Transcript The Biodiesel Industry and U.S. Agriculture.
Biodiesel
Kenneth R. Szulczyk December 8, 2005
Biodiesel
• Presentation • Half is technological knowledge – Determine how markets are connected • Half is economic analysis – Supply/demand analysis of 7 markets
Contents
• Biodiesel benefits • Differences between diesel and biodiesel • Production – Biodiesel – Petroleum • Analysis • Conclusion • Future research
Biodiesel Benefits
• Biodiesel offsets greenhouse gas emissions by recycling carbon through photosynthesis [13 and 15]. – Plants remove carbon from the atmosphere by photosynthesis – Carbon is stored in plants as oils, sugars, and cellulose. – Plants are processed into fuel – Carbon is released back into the atmosphere as automotive emissions.
Biodiesel Benefits
• A biodiesel industry could increase prices and income for the agricultural sector [13, 15, and 17].
Biodiesel Benefits
• A biodiesel industry contributes to energy security and less reliance on Middle East [13, 7, 9, and 15]. – Gulf states control approximately 2/3 of the world’s oil reserves [12] – Biodiesel industry could help protect the U.S. from crude oil price volatility and OPEC’s cartel pricing [14] – The U.S. could decrease its military presence in the Gulf States [12] – Help leverage limited supplies of petroleum [15]
Biodiesel benefits
• Biodiesel reduces harmful emissions – Biodiesel contains no sulfur or mercury • Sulfur and mercury emissions are decreased when biodiesel is mixed with diesel [5, 10, and 13] – Pure biodiesel contains up to 10-12 % weight of oxygen [5 and 10] – Diesel fuel contains almost zero oxygen [10]
Biodiesel Benefits
• Oxygen allows more complete combustion – The following emissions are reduced • Hydrocarbons (HC) [15] • Carbon monoxide (CO) [10, 15, and 17] • Particulate matter (PM) [10, 15, and 17] – However the higher oxygen content increases NOX emissions for most diesel engine types [5, 10, 15, and 17] • The engine timing can be adjusted to reduce NOX, but it always causes higher particulate emissions [10]
Differences between biodiesel and diesel
• Differences could cause prices not to be the same • Diesel and biodiesel have many chemical properties • Discuss major differences – List negative first then positive
Differences between biodiesel and diesel
• No 2 diesel contains 131,295 BTU per gallon [10] • Pure biodiesel contains approximately 10% less energy [10] – Lower energy content results in lower MPG – Adds up over large distances
Differences between biodiesel and diesel
• All biodiesel fuels have worse cold fuel properties than number 2 diesel [7 and 10] – Properties are cloud point and pour point. • Cloud point is the temperature that causes the fuel to form wax on the fuel filter, thus clogging it [7 and 10] • Pour point is the temperature the fuel turns into a gel and can no longer flow [7 and 10] – The cloud point and pour point for biodiesel fuels tend to be 20 -25 0 C higher than number 2 diesel [7 and 10] – If the biofuel is produced from saturated oils like tallow, then the cold flow properties are worse [10]
Differences between biodiesel and diesel
• Biodiesel contains oxygen that leads to fuel oxidation. – Forms insoluble gums [10] • Pure soy biodiesel has a higher flash point than number 2 diesel. – Flash point is the minimum temperature the fuel must be heated to ignite the vapor and air [7 and 10] – Pure soydiesel with no impurities has a flash point over 100 0 C while diesel is 71 [7 and 10]
Differences between biodiesel and diesel
– The U.S. Department of Transportation considers a flash point higher than 90 0 C as nonhazardous [10] – Soydiesel is safer than regular diesel • Pure biodiesel has better lubrication properties. – The fuel pump and fuel injectors get better lubrication, which could extend engine life [10]
Production - Biodiesel
• Soybeans – Seeds contain 17-19% oil [7 and 5] – Seeds contain high quality protein for animal feed [7] – Matured field contains 400 lbs of oil per acre [7]
Production - Biodiesel
• Corn – Kernels have up to 20% oil [11] – Kernels contain high quality protein for animal feed [7] – Matured field contains approximately 200 lbs of oil per acre [7] – Lower oil content could be offset by starches and sugars • High fructose corn syrup (HFCS) – Sugar substitute • Could be fermented into ethanol – Ethanol could offset gasoline – Could be used in biodiesel production
Production - Biodiesel
• Trivia • Which plant ???
– Seeds contain twice as much oil as soybeans – Yields more than 3 times more oil per acre than soybeans – Contains nutrients like omega-3 oils, zinc, beta carotene, etc.
