24/2/07 (RedNova) GALVESTON -- Next month, the world will get a glimpse of what Big Oil can bring to the fast-growing alternative fuels movement when a new biodiesel plant, backed by a major U.S. oil company, opens for business in Texas.

The plant, which can produce 20 million gallons a year of diesel fuel made from soybean oil, is among the largest of its kind in the nation and is expected to soon grow bigger. But what's more notable is that it is partly owned by Chevron Corp., the San Ramon, Calif.-based oil giant.

With the investment, Chevron has become one of the first major U.S. oil companies to move out of the laboratory with biofuels and into a factory that actually produces them, a path that biodiesel industry leaders hope its peers will follow.

Chevron's 22 percent stake in the $10 million plant, also financed by other institutional and private investors, is tiny compared with what it will spend to develop, say, a deepwater oil field in the Gulf of Mexico, which could run into billions of dollars. But the project, which looks like an oil refinery in miniature, represents a change in thinking at one of the world's largest energy firms.

"Over the last couple of years, our company has come to the point of view that there is more global demand for energy coming than we know how to meet the way we've always done things," Rick Zalesky, Chevron's vice president of biofuels and hydrogen, said during a recent tour of the Galveston plant. "So oil and gas will continue to be the major source, but is that enough? And we've concluded no."

The project will allow Chevron to gain experience producing biofuels on a broad scale, he said. In turn, the company will share technology and its refining expertise with an infant industry that is still wrestling with quality issues, he said.

U.S. biodiesel production more than doubled last year to an estimated 225 million gallons. The industry has set a goal to replace 5 percent of the country's petroleum diesel for on-road uses by 2015 -- equating to about 2 billion gallons, said Joe Jobe, CEO of the National Biodiesel Board, a trade group in Jefferson City, Mo.

But the industry is depending on breakthroughs in crop research and farming to reach the goal, Jobe said. It will also need to use the nation's oil and gas infrastructure to blend, transport and pump the fuel for widespread use, which is why he called Chevron's endorsement of biodiesel a "good thing."

Promoted as a solution Alternative fuels such as ethanol and biodiesel have been around for decades, but recently they have been promoted as a way to reduce America's dependence on foreign oil, keep U.S. farmers busy and address climate-change concerns.

But there are doubts that alternative fuels will ever represent more than a small fraction of U.S. fuel consumption. Even so, energy companies are placing some small bets on biofuels. Houston's Marathon Oil and Brazil's state-owned oil company Petrobras are investing in ethanol plants, BP is partnering with chemical giant DuPont to develop biofuels, while others such as Exxon Mobil are funding research through universities.

The team behind the Galveston biodiesel plant said they intend to have a piece of the industry in the U.S. and abroad.

The group is already laying plans to expand the facility. By this fall, the plant is supposed to be able to to churn out 60 million gallons of biodiesel a year, said Bill Spence, president and CEO of BioSelect Fuels, the Houston company that will operate the plant. He hopes to expand again to 110 million gallons a year by 2008.

Cheaper fuel sources But to be successful long-term, Spence said, it is crucial that the plant migrate from making biodiesel from food crops such as soybean and palm oil, which are expensive and contain a low oil content, to nonfood crops with higher energy potential that are cheaper to buy, such as castor beans or Chinese tallow trees.

He is also confident Texas environmental regulators will come around on biodiesel. Last year, state officials nearly banned biodiesel from being sold in some of the populous areas of Texas, including Houston. They said there was conflicting science about whether the fuel produced more of a smog-forming tailpipe emission known as nitrogen oxide than petroleum diesel. In the end they gave the industry until the end of 2007 to make its case.

Ultimately, Chevron's investment in Galveston may provide a useful model for the oil industry's role in biofuels. But Zalesky said the company, no matter how big it is, knows not to wander too far from what it does best.

"Growing the crop," he said. "I don't ever see us doing that."