Transcript John Urbanchuk - Ethanol Producers & Consumers

Biofuels: Situation and Outlook
21st EPAC Annual Conference
Agricultural Biofuel Summitt II and Biodiesel Forum
Great Falls, MT June 7-8, 2011
John M. Urbanchuk
Technical Director - Environmental Economics
Cardno ENTRIX
[email protected]
Who we are
 Cardno ENTRIX is a professional environmental consulting
company specializing in water resources management,
environmental risk management, natural resource economics,
natural resources management, and facility permitting & compliance.
 Our staff of nearly 900 includes biologists, chemists, geologists,
oceanographers, toxicologists, meteorologists, economists, and
environmental, chemical, and civil engineers.
 Headquartered in Houston, we have 40 offices in the U.S., Canada,
Ecuador and Peru.
Why Biofuels?
U.S. ethanol has come a long way … and will continue
to grow.
Ethanol from corn capped
at 15 BG in 2015
Fundamentals for global petroleum growth favor
biofuels
BRIC Characteristics
5
Brazil
Russia
India
China
Cur Pop (Mil)
201
139
1,157
1,330
2000 Pop (Mil)
223
132
1,326
1,384
GDP Per Cap
$9,217
$14,907
$2,966
$6,237
Vehicle Stock
(Mil)
28
38
20
51
Per 1,000
192
319
25
48
New Vehicle
Sales (5-yr)
15%
3%
16%
25%
Oil markets have been buoyed by a very strong period of
global oil demand growth. Oil prices are expected to
remain high for some time to come.
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Supply uncertainty is high due the
crisis across the Middle East and
North Africa region.
The oil market will have to adapt to
the loss of high quality Libyan
production. 75% of Libyan oil is
exported to the EU.
Speculation is a factor in the markets.
Average daily trading activity in
“paper” barrels is now nearly twenty
times actual physical demand.
Weakness in the U.S. dollar continues
to be supportive of crude prices.
140
Crude Oil Prices
120
100
80
60
40
20
WTI
Brent
Biofuels are here to stay. Ethanol production will again
double over the next decade with the U.S. and Brazil
remaining the largest producers.
Source: F.O. Licht; Projection: OECD/FAO
Biodiesel production also will grow with the EU well in
the lead.
Source: OECD/FAO
Coarse grains and sugar cane will remain the primary
ethanol feedstock, but cellulose (biomass) will grow
significantly.
Source: OECD/FAO
Vegetable oil will remain the primary source of
biodiesel but new feedstocks will grow in prominence.
Source: OECD/FAO
The blend wall is forestalled for the time being. EPA
approved 15% ethanol blends for auto models 2001
and later.
 Gasoline demand is expected to
average 132 billion gallons
between 2010 and 2022.
 13.2 billion gals were produced in
2010.
 Current nameplate capacity id 14.4
billion gal; operating capacity is
13.9 billion gal; and 587 million gal
is under construction.
 The E-15 market will expand as the
number of eligible autos grows.
A weak dollar and speculation appears to be a force
behind rising corn prices.
Long positions for both futures and options
Source: CFTC Updated 5/11/11
Crude oil, gasoline, ethanol and corn prices are highly
correlated. Makes it difficult to estimate what
determines what.
Corn and Ethanol Prices
Oil, Gasoline and Ethanol Prices
$3.00
$150
$7.50
$2.50
$/Gal
$/bbl
$100
$75
$6.50
$5.50
$2.00
$4.50
$1.50
$50
$25
$3.50
$1.00
Gasoline, NYH
Source: USDA, EIA
EToH, Iowa
WTI
$2.50
IA EToH
Corn, No.2 Yel
$/bu
$125
Feedstock diversity is a challenge for biofuel expansion
Traditional Agricultural
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Winter barley
Wheat
Sweet sorghum
Sugar cane
Sugar beets
Crop residues
– Corn stover
– Corn cobs
– Bagasse/rice straw
New Feedstocks
 Energy crops/grasses
 Forest residues and woody
biomass
 MSW
 Algae
Feedstock prices will be a challenge. Most new
advanced biofuel feedstocks have no established
market prices.
Source: IMF Primary Commodities Database
Corn prices have shifted upward as ethanol production
expands.
Source: USDA WASDE May 11, 2011
Industry profitability remains positive despite record
corn prices.
Ag Marketing Resource Center
Iowa State Univ. 05/04/2011
Expect U.S. corn stocks to rebuild as production
expands and provide a guideline for other feedstocks.
$5.00
20
Percent
$6.00
$4.00
15
$3.00
10
$2.00
5
$1.00
0
$0.00
Stk-DD Ratio
Source: USDA WASDE 4/8/2011; JMU Forecast
Farm Price
$/bu
25
Corn Stocks and Price
World commodity prices are eclipsing 2008 peaks.
Source: IMF Updated 5/9/2011
Global food prices have reached record levels,
exceeding previous 2008 peak.
FAO Food Price Index
Index, 2002-04=100
250
Nominal
Deflated
200
150
100
2007
Source: FAO. Updated 050511
2008
2009
2010
2011
All categories of food prices are increasing
April 2011
vs
April 2010
Change
from
Post 2008
Bubble Low
All Food
40.6%
68.1%
Meat
18.0%
46.8%
Dairy
15.3%
104.6%
Cereals
76.3%
80.6%
Fats & Oils
53.8%
105.8%
Sugar
53.4%
100.4%
Source: FAO. Updated 050511
U.S. Inflation? Not here yet (unless you buy groceries
or gasoline).
CPI, All Urban Workers
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
% Chg YOY
 “Core” inflation remains very low but
the trend has reversed.
 Energy (gasoline) and food continue
to provide the only real near-term
concerns for price stability.
 Consumer food prices are
recovering from the sharp plunge
following the 2008 commodity
bubble and the trend is up.
All Items
Source: BLS. Updated 5/13/2011
All Food
"Core"
Food prices are volatile!
CPI, All Urban Workers
15%
10%
% Chg YOY
 Corn demand remains strong
despite high prices.
 Meat prices are increasing
because of production decisions
made over the past two years.
 Severe weather has affected
winter fruit and vegetable crops.
 Expect 2011 food price pressure
to come from meat, poultry, eggs
and dairy. Food CPI will
increase 4% in 2011.
5%
0%
-5%
-10%
CBP
Updated 5/13/2011
Beef
Pork
Poultry
Agricultural commodities are the basis for
consumer foods but their impact on retail prices
is overshadowed by other factors.
 Corn, wheat, and soybean prices will continue to be affected
by area planted and yields, which determine production.
 The largest impact from grain and oilseed prices is through
meat, dairy, poultry and eggs. Prices for these products will
lag changes in crops due to a longer production cycle.
 Consumers will remain vulnerable to changes in noncommodity prices, notably energy and fuel.
 Aggregate demand, macroeconomic policy and consumer
expectations regarding inflation also will affect the ability of
marketers to pass along higher costs.
Corn as a feedstock provides economically important coproducts. Cellulose will provide bagasse that can be used to
cogenerate electricity, reducing production costs and
generating additional revenue streams.
One 56 lb bushel
No. 2 Yellow Corn
2.7 gal ethanol
17.5 lbs DDGS
17.5 lbs CO2
90% of U.S. ethanol is produced in a dry mill process
How will we produce the 21 billion gallons of non-corn
starch biofuels needed to meet RFS2 targets by 2022?
 Biofuels policy is uncertain; budget pressures may trump
energy needs
 VEETC, biodiesel tax credit and secondary tariff expire on
12/31/2011.
 Cellulosic tax credit expires in 2012.
 Feedstock diversity will provide both challenges and opportunities.
More challenges ...
 Commercially successful conversion technology is uncertain and will
require consistent R&D investments. May include one or all of:
 Chemical (acid hydrolysis)
 Biochemical (enzyme fermentation)
 Thermochemical gassification or pyrolysis
 Algae
 Capital availability and financing are uncertain and vulnerable to the
health of the financial sector.
 Permitting and sustainability will be issues for new biorefineries
Biggest challenge may be the rate of expansion and
availability of construction infrastructure
 Producing 15 billion gallons of corn starch ethanol is no problem.
– Currently 205 refineries have nameplate capacity of 14.2 billion gallons,
or an average capacity of 70 MGY.
 Capacity is in place to produce 1 billion gallons of biomass
biodiesel.
 Cellulosic and advanced biofuels plants are likely to be smaller than
dry mill corn ethanol plants. Assuming a 50 MGY capacity 400 new
plants will be needed to be built by 2022 (5 per year).
– The number of ethanol plants doubled and capacity tripled between
2005 and 2011!
– Can this be repeated?
27 Integrated Biorefinery Projects are receiving DOE
funding. Representative commercial Advanced Biofuels
Projects include:
Producer
Location
Feedstock
Capacity (MGY)
Abengoa
Hugoton, KS
Corn stover, switchgrass
15.0
BP Biofuels NA
Jennings, LA
Sugarcane bagasse
1.5
Bluefire LLC
Fulton, MS
Woodwaste, MSW
19.0
KL Process Design
Group
Upton, WY
Wood waste
1.5
Flambeau River
Biofuels
Park Falls, WI
Woody biomass
9.0
Mascoma
Kinross, MI
Forest residue
40.0
POET Biorefining
Emmetsburg, IA
Corn residues
25.0
Range Fuels
Soperton, GA
Woody biomass
10.0
Summit Natural
Energy
Cornelius, OR
Waste/sugar/starches
1.0
Source: Renewable Fuels Association; DOE Biomass Program May 2011
In conclusion …
 Biofuels production will expand both in the U.S. and globally
but significant challenges remain.
 Feedstock and technology choices
 Financing and capital availability
 Permitting and sustainability
 Rate of expansion and availability of resources
 Biofuels are a shining star within a declining U.S.
manufacturing sector and will continue to provide significant
economic, environmental, and energy security benefits.
Remember, biofuels aren’t new, only the vehicle
in which they are used is.
Questions?