Production - Biodiesel
• Chemical formulas uses mass measure, like grams and kilograms • People and petroleum industry uses a volume measure – Gallon, Barrel – 1 Barrel = 42 gallons • Use density to change between mass and volume – Volume changes with temperature – Change signs into • Trivia – Which substance is less dense as a solid than as a liquid?
Production - Biodiesel
• Chemical reaction • Oil is decomposed into glycerol and an ester [8, 9 and 10] – Ester is biodiesel – Calculate input-output coefficients from chemical formula 1
oil
(
triglyceri de
) 3
methanol
3
methyl ester
1
glycerol
1 , 000
kg
107 .
5
kg
1 , 004 .
5
kg
103
kg
Production - Biodiesel
• Three methods to produce biodiesel – Trans-esterification of oil with a catalyst – Supercritical methanol trans-esterification – Enzymatic trans-esterification by lipase • Could use different alcohols – Methanol • Cheaply made from natural gas and water • Methyl-ester – Ethanol • Fermented corn sugars and starches • Ethyl-ester
Production - Biodiesel
• Used chemical formula to derive input-output coefficients for soybean oil – Densities of substances – Liter to gallon conversion – Example is for soybean oil – Coefficient is similar for corn oil 1
gal
.
ester
0 .
9641
gal
.
oil
1
gal
.
ester
3 .
7854
L
1
gal
.
0 .
885
Kg L
1000
Kg
1004 .
5
Kg oil ester
1
L
0 .
9138
Kg
1
gal
.
3 .
7854
L
0 .
9641
gal oil
Production - Biodiesel
• Biodiesel could be substituted for diesel or blended with diesel • Biodiesel concentration is always written as BXX – XX refers to the percentage of biodiesel – B20 is composed of 20% of biodiesel and 80% regular diesel. • Each gallon of biodiesel offsets one gallon of diesel • How does biodiesel impact diesel fuel production and petroleum industry?
Production-Petroleum
• Petroleum is a complex substance and is composed of many compounds – Spans from methane (CH 4 ) to complex hydrocarbons like C 85 H 60 [12, p.4] – Fractional distillation - each substance has a different boiling temperature that allows the components of crude oil to be separated [12, pp.6-8] – Chemicals • Gasoline • Diesel fuel • Jet fuel, asphalt, chemicals to manufacture plastics, and hydrocarbon gases
Production-Petroleum
Leffler p. 23
Production-Petroleum
• “Fluff up the barrel” • The output chemical has higher volumes than the input chemicals [12, p. 45] • Diesel fuel has a higher density than gasoline.
– 1 gallon of diesel fuel could be converted to more than 1 gallon of gasoline [12, p. 28]
Production-Petroleum
• Diesel contains cetane (C 16 H 34 ) and can be “cracked” into octane (C 8 H 18 ), hexene (C 6 H 12 ) and ethylene (C 2 H 4 ) [12, p.27] – Octane and hexene could both be mixed into gasoline – 1 gallon of cetane yields 1.09 gallons of octane and hexene.
C
16
H
34
heat
catalyst C
8
H
18
C
6
H
12
C
2
H
4 258
kg
130
kg
96
kg
32
kg
Production-Petroleum
• Exact conversion of diesel to gasoline is unknown, because both are complex substances • Both are mixed to have desirable properties • Gasoline – Boils between 90 and 220 0 F [12, p.6] – Contains hydrocarbons that range in length from C4 to C12 [16, p. 15]
Production-Petroleum
• Gasoline • Two most important properties are octane rating and vapor pressure. • Trivia • What is octane rating (MON and RON)?
• Octane is a measure of how much pressure and temperature is needed to ignite the fuel/air mixture. • Higher octane gasoline is preferred, because premature fuel ignition in the engine causes a ping sound, which places stress on engine parts and in some cases could damage the engine. • Different substances have different octane ratings, so gasoline is mixed with a minimum octane rating [12, pp. 90-95]
Production-Petroleum
• Vapor pressure – When the car engine is cold, some of the fuel has to vaporize easily, so the fuel can be mixed with air and combusted in the engine. – Once the engine is warm, the other components of the fuel will easily vaporize. – Butane, C is butane. summer 4 H 10 , is used, because it easily dissolves in gasoline, has a low boiling point, and easily vaporizes. – When you are filling your gas tank, the vapors you see escaping – More butane is mixed in the gasoline in the winter time than – Helps start the car engine in colder temperatures. Thus, the composition of gasoline changes with the seasons and climate [12, pp. 86-89]
Production-Petroleum
• Diesel fuel is denser • Diesel has a boiling point ranging between 450 and 800 • Contains hydrocarbons that range from C15 to C25 [16, p. 15] • Most important property is cetane number. • The cetane number is similar to octane rating, because pressure and heat is needed to ignite the fuel/air mixture. • Diesel engines do not have spark plugs, so pressure and heat is needed to ignite the diesel fuel, – Give diesel engines their characteristic rattling sound. – Biodiesel has comparable cetane number 0 F [12, p.6] • Diesel fuels have cetane number between 40 and 45 and higher quality fuels have higher cetane numbers [12, pp.104-106]
Analysis
• In 2002 the U.S. – Produced 8,966.8 million bushels of corn [1].
