Transcript Presentation, Nov 09 Energy Confernce, Orlando, FL

Global Biofuel Expansion under
Different Energy Price Environments
by
May Mercado Peters
Paper for presentation at the Energy Conference on “The Economics of Alternative Energy
Sources and Globalization: The Road Ahead,”
Orlando, Florida, November 15-17,2009
Motivation
• Continued biofuel expansion globally;
• Many questions arise because of the
uncertainty of future petroleum
prices;
• Need a flexible tool to run different
scenarios; and,
• Need to capture supply and demand
for key biofuel countries and major
commodities.
Dynamic PEATSim Model
Livestock
Feed
Crops
Processing
Other
Endings
Stocks
Food
Yield
Biofuel
Domestic
market
Exports
Transmission factors
Exchange rates
Tariffs,
Quotas
International
markets
Area
Beginning
Stocks
Imports
Biofuel Component
Fully operational endogenous biofuel sector in
the PEATSim model with the following built-in:
• U.S. corn-based ethanol sector with
DDGs use in the livestock sector;
• Brazil sugarcane-based ethanol sector;
and,
• EU rapeseed oil-based biodiesel sector.
The future value of petroleum price is uncertain
Petroleum price, three cases, 2006-2017
200
180
2007 US $/barrel
160
EIA Low
140
EIA Base
EIA High
54 %
36 %
120
29 %
100
80
36 %
55 %
48 %
60
40
20
0
2006
2007
2008
2009
2010
2011
2012
Source: Energy Information Agency, U.S. Dept of Energy, March, 2009
2013
2014
2015
2016
2017
Hypothetical Scenarios
• Reference Scenario: Global biofuel
demand increases
– Increase U.S. ethanol demand to meet
RFS
– Increase Brazil’s ethanol demand to
meet its energy plan to 2030
– Increase EU’s biodiesel demand to meet
5% biofuel share to total transportation
fuel by 2012 in line with EU’s Renewable
Energy Directive
Hypothetical Scenarios
• Low Energy Price Scenario:
–Reference Scenario + decrease
petroleum price by 30%
• High Energy Price Scenario:
–Reference Scenario + increase
petroleum price by 30%
Low Energy Price
Scenario
vs.
High Energy Price
Scenario
Table 1. Change in world price of selected agricultural commodities with varying
energy price scenarios.
Commodity
Reference
Low Energy Price High Energy Price
% change from base
Corn
5.9
1.2
9.8
Rapeseed
10.0
2.3
16.8
Rape oil
17.4
4.0
29.3
Rape meal
-5.5
-1.4
-8.7
Sugar
3.1
0.6
5.0
Wheat
1.6
0.3
2.6
Soybeans
2.1
0.4
3.4
Soy oil
4.4
1.0
7.2
Beef & veal
2.0
0.4
3.3
Pork
1.2
0.2
2.0
Poultry
1.5
0.3
2.5
Source: PEATSim model results
Table 2. Impacts of global biofuel demand shifts on major biofuel feedstocks
under varying energy prices
Reference Scenario
Region
Commo
dity
Prod’n
Cons’n
Trade *
Low Energy Price Scenario
Prod’n
Cons’n
Trade *
High Energy Price
Scenario
Prod’n
Cons’n
Trade *
% change from base
U.S.
Corn
1.3
5.5
-19.4
0.3
1.1
-4.1
2.2
9.0
-31.8
EU
Rape
seed
2.4
3.4
18.6
0.6
0.8
4.4
3.9
5.8
32.5
Rape Oil
3.5
9.1
39.1
0.8
2.3
9.7
5.9
14.7
61.8
Rape
Meal
3.5
4.2
5.9
0.8
1.0
1.5
5.9
6.9
4.5
Brazil
Sugar
1.4
3.8
-4.8
0.3
0.8
-1.0
2.2
6.1
-7.7
Global
Corn
1.4
1.3
-9.1
0.3
0.3
-1.9
2.2
2.2
-13.7
Sugar
1.0
1.0
-1.8
0.2
0.2
-0.4
1.5
1.6
-2.8
Rape
seed
2.4
2.4
5.8
0.6
0.6
1.4
3.9
3.9
9.7
Exports for USA and Brazil, Imports for EU
Source: PEATSim model results
To meet global biofuel demand increases, exports of corn increase in other
countries of the world to compensate for export decline from United States.
Change in corn exports under varying energy prices
60
BRZ
50
% change from base
40
BRZ
30
20
10
ARG
BRZ
ARG
ARG
0
USA
-10
-20
World
World
World
USA
-30
USA
-40
Reference
Source: PEATSim Model Results
Low Energy Price
High Energy Price
To meet global biofuel demand increases, exports of sugar increase in other
countries of the world to compensate for export decline from Brazil.
Change in sugar exports under varying energy prices
12
10
Brazil
EU
Australia
World
% change from base
8
6
4
2
0
-2
-4
-6
-8
-10
Reference
Source: PEATSim Model Results
Low Energy Price
High Energy Price
To meet global biofuel demand increases, exports of rapeseed oil in other countries
of the world increase to meet increased demand from the European Union.
Change in rapeseed oil exports under varying energy prices
20
% change from base
18
Canada
PEATSim ROW
World
16
14
12
10
8
6
4
2
0
Reference
Source: PEATSim Model Results
Low Energy Price
High Energy Price
Importance
of
Technology
Supply curve shift needed to keep ethanol competitive with
declining energy price (30 % reduction in petroleum price)
Ethanol Supply
Supply (reference scenario)
2.00
Supply (30% energy price dec)
1.80
1.60
37%
1.40
Price
1.20
1.00
0.80
0.60
0.40
0.20
0.00
0
5
10
15
20
Quantity
A 37 % reduction in ethanol production cost is needed to keep ethanol use at
reference scenario levels. This implied increased efficiency of U.S. ethanol
production will allow it to compete with gasoline.
25
Cellulosic conversion
Fuel
Break-even
price
Scenarios
Reference
Low-price
High-price
Corn-based
$4.00
$3.39
$3.24
$3.52
Petroleum
$144
$112
$79
$156
• At low price or reference scenario levels, cellulosic ethanol is not
competitive with petroleum-based fuels.
• If energy prices increase 30% more than expected, then cellulose,
while competitive with petroleum-based fuel is still not competitive
with corn-based ethanol.
Conclusions
• Impact of biofuels programs on agriculture markets
is variable
– Continued biofuel expansion spurred by alternative energy
programs will lead to increasing agricultural commodity
prices and to changes in patterns of trade in biofuel
feedstocks.
– A 30 % decline in petroleum prices (absent of mandate)
would result in decline in biofuel use worldwide
accompanied by a decline in feedstock and biofuel prices
relative to the reference scenario. About 37 % decline in
U.S. ethanol production costs is necessary to offset
reduction in ethanol use due to lower petroleum prices.
– A 30 % increase in petroleum prices will accentuate
impacts of biofuel expansion policies on global agricultural
markets, agricultural commodity prices and the direction of
biofuel feedstocks trade .
Conclusions (cont.)
• Technological change could play a crucial role in
reducing the uncertainty in the outlook for biofuels
expansion.
• Lowering production costs would permit biofuel to
compete with petroleum based fuels in a low energy
price environment.
• Developing non-food related feedstocks would reduce
the impact of biofuels expansion on traditional food and
feed crop prices.
• Efforts in technological innovation that focus on reducing
the cost of producing ethanol by increasing feedstock
conversion efficiency and increasing feedstock yields.
They would offset the agricultural commodity price
increases from global biofuel demand increases.
The End