The unsavory leftovers from slaughterhouses and nose-crinkling gunk from the sinks of any fast-food drive-through restaurant could be coming soon to a diesel tank near you.

As the prices of soy and other vegetable oils traditionally used in manufacturing biodiesel have ratcheted up this year, entrepreneurs have increasingly turned to animal fat and french fry grease and put those stomach-riling substances to new use.

One problem with both animal fat and waste grease is their limited availability.

"These companies are looking at what were waste products that have brought a low price and even in some cases a disposal cost," Vernon Eidman, professor emeritus at the University of Minnesota who has studied biofuels, said. "Now they see ways to convert that to fuel, and the government even pays them."

Since January 2005, biodiesel producers and blenders have been able to claim a $1/gallon US credit for biodiesel made of vegetable oils, a benefit the federal government recently extended to renewable fuels made of animal fat; biodiesel made from waste greases -- oils used to fry potatoes, donuts, corn and other foods -- yields a 50 cent/gallon credit.

Feedstock prices, which experts say is key to successfully producing alternative fuels, accounts for up to 80% of the cost of making biodiesel. That makes the fuel sensitive to recent hikes in the price of soy and other pure vegetable oils that currently are the most widely used biodiesel feedstocks. Soy oil, for example, sold for below 30 cents/pound a year ago but has since jumped to nearly 40 cents/pound, causing many biodiesel producers to trim outputs.

On the other hand, beef or poultry fat still sells for about 30 cents/pound or less, while recycled vegetable oils and waste greases are 25 cents/pound or below -- double year-ago levels. But despite their lower prices, animal fat and waste grease are more complicated since they must be treated before production. Waste grease is especially difficult due to its high free fatty acid content, experts say.

According to National Biodiesel Board statistics, animal fat and waste grease make up just a fraction of the 350 million gallons of projected biodiesel production this year.

Currently at least 13.4 million gallons/year of US-produced biodiesel from animal fat -- which has long been used in the manufacture of pet foods and soap -- come from just a few producers. Pork processor Smithfield Foods, which accounts for most of this, runs an experimental 12 million gal/year facility in Cleburne, Texas.

But capacity currently under construction for fuels made from animal fat tops 250 million gal/year. Most of this comes from Tyson Foods' venture with ConocoPhillips to produce up to 175 million gal/year of renewable diesel, starting in November at the major's Borger, Texas, refinery.

"The fact that Tyson and ConocoPhillips are are getting together and doing this is a big indicator of where the market is going," biofuels consultant Will Thurmond, president of Emerging Markets Online, said.

On the other hand, use of recycled cooking oil and waste greases, which has traditionally gone into animal feed, already has more traction. Of the 148 biodiesel plants operating in the US, NBB lists 10 facilities that can manufacture as much as 23 million gallons/year of biodiesel from these feedstocks. And facilities are being built to add at least 37 million gallons/year of more capacity, NBB said.

However, one problem with both animal fat and waste grease is their limited availability. Use of animal fat for fuel "can't grow unless there's growth in the production of animals," and that can only occur if meat consumption increases, which is not occurring on a per-capita basis, Doug Anderson, president of Smithfield BioEnergy, said.

As for waste grease, "there's only a minute quantity that's not already being used," Ron Demaray, CEO of Horizon Biofuels in Nebraska, said. "It takes a lot of effort to find enough grease from McDonalds. Even if they give you a few hundred gallons a week, it's not enough to build an industry on."

As if availability wasn't enough of a deterrent, oil companies are now allowed to use the blending credit. NBB has opposed this, claiming the credit was designed to subsidize small businesses built from scratch rather than already-profitable oil companies with existing refineries. "We're all about competition, but what may happen is that oil companies will buy all of the feedstock and we fear many biodiesel producers won't be able to compete with that," NBB spokeswoman Jenna Higgins said.

But barring government mandates, which some sides of the biodiesel industry champion, observers say supply and demand will prevail and determine which feedstocks and fuels prevail. "The invisible hand of the market always works its way through things," one industry observer said. Eventually, "there will have to be some reconciliation between production capacity, fats, grease and oil supply and diesel prices."