– Exported 41,177,000 metric tons [1]. – Corn comes in a variety of grades, so the market price is not given. – The supply function for corn is vertical, indicating a fixed quantity is produced each year – Demand is determined by firms that use corn to produce corn oil, protein meal, and high fructose corn syrup. – The U.S. is a large country exporter, indicated by the excess supply function in the international market.
D C S C
ES C g
1
D
P C
,
g
1
S
P C
,
S C
D C
g
1
D
P C
g
1
S
P P
0 0
Analysis
• In 2002, the U.S. – Produced 323.3 million gallons of corn oil [2].
– Imported 8.6 million gallons [2].
– Exported 117.3 million gallons [2].
– The corn oil price was 27.25 cents per pound or $2.068 per gallon [2] • Demand for corn oil is determined by food and biodiesel industries • Supply is vertical, indicating a fixed oil supply is pressed from a fixed soybean supply
S CO
• The U.S. is a net exporter, indicated by excess supply function
D CO
g
2
D
P CO
,
g
2
S
P CO
,
P C
g P S
2
CO
g D
2
P CO
0 ,
g
P C
2
S
0 0
ES CO
S CO
D CO
Analysis
• In 2002, the U.S. – Produced 2,756.1 million bushels of soybeans [1] .
– Exported 28,441,330 metric tons [1] – Market price for soybeans is $5.53 per bushel [1] .
– The soybean supply function is vertical, indicating a fixed quantity of soybeans are provided each year – The demand function is determined by firms that extract the oil and use the protein meal. – The U.S. is a large exporter, indicated by an excess supply function in the international market. .
S S D S
g
3
S
P S
,
g
3
D
P C
,
ES S
S S
D S
g
3
S
P S
0
g
P S
3
D
0
Analysis
• In 2002 the U.S. – Produced 296.4 million gallons of soybean oil [1].
– Exported 42.3 million gallons [1].
S SO
– Soybean oil price was 22.04 cents per pound or $1.68 per gallon [1]. • The supply function is vertical, indicating a fixed quantity of oil is extracted from a fixed supply of soybeans • The demand function is determined by the food and biodiesel industries. • The U.S. exports soybean oil and is represented by an excess supply function.
D SO
g
4
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P SO
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g
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g S
4
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4
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0 ,
g
P S
4
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S SO
D SO
0 0
Analysis
• Petroleum market – In 2004 the United States • Refineries processed 237,943 million gallons [3] • Imported 154,310 million gallons [3] • Exported 411 million gallons [3] • Average petroleum price was $36.77 per barrel or $0.88 per gallon [3].
Analysis
• The demand function is determined by the refineries, – Convert petroleum into a host of chemicals with the largest two being diesel and gasoline. – As the petroleum price increases, then refineries quantity demanded decreases – Higher diesel and gasoline prices cause a higher demand for petroleum.
– The supply function is upward sloping, because the firms can extract more petroleum as the market price increases. – The United States is a large importer of petroleum, which is represented by an excess demand function in the international market.
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Analysis
• Diesel and gasoline markets. – During 2004, the U.S. – Refineries produced 58,700 million gallons of diesel fuel, and 126,561 million gallons of gasoline [3]. – Imported 4,922 million gallons of diesel and 6,785 million gallons of gasoline [3] – Exported 1,684 million gallons of diesel, and 1,911 million gallons of gasoline [3] – The retail price for regular unleaded gasoline was $1.88 per gallon and for diesel was $1.81 per gallon [3].
Analysis
• • • Consumers determine the demand for both markets. – Consumers with cars use gasoline while drivers of diesel powered vehicles demand diesel. – Supply function is upward sloping for both markets, because refineries can adjust the quantity supplied in each market. Diesel and gasoline markets are related – Refinery can change production to produce the more valuable commodity.
• If diesel prices are relative high and gasoline prices are low, then the refineries maximize their production of diesel fuel. • If diesel prices are low and gasoline prices are high, then the refineries can convert some of the diesel into gasoline. The United States is a net importer of diesel and gasoline, and they are represented by excess demand functions in the international markets.
