A boom in biodiesel?
By Ángel González

Seattle Times business reporter

The makeshift headquarters of Propel Biofuels looks a bit like an Allied war room before D-Day.

A map of Seattle and its environs teems with pins — potential sites for the company's green-and-white biodiesel pumps. Most of the pins mark well-established gasoline stations that sell traditional petroleum-based fuels. By striking deals to sell biodiesel there, Propel executives think they can overcome the retail-distribution obstacles that so far have kept it an alternative fuel for a small circle of green devotees.

The invasion is about to begin, with the company's first two pumps opening in mid-October. "We're not asking customers to radically change their behavior" in order to buy biodiesel, Propel founder Rob Elam said.

Biodiesel, which can be used in any diesel engine, has a following among environmentalists and well-informed car buffs. But it represents less than 1 percent of diesel consumption in the U.S., according to the latest Energy Information Administration (EIA) numbers, and is used mostly by government fleets such as King County Metro.

The Seattle area has about a dozen distributors, mostly informal operations, although Safeway sells a 20 percent biodiesel blend at some of its locations. Elam thinks it will take a healthy dose of marketing savvy — from fancy logos and flashy canopies to standardized automated-payment centers and consumer-loyalty programs — for biodiesel to succeed with mainstream consumers.

A strong retailing effort would crown the national push toward biofuels, which has gained momentum amid rising crude-oil prices and environmental concerns. Government incentives have increased the possibility of profit, helping entrepreneurs attract investment; Propel recently raised $4.75 million from venture capitalists.

A budding supply infrastructure is also beginning to reach critical mass: Washington catapulted to third place in national biodiesel-production capacity with the construction of Imperium Renewables' Grays Harbor facility, the largest in the U.S.

Imperium backed Propel with loans at the time of its inception and provides biodiesel for its pumps. (Propel's temporary base, once located atop an alehouse in Magnolia, now is nestled at Imperium's offices south of downtown Seattle, pending a move to more permanent quarters near Fremont.)

Business or hobby?

Propel isn't the only one riding on this alternative-energy élan, though it's the most ambitious.

Ballard biodiesel pioneer Dan Freeman, who offers anti-war stickers and environmental books in the auto shop where he sells alternative fuel, just opened his second biodiesel location, at Espresso Express near the University District, with the aid of a federal grant. He, too, has a new logo "very similar to the organic- food label," said Freeman, who goes by "Dr. Dan."

But as traditional gasoline retailers know, selling fuel is a tough business, with low margins, intense competition and volatile prices. Biodiesel retailers face the added challenges of setting up new distribution networks, dealing with authorities unfamiliar with biodiesel, and marketing a product that currently costs 30 to 50 cents more per gallon than conventional diesel.

"I don't think it's a get-rich-quick plan," said Sean Aydlott, who sells biodiesel by appointment from his house in Bothell and makes enough to cover his costs; he calls it "more of a hobby."

Another obstacle is that diesel users, who can make the transition to biodiesel without making any changes to their vehicles, represent a small minority of the automobile fleet.

A self-sustaining, expanding biodiesel retail sector "seems like a longshot at this point," said Marie LaRiviere, a biodiesel expert at the EIA. "It is a limited percentage of the transportation market."

Coexisting with Big Oil

Despite biodiesel's niche status, Propel's Elam said there's enough fervor in Seattle to make the fuel a big business. In 2005, the company installed a test pump near University Village, followed by similar sites in South Seattle and Issaquah.

"Truth is, we were selling a ton of biodiesel," said Elam — about 20,000 gallons a month per site.

Propel's official push will begin with two selling points: in Ballard, at Bernie's Auto on Leary Way, and at a Shell station on Bothell Way in Kenmore. The company plans to open other pumps within six to 12 weeks in Factoria, Maple Valley, Mount Vernon, Poulsbo, Seattle's Maple Leaf neighborhood, Camano Island and Bremerton.

Elam believes the secret to success is to make biodiesel visible and convenient. His team has talked to more than 100 gas-station owners on the West Coast, seeking arrangements to install pumps. "Generally the response is very enthusiastic," Elam said. "We don't ask them to have any hassle."

But coexistence with Big Oil is challenging, because existing contracts between fuel dealers and oil companies forbid placing a biodiesel pump under the canopy that carries the station's brand. Propel must have its own canopy and pump, leasing the space from the gas-station owner.

Elam says a biodiesel pump will also attract more customers to a station's convenience store, which is where retailers make most of their profits. "We give them a new revenue stream and increased visibility," he said.

The company is also looking at nontraditional fueling sites such as auto shops, but getting permits is a chore.

Municipalities are unfamiliar with biodiesel, which is not as flammable as petroleum diesel and can be stored in surface tanks. For entrepreneurs, the amount of explaining and paperwork can be daunting. Propel's proposals for stations in Lake Forest Park, downtown Bellevue and Gig Harbor are "stalled in city permitting," according to Elam.

"It took a little understanding of what they were proposing to do," Seattle planning-department spokesman Alan Justad said. He added that alternative fuels are a priority for the city and that the approval for Propel's pump at Bernie's Auto in Ballard took eight weeks, a relatively short time by Seattle standards.

Propel executives say they can make a profit on the fuel by avoiding the high overhead costs that traditionally eat up most of retailers' revenue. The biodiesel selling points will be unmanned and centrally managed, Elam said. Government incentives — like a federal tax credit for building alternative-fuel infrastructure, and exemptions from certain local taxes — may help the company's bottom line.

"Starting to break even"

As biodiesel retailing becomes more businesslike, it's generating some tension. "Dr. Dan" Freeman, who says that after six years he is "starting to break even," resents Propel's incursion into Ballard with a pump a few blocks from his home base.

"I think there's a lot of market out there. Instead of taking advantage of that market, they're exploiting mine," he said.

But there may be enough market for everybody, if the fuel catches on. An anticipated fossil-fuel crunch may help tilt the balance in biodiesel's favor.

Although petroleum diesel is currently cheaper, many analysts think its price will only increase with time. Sharp spikes in price — such as those produced by political tension or hurricanes — drive people toward alternative fuels. "After the war started all we could do was answer the phone," Freeman said.

"I've been anxiously waiting the arrival" of Dr. Dan's station at Espresso Express, said Harry Sanders, an IT project manager for King County who attended the pump's inauguration while sipping coffee. "It's pivotal to get this going to make biofuels accessible to the consumer."

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