2 - Alex Gorrell - FIRTCurrent industry average: 2.8 gal/bu (81% efficient) – Max. theoretical...
Transcript of 2 - Alex Gorrell - FIRTCurrent industry average: 2.8 gal/bu (81% efficient) – Max. theoretical...
Fertilizer Outlook and Technology Conference, November 16, 2010
Alex GorrellMarket Research Analyst, Intrepid Potash
Biofuels OverviewBiofuels Overview
OutlineOutline
Current US Ethanol policy
Importance of Corn as feedstock
Emerging technologies
Ethanol on the world stage
Industry economics
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Blending LimitBlending Limit
On October 13, the EPA approved E15 for use in cars made after 2007. – It is expected to make a decision for cars made from 2001-06 in
December.– E85 use is inconsequential (only 0.3% of US cars run on E85)
Demand increase will be limited by market, infrastructure and implementation constraints– Gas price, pump certification, labeling, consumer education
*assuming 2007-2010 model years cars use 20% of transport fuel, model year 2001-2006 use 40%, and the US fuel market is 138 bgy (EIA).
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Blend wall* (bgy)
E10 E15 for model years
2007+ 2000+ all cars
13.8 15.9 17.9 20.7
Tax Credits Set to ExpireTax Credits Set to Expire
Expiring at the end of 2010:– $0.45/gal tax credit for blenders (VEETC)– $0.54/gal + 2% ad valorem tariff on Ethanol Imports– $0.10/gal credit for small ethanol producers
Expiring end of 2012:– $1.01/gal credit for cellulosic producers
Expired end of 2009:– $1.00/gal credit for Biodiesel producers
Proposals have been made to either lower the amount of the credit or eliminate it in favor of expanding infrastructure and installing blender pumps
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Environment surrounding tax credit extensionEnvironment surrounding tax credit extension
Tax Credit renewal depends on lame duck session– Arguments for credits/tariff:
– Job creation– Protection from cheap/subsidized imports– Tariff cancels out US subsidizing imports– Needed to stimulate investment in new technology– Reimburses Blenders for compliance with RFS2
– Arguments against:– Redundant with RFS2 minimum volumes– Corn ethanol is a mature industry– Free Trade– Food vs. Fuel– Questionable GHG reduction benefits of Ethanol– Potential cost cutting target (cost $5 billion in 2009)
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Renewable Fuels Standards Ensure Minimum DemandRenewable Fuels Standards Ensure Minimum Demand
Source: Energy Independence and Security Act of 2007
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Million Gallons 2011 2022Corn Ethanol 12,600 15,000 Biodiesel 800 1,000 Cellulosic 5-17* 16,000 Other Advanced 300 4,000
*Originally set at 250 million gallons, EPA will release final revision by Nov. 30
Energy Independence and security act of 2007 (EISA) established RFS2 (replacing RFS1, established in 2005)
Other advanced biofuels can be cellulosic, biodiesel, sugarcane, RDIF, algal, or anything else that meets GHG standards and is not derived from corn starch
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RFS2 (Billions of Gallons)
Other Advanced Biofuel
Biodiesel
Cellulosic Ethanol
Conventional Corn Ethanol
CAGR: 8.9%Cellulosic CAGR: 52.6%
How RFS2 is Enforced: Renewable Identification Numbers (RINs)How RFS2 is Enforced: Renewable Identification Numbers (RINs)
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Expanding Corn Supply Has Met Ethanol DemandExpanding Corn Supply Has Met Ethanol Demand
Ethanol Demand has driven growth in Corn Use
Other uses have remained relatively flat
Ethanol should level off at around 30-40% of total use
If the US becomes a structural ethanol exporter, use could go up
USDA forecast assumes imports are used to meet mandates; if RFS2 is met entirely with US ethanol, use would be 0.2-0.4 billion bushels more each year, leveling of at 5.3 in 2015*
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*assuming current yield of 2.8 gal/bu
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USDA Projected US Corn Utilization
ExportsEthanol for fuel FSI except ethanolFeed & residual
Source: USDA
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1999/00 2004/05 2009/10 2014/15 2019/20Source: USDA
Ethanol
Feed and Residual
Exports
FSI less Ethanol
Improving EfficiencyImproving Efficiency
Current industry average: 2.8 gal/bu (81% efficient)– Max. theoretical yield: 3.47 gal/bu
A 2008 USDA study found that corn ethanol contains about 2.3 BTUs of energy for every 1 BTU of fossil fuel consumed in production, a ratio that has also been improving over time
71%
73%
75%
77%
79%
81%
83%
85%
2.452.52.552.62.652.72.752.82.852.92.95
Gallons/bushel
Efficiency
Ethanol Yields
2008 USDA Ethanol Energy Balance ReportEERE Theoretical yield calculator
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Production Concentrated in MidwestProduction Concentrated in Midwest
Total Capacity: 14 billion Gallons/year– Potential corn use (2.8 gal/bu): 4.8 billion bushels
Sources: Renewable Fuels Association, Ethanol Producer Magazine
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Sources: Renewable Fuels Association, Ethanol Producer Magazine
Corn is Feedstock for Over 95% of Production CapacityCorn is Feedstock for Over 95% of Production Capacity
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Cellulosic capacity falls short of mandatesCellulosic capacity falls short of mandates
