Transcript A Case Study of the Impact of Bioenergy Development in Kansas

Status of the Kansas
Ethanol Industry
Production, Transportation & Profits
Daniel O’Brien, Ph.D.
Extension Agricultural Economist
K-State Research and Extension
Special Committee on Energy & Environmental Policy
Kansas Legislature
August 20, 2008
Kansas Ethanol Production (2005-2008*)
600
24
428
20
500
400
332
16
12
172
300
212
11
8
4
7
11
8
200
100
0
Mln. Gal. Capacity
Number of Plants
28
0
2005
2006
2007
2008*
Year
No. Ethanol Plants
Total Ethanol Plant Capacity (100% Use)
The Kansas Ethanol Industry
Plants In-Production as of August 1, 2008
Arkalon Energy
Hayne/Liberal (SW)
110 MGY
Bonanza Bioenergy, LLC
Garden City (SW)
55 MGY
Reeve Agri-Energy
Garden City (SW)
15 MGY
Campus/Oakley (WC)
48 MGY
Leoti (WC)
2 MGY
Phillipsburg (NW)
40 MGY
Russell (Central)
52 MGY
Lyons (SC)
55 MGY
MGP
Atchison (NE)
*6 MGY
NESIKA Energy, LLC
Atchison (NE)
*10 MGY
Garnett (EC)
35 MGY
Western Plains Agri Energy, LLC
ESE Alcohol, Inc.
Prairie Horizon Agri-Energy
White Energy
Kansas Ethanol
East Kansas Agri-Energy
State Total
11 Plants
428 MGY
The Kansas Ethanol Industry (more)
Plants Off-Line or Under Construction as of 8/1/08
Abengoa (off-line)
Gateway Ethanol (off-line)
Goodland Energy Center (Start pending)
State Total
Colwich (SC)
25 MGY
Pratt (SC)
55 MGY
Goodland (NW)
20 MGY
3 Plants
100 MGY
Other Ethanol Plants Under Consideration:
• Abengoa, Hugoton (115 MGY: 85 MGY Grain-based + 30 MGY Cellulosic)
• Everton Energy, Concordia (100 MGY) ????
• Others ????
U.S. Ethanol Industry
Comparing Years 2006 & 2008






2006
2008
Number of operating ethanol plants:
97
163
Plants under construction or expanding:
35
47
Announced plants:
300 (17%)
???
Current production capacity: (BGPY)
4.8
9.5
Projected production capacity:
12.4 BGPY end of 2008
13.6 BGPY end of 2009
Corn Used for Ethanol Production & % of U.S. Crop:
Bu. (mln.) % of U.S. Crop
2006/07 – 2,100
20%
2007/08 – 3,000
23%
2008/09 – 4,100
33%
Kansas Feedgrain Supply-Use

Grain ethanol production at current plant capacity
would use 153 million bushels of feedgrains / year

27% of 2005-2007 avg. corn production (566 mln. bu.)

Livestock feeding estimates averaged 158 million
bushels / year over 2005-2007 period

