ConocoPhillips and Tyson Foods, Inc. will announce a strategic alliance today to produce and market biodiesel fuel, which will help supplement the traditional petroleum-based diesel fuel supply. The alliance plans to use beef, pork and poultry by-product fat to create a transportation fuel.

Over the last year, the companies have been collaborating on ways to leverage Tyson’s advanced knowledge in protein chemistry and production with ConocoPhillips’ processing and marketing expertise to introduce a renewable diesel to the United States. 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 ($100 million over a 3 year to 5 year period) 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.

“We are firmly committed to leveraging our leadership position in the food industry to identify and commercialize renewable energy opportunities,” said Richard L. Bond, Tyson president and chief executive officer. “This strategic alliance is a big win for the entire agricultural sector because it paves the way for greater participation of fats and oils in renewable fuels.”

“ConocoPhillips believes the key to a secure energy future is the development and efficient use of diverse energy sources,” said Jim Mulva, ConocoPhillips chairman and chief executive officer. “This alliance will provide a new and significant contribution to our nation’s domestic renewable fuel supply. It also offers an excellent opportunity to use our company’s manufacturing expertise and advanced technology to help increase the supply of renewable fuels and to reduce greenhouse gas emissions.”

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.”

Using waste animal fat to create a biofuel is a great idea, but it does raise the question of what you are really using to make that biodiesel. You have to feed the animals something (corn, soy, etc.) food that could go into the mouths of hungry people. Turning a waste stream into a asset is great, but in a perfect world biofuels would be made from non-food, sustainable feed stocks.