Feedstocks: crop residues, municipal solid waste (MSW), Wood waste, “energy crops” e.g. Switchgrass, Miscanthus
EISA calls for cellulosic to generate most of production growth– RFS2 calls for 1 billion gallons by 2013,16 billion gal by 2022
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2009 2010 2011 2012 2013 2014 2015
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World Cellulosic Ethanol CapacityMillions of Gallons
RFS2 Cellulosic mandate
ROW Capacity
US Capacity
Source: Biofuels Digest Advanced Biofuels tracking database, EISA
Impact of Cellulosic Production on Fertilizer UseImpact of Cellulosic Production on Fertilizer Use
Feedstocks (switchgrass, corn stover, wood waste etc.) contain large amounts of nutrients, especially K, which would be removed from fields– It is uncertain how much of the K is recoverable and how much would
have to come from fertilizer– Switchgrass replaces some N through fixation– One byproduct of cellulosic is biochar ash, which contains P,K and S
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Nutrient Removal (Lbs/ton harvested)
N P2O5 K2O
University of Minnesota Bio-Ash Fertilizer StudyUniversity of Minnesota Bio-Ash Fertilizer Study
No measurable agronomic benefit to char ash– K and other nutrients not available to plants as fertilizer
Ash also contained sulfur – 5.7 % in FB, 1.6% in CF, 0.03% in Biochar
In addition to P, K and S in the other ashes also contributed to yield response
Ash FB CF Biochar Potash TSP Control
Source Burning Distiller Solubles
Burning Turkey Manure
Pyrolysis of wood chips and corn cobs N/A N/A N/A
Nutrient Content 0‐13.5‐9.9 0‐17.6‐16.2 0‐0.1‐0.9 0‐0‐60 0‐44‐0 0‐0‐0
Lb/acre of K2Oapplied 221 118 121 120 0 0
Yield (bu/A) 221 218 194 208 219 192Source: Agricultural Utilization Research Institute, University of Minnesota
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World Fuel Ethanol ProductionWorld Fuel Ethanol Production
World leaders: US (corn), Brazil (Sugarcane)
Brazilian domestic market more mature than US, better suited to being a structural exporter
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US as a Potential Net ExporterUS as a Potential Net Exporter
US: Net imports of only 9.3 mg in first 7 months of 2010, on pace for 16 mg
RFS2 advanced biofuel requirement could mean more imported sugarcane ethanol from Brazil
Allowing VEETC to expire will harm future exports– Lifting tariff would hurt US trade balance by making imports cheaper
Source: US Energy Information Administration16
Biodiesel operating at 20% capacityBiodiesel operating at 20% capacity
Primary feedstock: soybean oil
Tax Break lapse and EU Import restrictions have hurt industry
Production expected to be no higher than RFS mandated 800 million gal in 2011
Primary export market: EU
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011*
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US Biodiesel MarketThousand Gallons
Production Capacity
Net Exports
Consumption
Production
Sources: US Energy Information Administration, National Biodiesel Board
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Biodiesel margins are small or negativeBiodiesel margins are small or negative
7.6 lbs of soy oil are needed to produce 1 gallon of Biodiesel
Soy Oil feedstock is by far the largest cost component
Loss of $1/gal credit, high feedstock prices and EU import restrictions are detrimental to the industry
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European BiodieselEuropean Biodiesel
Primary feedstock: Rapeseed oil
Import biodiesel from US, Argentina, Malaysia– Cheaper to import than
produce– Feedstock (esp. palm
oil) from Asia
Some producers switching to bioethanol, citing profitability
Some concerns over sustainability of Palm oil as a feedstock
Total Production
Total Capacity
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European Biodiesel Production and Capacity'000 Metric tons
Italy
France
Spain
Germany
Others
Total Production
Total Capacity
*assuming 43% utilization rate
Source: European Biodiesel Board
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Prices tend to stay in balance long termPrices tend to stay in balance long term
Ethanol correlated to both gasoline and corn prices
Source: Bloomberg
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$/Bu
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Ethanol, corn, and gasoline prices
US Regular Gasoline Rack Prices
US average Ethanol rack price
Iowa Yellow Corn Price ($/bu)
MarginsMargins
The largest and most variable input cost in ethanol production is Corn– Other large components are Natural Gas and Electricity– For US Biodiesel it is Soybean Oil, followed distantly
by methanol
Despite current high corn prices, Ethanol margins have been strong– Of 4 major margin components, 3 are favorable
+ High ethanol price+ High Dry Distiller’s Grains price+ Low Natural Gas cost- High Corn cost
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Ethanol MarginsEthanol Margins
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ConclusionsConclusions
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Pace of growth in corn as a feedstock is slowing
If cellulosic takes off as expected, it will have significant implications for nutrient use
We are currently at a pivotal point as far as policy is concerned
Contact: