Tyson, Syntroleum to build biodiesel plant in Louisiana

Springdale, Ark.-based Tyson Foods (NYSE: TSN), the largest meat processing company in the world, has big plans for renewables, and 2.3 billion pounds of fat to use as feedstock.

Tyson announced that it would build the first biodiesel plant under its venture with Tulsa, Okla.'s Syntroleum (Nasdaq: SYNM) on a site in Louisiana, citing the area's proximity to feedstocks, transportation, and the Barksdale Air Force Base, which has three squadrons of B-52 bombers.

"The B-52 has been the first Air Force jet that has been certified for synthetic fuels," said Jeff Webster, Sr. VP of renewable products at Tyson, in a conference call.

"We've met all of the standards that have been set in the preliminary testing for synthetic fuels, and we've contracted with the Air Force for our next set of fuels for further testing."

Tyson and Syntroleum created their joint venture, called Dynamic Fuels, in June to produce synthetic fuels targeting the renewable diesel, jet, and military fuel markets.

Construction of the $150 million, 75 million gallon per year plant is expected to start in 2008, with production targeted for 2010.

Tyson claims the new fuel will offer higher energy content, better cold flow properties enabling it to function effectively in cold weather and reduced carbon dioxide emissions.

The fuels are also expected to be compatible with existing pipelines, storage facilities and other conventional fuel infrastructures.

The exact site of the Louisiana facility hasn't been disclosed, but Webster said, "It's a brownfield site within a chemical refining complex overall."

"So what that does for us is it means all the infrastructure as far as power, water, steam, rail, truck unloading, wastewater treatment, all of that infrastructure is basically already in place."

Handing out another hint on the location, Webster said the site is near a deep water port. There are five deep water ports in Louisiana. He also said there are two merchant hydrogen companies at the location, saving Tyson the need to build its own hydrogen plant to supply the biodiesel plant.

Tyson's venture with Syntroleum followed an announced strategic alliance in April with Houston, Texas-based ConocoPhillips (NYSE: COP) (see ConocoPhillips and food processor Tyson partner for biofuels).

At the time, Tyson and ConocoPhillips were accused of taking advantage of a tax loophole meant to help small businesses produce biofuel. The two companies will be able to claim a tax credit for using existing facilities, while smaller companies will have to build new plants.

Take a look at ConocoPhillips' Borger refinery here >>

Under that team-up of Big Oil and Big Animal Fat, production of biodiesel is expected to start in next month at a ConocoPhillips refinery in Borger, Texas, about 50 miles away from a Tyson beef processing plant in Amarillo.

"That proximity allows us to reduce dramatically the transportation costs," said Webster.

"Conoco has completed all of the infrastructure work for Phase I at Borger, which allows us to get to a 1,000 barrel a day production level."

Total production under the partnership is expected to ramp up over time to as much as 175 million gallons per year.

Tyson set up its renewables division a year ago, and Webster said it's now become one of the company's core strategies.

"The first thing to recognize is the amount of scale we have. You can imagine as the world's largest protein provider, it means we also have access to a huge amount of byproducts and raw materials."

Tyson said it already channels a lot of its byproducts into chemicals, animal feed, edible products, bar soap and cosmetics, fertilizer and fuel, but the deals with ConocoPhillips and Syntroleum are part of a plan to expand the renewables division.

Webster said the company has near term plans for using its waste products in energy, personal care, and nutraceuticals, with longer term plans to move into bioplastics, biomedical devices, super absorbants, and other alternative fuels.

Tyson expects its partnership with ConocoPhillips to add between 4 cents and 16 cents per Tyson share in additional annual earnings once it ramps up, with annual operating profits at the Dynamic Fuels venture projected to be between $35 million and $60 million beginning in 2010.

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