Future Fuel

Central Penn Business Journal, Jul 15, 2005 by Dagan, David

Four entrepreneurs plan to build a biodiesel production plant in York and push Central Pennsylvania onto a small but growing alternative fuels bandwagon.

United Biofuels Inc. plans to set up its plant in the city and begin marketing the fuel intensively to local governments for use in official vehicles. Its vice president is York County native Nicholas Kukrika.

The company's four owners are betting that sky-high petroleum prices, state and federal incentives and social arguments will overcome skepticism from potential clients in both the public and private sectors.

"It's exploded recently," Kukrika said of the biodiesel market. "There are quite a few different groups getting into this."

United Biofuels is the third recent biodiesel venture in the region. A wholesale biodiesel distributor was incorporated in May under the name independence Biodiesel Inc. The company's owners remain anonymous. The business is building a distribution terminal near Middletown, Dauphin County, said Melissa Gorick, its business development coordinator.

The idea of opening a local biodiesel production plant also has been under review by the Regional Economic Development District Initiatives of Southcentral Pennsylvania, an economic development group.

Biodiesel can be used in any diesel engine and for heating oil. It is made by blending a fuel derived from vegetable oils with typical petroleum diesel. Production has shot up in recent years, but the industry is still dwarfed by traditional petrodiesel.

United Biofuels' first customer is rabbittransit, York County's transit authority. United Biofuels plans to supply three or four rab bittransit buses with biodiesel made by another manufacturer over the next four to six months. The authority, which operates 74 vehicles, then would decide whether to expand the program with United Biofuels' biodiesel.

The partners had not settled on a site as of press time July 12. Kukrika, said they were doing their utmost to find a home in the city, both because they believe it's a good place to do business and because they want to support York.

There are no safety concerns about an urban location, United Biofuels President John Dexter Cole said. The group is looking for a facility measuring 3,000 square feet to 7,000 square feet. The partners are self-financed. They said startup equipment costs for a facility of their size generally are around $500,000, although they might do better through their industry contacts. They plan to begin operating within the next few months.

United Biofuels would begin as a relatively small operation. The group wants to spend its startup period conducting intensive quality control tests, then quickly ramp up production, Kukrika said.

The entrepreneurs, who range in age from 25 to 31, met while studying at Columbia University in New York City. They spent at least 18 months making technical and scientific preparations.

Cole first considered the biodiesel business when another member of the group mentioned it to him while they were researching kidneys together for their studies in chemical engineering at Columbia.

"I thought he was a lunatic at first," Cole said. They went to a comer pizza joint and took spent cooking oil back to the Columbia lab for analysis. Two years later, they are partners in the firm.

Cole comes from a conservative family that includes a former Shell oil company engineer.

"They're all about (biodiesel)," he said of his relatives.

The partners emphasize biodiesel's social virtues. It is domestically produced, satisfying buyers wary of U.S. energy dependence. it is made from crops produced by farmers, pleasing agriculture backers. And because it is biodegradable and much less polluting than petrodiesel when burned, biodiesel is popular with environmentalists.

"This (biodiesel) had all of those (benefits) mixed in," said Michael Murry, fleet maintenance manager for High Steel Structures Inc., to explain why the company switched to biodiesel four years ago. "It performed well for us."

High uses the fuel, supplied by distributor Worley & Obetz Inc., in 150 to 175 vehicles, including cranes and tractors. Worley has been supplying High for years and unrolled low biodiesel blends to other heating oil and vehicle diesel customers in 2004.

There's also a pricing argument for biodiesel, but it is more complicated.

Absent government subsidies, a gallon of biodiesel is 50 to 80 cents more expensive than a petrodiesel gallon. But a federal law passed in 2004 gives fuel distributors a tax credit for every gallon of biodiesel sold, potentially evening out the price differential.

Besides that, the state Department of Environmental Protection is preparing to unveil a program that will reimburse local government agencies for any difference between the cost of biodiesel and petrodiesel, which the United Biofuels partners called a huge boost.

Governments are likely first customers because they should be particularly conscious of biodiesels environmental benefits, Kukrika and Cole said. But the partners do not plan to charge a markup based on the social arguments. They said petrodiesel prices have risen by 45 percent since the second half of 2003 and believe they can compete on cost.