Kansas Imports of Supplemental Feedgrains

Predominant inter-state sources: Iowa & Nebraska

Projected feedgrain deficits in Nebraska & Iowa in the
near future due to in-state ethanol development
Max. Potential DDG Feed Use & Supply
(2005-2008*)
6,000
Million Pounds
4,978
4,845
4,674
4,978
4,000
41%
23%
2,000
1,085
28%
52%
2,601
2,029
1,337
0
2005/06
2006/07
2007/08
Marketing Year
Maximum Livestock DDG Feed Use
2008/09*
Kansas DDG Supply
Ethanol Production Capacity In Use
by Crop Reporting District (2005-2008*)
180
Southwest
107
Central
2008*
55
South Central
2007
50
West Central
2006
50
North Central
35
East Central
2005
6
Northeast
0
50
100
150
Kansas Ethanol Plant Capacity - Million Gallons
200
Regional Grain Use By Ethanol Plant
Western Kansas Locations
Plant Location:
Campus /
Oakley
Phillipsburg
Garden City
(2 plants)
Hayne /
Liberal
Plant Capacity (MGY)
48 MGY
40 MGY
70 MGY
110 MGY
Feedgrain Use (mln bu)
17.5 mln. bu.
14.5 mln. bu.
25.5 mln. bu.
40 mln. bu.
Counties
% Grain Production
Gove
Logan
Sheridan
Thomas
41.0%
Graham
Norton
Osborne
Phillips
Rooks
Smith
46.8%
Finney
Gray
Haskell
Hodgeman
Kearny
Lane
Scott
32.3%
Grant
Haskell
Meade
Seward
Stevens
53.1%
Regional Grain Use By Ethanol Plant
Central & Eastern Kansas Locations
Plant Location:
Lyons
Russell
Garnett
State
Total
Plant Capacity (MGY)
55 MGY
52 MGY
35 MGY
428 MGY
Feedgrain Use (mln bu)
19.6 mln. bu.
18.9* mln. bu.
12.7 mln. bu.
153 mln. bu.
Allen, Anderson
Bourbon
Coffey
Franklin
Linn
Miami
Osage
Woodson
All Counties
62.4%
25.7%
Counties
% Grain Production
Barton
McPherson
Rice
Reno
Stafford
51.0%
Barton
Ellis
Ellsworth
Lincoln
Mitchell
Osborne
Rooks
44.3%*
Comparative Transportation
Advantages of Kansas Ethanol Plants

WDGS Sold to Local Cattle Feeders


Selling 50% of Denatured Ethanol via Truck to
Blenders within 150 miles of Plants


Lower drying / natural gas costs
Reduced cost vs plants relying on rail transportation
Reduced Rail Transportation Cost of Denatured
Ethanol to Western U.S.

Geographic cost advantage for the Western Corn Belt
Trucking Needs of Kansas Ethanol Plants

Assumptions




100% of feedgrains transported by truck to plants
50% of ethanol transported by truck (50% by rail)
90% of Distiller’s Grains sold in “Wet Cake” form
(i.e., Wet Distillers Grains)
Quantities per Truckload



1 truckload of feedgrains = 950 bushels
1 truckload of Ethanol = 9,000 gallons
1 truckload of WDGs = 25 tons
Daily Trucking Use by Ethanol Plants
Kansas estimates as of August 1, 2008*
600
Truckloads / Day
491
400
336
200
45
71
6
31
0
Feedgrain Inputs
Avg. / Day / Ethanol Plant
Ethanol Product
WDG Co-Product
Total / Day for All Ethanol Plants
Annual Trucking Use by Ethanol Plants
Kansas estimates as of August 1, 2008*
Truckloads / Year
240,000
179,329
122,680
120,000
16,303
26,026
2,366
11,153
0
Feedgrain Inputs
Annual Avg. / Ethanol Plant
Ethanol Product
WDG Co-Product
Annual Total for All Ethanol Plants
Ethanol-Related Costs for the Kansas
Trucking Industry / Year (July 2008 estimates)
Grain
Truck Time / No.
Cost / Total Cost
Loads Load Trucks Truck
177,033 2.5 hrs
217 $105,329 $22.9 mln
DGS
120,772 3.0 hrs
181 $103,071 $18.7 mln
25,694 6.5 hrs
77 $131,439 $10.1 mln
Ethanol
Total
328,035
475
$51.6 mln
Corn Ethanol & WDG $Value vs Corn $
Nebraska / Kansas #s, February 2007 - August 15, 2008
$10.00
$9.00
$8.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
7/23/2008
6/23/2008
5/23/2008
4/23/2008
3/23/2008
2/23/2008
1/23/2008
12/23/2007
11/23/2007
10/23/2007
9/23/2007
8/23/2007
7/23/2007
6/23/2007
5/23/2007
4/23/2007
3/23/2007
$0.00
2/23/2007
$ per bushel
$7.00
Weekly Friday Closes
Corn_Ethanol Value
WDG Value
Corn Price
Ethanol Profit Margin Est. ($ / gallon)
Prices
Corn ($/bu.)
Ethanol $/gal
RBOB Gas $/gal
July 07
$3.27
$1.91
$1.98
Aug 08
$5.09 1
$2.10
$2.84
Profit Margin
+0.26
+0.01 2
Change
+58%
+13%
+51%
1 Prices Aug
12, 2008. Breakeven corn price - $5.15
2 Ethanol profit for a 100 million gallon plant = $1 million
Distiller’s Grain revenue would be about $54.6 million.
To compete with gasoline as substitute, ethanol price would need to fall to
$1.88 per gallon.
NE-KS Ethanol Profitability
Calculated Returns per Gallon: February 2007 - August 15, 2008
$3.00
$2.75
$2.50
$2.25
$1.75
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
($0.25)
Weekly Friday Closes
Ethanol Price
Ethanol Cost
Estimated Ethanol Profitability
7/23/2008
6/23/2008
5/23/2008
4/23/2008
3/23/2008
2/23/2008
1/23/2008
12/23/2007
11/23/2007
10/23/2007
9/23/2007
8/23/2007
7/23/2007
6/23/2007
5/23/2007
4/23/2007
3/23/2007
($0.50)
2/23/2007
$ per gallon
$2.00
Questions or Comments?
K-State Agricultural Economics
Extension Website:
www.AgManager.info
Special Committee on Energy & Environmental Policy
Kansas Legislature
August 20, 2008
Supplemental
Reference Information
Special Committee on Energy & Environmental Policy
Kansas Legislature
August 20, 2008
Ethanol’s Impact on Irrigation

