Companies file to recruit Missouri biofuels investors

JEFFERSON CITY, Mo. -- It's hardly the Old West boom towns where some strike it rich while others are struck down, but the spike in the biofuels market has people prospecting and money flowing.

Although it's too soon to know if ethanol supporters' predictions of rural economic salvation will pan out, a combination of state and federal tax incentives has biofuels projects springing up across Missouri and the country.

In all, 15 companies in 2006 -- the most ever -- filed with the Missouri secretary of state to sell shares for ethanol and biodiesel plants, three times more than in 2005. There could be even more proposed plants than indicated in state files, because only those companies trying to recruit investors must file securities paperwork.

Missouri already has biodiesel plants in Bethel, Bunceton and Mexico and ethanol plants in Craig, Laddonia, Macon and Malta Bend. But documents filed with the state show proposals for new plants from Kansas City to Sikeston.

Ethanol is a grain alcohol made by turning plant starch into sugar, fermenting it and adding a small amount of natural gasoline to make a mixture that can be used as fuel in most engines when blended, often in a 10 percent mixture with regular gas.

Biodiesel is made by reacting soy bean oil or animal fat with an alcohol and then blending that with standard diesel fuel, often in a 20 percent mixture called B20.

Stan Griffin, the manager of several soybean farms in northwestern Missouri, is among those hoping to cash in on biofuels.

Griffin, chairman of the newly created Rock Port-based Heartland Biodiesel, has been recruiting investors for a proposed biodiesel refinery slotted for the town of about 1,300 people located 60 miles south of Omaha, Neb. He said the group of managers has been working on getting a plant for about two years.

"We all have agricultural interests in the community, and we thought if not us, it will be somebody else, so why not?" Griffin said.

According to documents filed with the state, the proposed plant will cost $50 million and produce 30 million gallons of biodiesel each year. Griffin said organizers have raised about $20 million since August, which is about 80 percent of their goal.

Griffin is not alone as the rash of new projects has farmers, bankers, current and former lawmakers and even Gov. Matt Blunt's brother trying to position themselves in the ethanol and biodiesel markets.

Why the sudden uptick? In a word, government.

Federal clean air requirements have people seeking cleaner-burning additives for fuel such as ethanol and biodiesel. At the same time, ethanol's main competitor, MTBE, which dissolves in water rather than separating like oil, has been phased out because it contaminates water supplies faster than other fuels.

Plus, states and the federal government have set benchmarks for using more alternative fuels. A federal 2005 energy law, championed by former Sen. Jim Talent, R-Mo., required the United States to use 7.5 billion gallons of renewable fuels such as ethanol and biodiesel by 2012. A Missouri law will require a 10 percent ethanol blend in most gasoline, effective next January, as long as its price doesn't exceed traditional fuel.

On top of all that, there is a mix of state and federal subsidies for ethanol and biodiesel refineries and state tax credits for farmers who supply the agricultural products that are turned into fuel. This year's state budget has almost $14 million of biofuels incentives -- more than double the amount from two years ago.

The biofuels boom goes beyond Missouri's borders. Of the 15 companies that sought permission to recruit Missouri investors, nine projects are slotted for other states.

The spokesman for the ethanol industry's main trade group said the market is expanding from the traditional Midwest Corn Belt.

"No longer is ethanol this Midwest niche fuel," Renewable Fuels Association spokesman Matt Hartwig said. "There are plants in Washington and Oregon, in the deserts of Arizona and in upstate New York."

All told, there are more than 100 ethanol plants in 21 states with a production capacity of more than 5 billion gallons and 88 biodiesel refineries in 35 states with a capacity of more than 200 million gallons.

Nationwide, demand for both fuels has increased dramatically in recent years. According to the most recent figures from national trade groups, demand for ethanol has almost doubled from 2.1 billion gallons in 2002 to 4 billion gallons in 2005.

Biodiesel is a smaller industry than ethanol, but it has grown faster, increasing from the production of 500,000 gallons nationwide in 1999 to 75 million gallons in 2005.

Although demand continues to climb, the increasing competition has even some new companies trying to enter the domestic fuels market saying it is getting a little crowded.

Show Me Ethanol, which is proposing an $80 million ethanol plant in Carrolton capable of producing 50 million gallons annually, warned investors in documents filed with the secretary of state that "consumption is moving toward market saturation over the next few years."

Griffin said there are a limited number of potential investors and a lot of new companies trying to carve out a market share.

"There's a lot of interest in it. The state's got a number of different projects vying for the same people," he said.