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Analysis
• The analysis starts with the creation of the biodiesel industry. • If all the soybean oil were converted to biodiesel, then soy diesel would comprise less than 1% of the market. • Could a firm supply biodiesel with no government assistance?
• Refer to the Table 1 • The biodiesel firm has an annual production capacity of 30 million gallons • Based on the prices and assumptions, the firm has to sell the biodiesel for $1.81 per gallon to breakeven. • At this price, the firm could supply biodiesel with no government assistance. – Assuming industry is small and does not cause prices to increase
Capital Capital depreciation Labor (2,080 hours) Overhead Caustic (sodium hydroxide) Electricity (24,000 hrs) Water Local taxes and insurance Maintenance Operating expenses Biodiesel (gallons) Methanol (gallons) Glycerine revenue (gallons) Feedstock oil cost (gallons) Gross income Income tax Net income
Analysis
30 million gallon per year plant $21 million finance over 10 years at 8% Annual amount 12 employees 107.4 tons 100 kw 90,000 gallons 30,000,000 3,590,723 2,158,407 28,924,338 Unit price $20 /hr 50% of labor $400 per ton $0.07 per kwh $5 / Mgal 2% of Capital 3.5% of Capital Annual payment -3,129,619.26
-499,200.00
-249,600.00
-42,960.00
-168,000.00
-450,000.00
420,000.00
-735,000.00
-1,724,760.00
$1.81
$0.95
$1.09
$1.67
35% of gross income 54,275,308.77
-3,411,186.69
2,358,422.09
-48,368,164.91
0.00
0.00
0.00
Analysis
• Refer to handout • The biodiesel firm buys soybean oil to produce biodiesel • Demand increases – Soybean oil is cheaper than corn oil. – Both the soybean oil market price and domestic soybean oil supply increases while exports of soybean oil decrease.
Analysis
– Firms that produce soybean oil will demand more soybeans, because of higher price • Soybean market price increases • More soybeans are supplied domestically • Less soybeans are exported. – As more soybeans are used domestically, the supply of soybean oil increases, causing the soybean market price to decrease. – The market price for soybean oil falls, but most likely not at their original levels.
Analysis
Analysis
• The impact on the corn oil market is ambiguous without empirical data – Depends on the soybean oil price increase. – After the creation of the biodiesel industry, if the soybean oil price remains below the corn oil price, then the biodiesel industry has no impact on the corn oil industry. – If the soybean oil market price exceeds the corn oil price, then biodiesel firms will substitute corn oil for soybean oil. – Currently, the spread between the two prices is approximately $0.40 per gallon, but a large biodiesel industry could cause this spread to disappear.
Analysis
• Let’s assume the soybean oil price becomes high enough that firms use both corn and soybean oils. • The effects are similar for the corn market. • Less corn and corn oil are exported, the market prices for both increase, and the domestic supplies for both increase.
Analysis
Analysis
• A biodiesel industry increases the supply of diesel fuel, because biodiesel can be blended with regular diesel.
– The market price for diesel falls and less diesel is imported. – Refineries see a lower market price for diesel and convert more diesel into gasoline, causing the gasoline supply to increase. – The gasoline price and imports both fall. – The refineries demand less petroleum, causing the petroleum price and petroleum imports to both fall. • The lower supply of petroleum causes the supplies for both gasoline and diesel fuels to decrease, and increases the market prices for both goods. – Most likely, the market prices will not increase to the original level. • Therefore, a biodiesel industry could cause the United States to import less petroleum.
– All petro-chemicals need substitutes, like
jet fuel
, plastics, asphalt, etc.
Analysis
Conclusion
• Iif all corn and soybean oils were converted into biodiesel, these oils would supply approximately 1% of the diesel market. – A large biodiesel industry would have a negligible impact on petroleum imports. – The U.S. agricultural industry would have to greatly expand corn and soybean production in order to supply a significant share of the diesel fuel. • Corn and soybean oils are used by the food industry, and a large biodiesel industry could cause foods that use these oils to become more expensive. • Finally, vegetable oils are perfect substitutes in the biodiesel production and therefore the market prices for these oils will converge. – If one vegetable oil is cheaper than the others, then as the biodiesel industry buys the cheaper oil. The higher demand causes the market vegetable oil price to increase until it converges with the other vegetable oil prices.
Future Research
• Incorporate topic as a dissertation • Build time-series simultaneous equation model – Supply and demand – Diesel, Gasoline, and Petroleum markets • Petroleum market has a Hamiltonian • Use equations in SOYMOD for ag sector • Input all equations into GAMS and solve • Determine – Market penetration – International flows – How petroleum import changes
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3.
4.
5.
1.
6.
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