ConocoPhillips-Tyson Foods to Produce Next Generation Renewable Diesel

Condensed from press release:

ConocoPhillips (NYSE:COP) and Tyson Foods, Inc. (NYSE:TSN) announced a strategic alliance to produce and market the next generation of renewable diesel fuel. The alliance plans to use beef, pork and poultry by-product fat to create a transportation fuel which will contribute to America’s energy security and help to address climate change concerns.

Using a proprietary thermal depolymerization production technology, the animal fats will be processed with hydrocarbon feedstocks to produce a high-quality diesel fuel that meets all federal standards for ultra-low-sulfur diesel. The addition of animal fat also improves the fuel’s ignition properties, while the processing step improves its storage stability and handling characteristics.

Tyson will make capital improvements this summer in order to begin pre-processing animal fat from some of its North American rendering facilities later in the year. ConocoPhillips also will begin the necessary capital expenditures to enable it to produce the fuel in several of its refineries. The finished product will be renewable diesel fuel mixtures that meet all federal standards for ultra-low-sulfur diesel. Production is expected to ramp up over time to as much as 175 million gallons per year of renewable diesel.

Investments made by ConocoPhillips and Tyson will allow for the processing and handling of fat and enhance the ability of the United States to produce energy from a variety of sources, including domestically-produced vegetable oils.

The processing technology was developed at ConocoPhillips, culminating in a successful test at the company’s Whitegate Refinery in Cork, Ireland. ConocoPhillips began commercial production of renewable diesel using soybean oil in Ireland late last year.

This alliance is expected to be a positive step for Tyson’s long term financial performance. “Production is expected to begin in late calendar year 2007, ramping up through spring 2009.” Bond said. “Once at full production, we currently project between $0.04 and $0.16 cents per share in additional annual earnings. However, this will be driven by factors such as the prices of wholesale diesel and animal fat.”

175 mgy is only a moderately sized renewable fuel capacity, but it does represent a new technology which may have larger applications than just this alliance. By any other name it still is a form of biodiesel. It probably is applicable to all slaughtering operations, which is a larger market. If Conoco has used the process using soybean oil, could it have wider applications on a wide variety of oils? It makes sense for Tyson, as a means of disposing of its waste fats. It seems like a pretty small endeavor for Conoco, even with a larger market, but they are probably anxious to improve their image by doing anything green.