Increased water use due primarily to increased
corn acreage, secondarily to more intensive
irrigation / acre  Effect of Ethanol Demand

Greater Irrigated Corn Acreage


More Intensive Irrigation per Acre



Higher profitability of corn vs alternative crops
Impact of  corn$ on irrigation cost-benefit decisions
Greater water use for corn vs alternative crops
Other Analysis: Jeff Peterson @ KSU
Water Use by Ethanol Plants
For Grain Dry Milling Processes

Process Water  33% of Plant Use

Water in contact with grain


Non-Process Water  67% of Plant Use

Water not coming in contact with grain


Mixing, slurry, fermentation, saccharification processes
90% of non-process water used in heating-cooling
Plant Water Use: 4.23 gal. / gal. ethanol

Water use for a 40 mln gal. capacity Ethanol Plant
 water use by 2 ¾ pivot irrig. systems / yr (18-20 a.i.)
Net Energy Balance
Alternative Energy Sources
Product
Energy Out / Energy In
Gasoline
0.81
Ethanol from grain
1.67
Ethanol from cellulose
2.00
Diesel
0.83
Bio-diesel
3.20
Source: Congressional Research Service, RL32712, May 18, 2006
Input-Output Values of Oil vs Corn
$100 worth of:
 Oil @ $120/barrel
Will produce:
16.6 gal. of gasoline
11.6 gal. of diesel
Corn @ $5/barrel
56 gal. of ethanol
 40 gal. of gasoline

Comparing Corn & Cellulosic Ethanol
Capital cost per gallon
Raw mat. cost per ton
Enzyme cost per ton
Ethanol yield per dry ton
Conversion process
Water use per gallon
Processing time, days
Cost of prod. per gallon
Corn
Cellulosic
$2.00
$200
$3.15
100-110 gal.
simple
3-5
2
$2.00
$5-6.00 est.
$100
$33.00
75-90 gal.
complex
6-10
7
$3.50 est.
Sources: Testimony of Keith Collins, USDA Chief Economist, 26 Aug. 2006;
Popp and Hogan presentation at Farm Foundation Conference 12-13 April
2007; and M. Woolverton calculations.
Ethanol Plant Economics


Cost to build a 100 MGPY plant: $160 million
Purchases:  37-39 million bushels of corn

240,000 acres of Irrigated Corn @ 163 bu. /acre in Western Kansas

Daily water use: 1.5 million gallons

Natural gas expense: $15 to $25 million

Payroll expense:  $2 million / year

Distiller’s Dried Grains income:  $25 million / year

CO2 income:  $4 million /year (?????)

Goal: 30% R.O.I.