By ANN HINCH
Assistant Editor

FORT WAYNE, Ind. — With gasoline prices cresting well above $3 a gallon, it was inevitable someone would ask the petroleum company executives to justify these sharp increases.

During a two-hour ConocoPhillips (CP)-hosted Conversation on Energy public forum June 7 in Fort Wayne, several people asked various fuel-related questions of both CP company executives and representatives of Indiana-based energy organizations. Among them was how a relatively small cost increase per barrel of crude can translate to a much bigger jump at the pump.

Carin Knickel, vice president of human resources for CP, answered that crude is only about half the cost of finished gasoline.

Refineries are also a big cost – operating them, making up for power outages which shut them down at times and, she said, being unable to get the permits to build more. “When there’s tension in that system, prices go up,” she said.

Merlin Lindstrom, general manager of research and development, said CP makes more than 100 blends of fuel in the United States.
Because of this, he said it’s no longer possible to blend a fuel near all stations that use it, so transportation costs add up. (He added that CP operates the second-highest number of U.S. refineries.)

Biodiesel production

But, addressing higher pump prices wasn’t the ostensible reason for the June 7 forum, which led off with CP execs touting its innovations in fuel production.

In invitations, the company stated “it’s up to today’s energy leaders to set the stage for tomorrow’s energy solutions, from alternative renewable fuels to traditional sources like oil and gas.”

In addition to CP, the forum panel included the Indiana Office of Energy and Defense Development, the Indiana Manufacturers Assoc. (IMA) and the Indiana Coalition for Renewable Energy and Economic Development (ICREED).

Lately, CP has been in the national news for its agreement with Tyson Foods, Inc. to use waste animal fat from Tyson’s processes in blending biodiesel. According to the National Biodiesel Board (NBB), this comes on the heels of an April IRS decision to allow petroleum companies to take advantage of the federal $1/gallon tax credit for producing the biofuel.

Groups involved in helping supply raw materials for small-scale biodiesel production – such as the Indiana Soybean Alliance – across the country have protested the decision as a deviation from the original intent of the tax incentive. In a statement, the NBB declared: “Allowing integrated oil companies to claim the credit for co-processing biomass with petroleum products will undermine this progress and stymie efforts to reduce America’s addiction to foreign oil.”

CP execs admitted they will take advantage of the tax incentive, but downplayed its importance. “The big driver is the need for biorenewable fuels,” Lindstrom said of CP’s reasoning for the partnership with Tyson.

No answers were given on the question of how this partnership might benefit farmers. According to a June 2 Associated Press article, though, Tyson contends that higher demand for animal fats will drive higher commodity prices on the open market, as well as add value to each U.S. cow. The same article stated the National Cattlemen’s Assoc. and the American Meat Institute support this partnership.

Knickel added that CP is restraining its biofuel production to biodiesel, “not wanting to inject ourselves into ethanol fermentation to compete for food supply.” But John Whittington, vice president of Integrity Biofuels in Morristown, Ind., doesn’t see it quite that way. He pointed out poultry fat, for example, is used in livestock feed – which does ultimately contribute to the human food supply.

“I find it interesting they don’t want to interrupt the food chain, but the animal fat” they will use, he said. (Integrity produces soy B100, a pure soybean biodiesel.)

The question of the tax incentive would become a moot point if Rep. Lloyd Doggett (D-Texas) has his way. On May 17, he introduced House Resolution 2361 to reverse the IRS decision, to “disallow the credit for renewable diesel in the case of fuel coproduced with petroleum, natural gas or coal feedstocks.”

So far, the measure has 58 cosponsors, including 12 from Michigan, Illinois, Indiana, Iowa and Ohio. It is with the House Committee on Ways and Means.

This farm news was published in the June 13, 2007 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.