance?
We can’t and won’t speculate what the NBB might do. We will tell you this project will be another important way of contributing our nation’s energy security efforts. It’s also another venture that gives animal agriculture the opportunity to participate in the renewable energy business.
When will this project be accretive to Tyson’s earnings? What kind of earnings do you expect this project to generate for the company?
Profitability will primarily be driven by feedstock costs, product prices and the level of government support. Both variability in prices as well as the long time before the plant is constructed make predicting earnings very challenging.
Despite the challenges of predicting profitability, we believe that the dual advantages of (1) the breadth of products that we can make and (2) the wide variety of feedstocks that can be processed will make this first plant profitable and likely make the prospect of building multiple plants very attractive.
How is this product different than what you will produce with COP?
The product we will produce with ConocoPhillips is primarily an on-road diesel fuel. In contrast, the fuels we will produce with Syntroleum target boutique applications, such as premium military applications (jet fuels, off-road fuels, and specialty vehicles), stand-by generation, commodity upgrades and premium on-road diesel products.
Why will you need a tax credit for renewable diesel from this project? What if the credit is taken away?
Support for renewable fuels is needed for several reasons:
- Feedstock cost: federal support offsets the high cost of feedstocks, which comprises roughly ¾ of the operating cost structure.
- Project risk: federal support helps offset the risk associated with producing fuels that have not yet been commercially produced in the United States.
- Facility cost: this is a major investment for the two companies. New technologies need to be offered the same incentives as first generation providers.
If federal support is prematurely withdrawn, it would both make this project uneconomic, as well as send a discouraging signal to other investors and researchers working on next generation fuels.
We fully expect that, as the ethanol tax credit has been in place since the late 70’s and extended 5 times since enactment, federal support for renewable diesel will continue.
How is this product different from biodiesel?
Unlike biodiesel, renewable diesel is chemically equivalent to conventional diesel.
Additional differences include:
- Cetane value: biodiesel is low 60s, we have ability to produce products from 75 to 100 (higher is better: cetane is to diesel, like octane is to gas)
- Water: Renewable diesel is not hydroscopic, so it can be transported via the existing pipeline infrastructure.
- Storage stability: renewable diesel has a dramatically longer shelf life than biodiesel (years versus months).
- Jet fuel standards: target products meet or exceed jet fuel standards.
- Cold flow: Animal fat based biodiesel begins to gel in the mid 50°s F, whereas we have the ability to make artic grade diesel with cold flow properties down to –50° F
- Lower NOx emissions for renewable diesel
- Lower Life-cycle analysis environmental impact for renewable diesel (the environmental impact “from cradle to grave”)
It’s important to note that renewable diesel and biodiesel do not present an either / or choice for customers. The products are “stackable,” meaning both can be included in fuel tanks.
What Tyson plants will supply this project? What kind of fat?
One of Tyson’s roles in the joint venture is to supply the feedstock, which can come from either Tyson’s plants or from 3rd parties. An almost unlimited variety of animal fats and vegetable oils can be processed. Factors we will look to in making feedstock supply decisions include feedstock cost, transportation cost, and reliability of supply. However, in general, we can tell you we expect the feedstock to include beef, chicken and pork fat from Tyson plants.
How does this project affect your relationship with COP?
Our deal with Syntroleum does not in any way impact the commitment of our CEO and rest of the executive team to COP. Day-to-day, our implementation team comprised of experts in rendering operations, transportation, and other functions continues to work closely with COP to ensure we jointly meet our commitments to begin commercial production by the 4th quarter of this calendar year.
Are there other renewable diesel projects in the works?
Dick Bond has stated that Renewable Energy is a “game changer” for Tyson Foods.
With this project Tyson Renewable Energy is now engaged in 3 renewable fuels initiatives
- Biodiesel: animal fat supply to biodiesel producers both large and small
- Renewable diesel with COP targeting the mass market
- Synthetic diesel from renewable feedstocks with Syntroleum targeting premium markets
We will continue to build our portfolio of renewable energy projects using feedstocks available to us, including not only animal fats, but also by products from raising and processing animals. Only by leveraging all of these resources can we truly make renewable energy a game changer for Tyson Foods.
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