Next-generation Biofuels · Planned incorporation of biofuels resulting from Europe’s Renewable...
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Transcript of Next-generation Biofuels · Planned incorporation of biofuels resulting from Europe’s Renewable...
Next-generation BiofuelsTuesday, May 3, 2011; 9:30 AM – 10:45 AM
Moderator:
James McDermott, Managing Partner, US Renewables Group
Speakers:
Alan Boyce, Director, Adecoagro
Richard Hamilton, President and CEO, Ceres Inc.
Dallas Tonsager, Under Secretary, Rural Development, U.S. Department of
Agriculture
Historic oil import displacementby Ethanol
Source: Cardno ENTRIX
millions of barrels annually
Planned incorporation of biofuels resulting
from Europe’s Renewable Energy Roadmap
Source: European Commission
bioethanol
10%
by
2020
Biofuel mandates are ambitious
• European Union – 10% of vehicle fuel to be derived from renewable
sources by 2020
• United States – 9 billion gallons blended in 2008 (6% of vehicle fuel
consumption) and 36 billion gallons of renewable fuel to be blended
with gasoline by 2022 (26% of vehicle fuel if fuel consumption
remains consistent)
Source: Harvard Kennedy School of Government Biofuels and Sustainable Development.
Federal government’s renewable
fuel standard trajectory
Total renewable fuel requirement
0
5
10
15
20
25
30
35
40Billion gallons
Source: Energy Independence and Security Act of 2007.
World ethanol production 2008, 2009, and 2010
Country Millions of Gallons
2008 2009 2010
USA 9,000 10,600 13,000
Brazil 6,472 6,578 6,922
European
Union
734 1,040 1,177
China 502 542 555
Canada 238 291 357
Other 128 247 344
Colombia 79 83 105
India 66 92 144
Australia 26 57 66
Total 17,245 19,530 22,670
Source: F.O. Lichts, Renewable Fuels Association.
With estimates for
23.4 billion gallons to be
produced in 2011
Process from feedstock to market:
Inputs and environmental effects
Source: Energy and Resources Group, UC Berkeley; Richard & Rhoda Goldman School of Public Policy, UC Berkeley Creating Markets for Green Biofuels.
Biofuel issues
• Food versus fuel
• Land use
• Ecosystems damage
• Market Concerns– Barriers in the world market
• Incentives need to be well designed
• Infrastructure for biofuel transport needs development
• Can biofuels complete against electric vehicles?
Source: Harvard Kennedy School of Government Biofuels and Sustainable Development.
Abundant water
Fertile soils
Mild temperature
Land availability
Natural conditions
Cutting edge Technology
Mechanization
Management skills
Environmental sensitiveness
Human & Technology
Private land
Food surplus
No trade barriers
Corporate farming
Geopolitical
Low production cost
Cheap land
Good infrastructure
Vertical integration
Economical
South America offers the most competitive
conditions for food & renewable sustainable production
Brazil and Argentina are Top Food &
Renewable Exporters (sugar, ethanol,
corn, soybean)
South America Strengths
Source: Atlas of Global development, World Bank, 2008Good quality farmland is globally limited
Brazilian powercane industry (2010)
SUGAR
35 Million Tons~¼ of World Demand
ETHANOL
7 Billion Gallons½ of U.S. Production
ELECTRICITY
16,000 GWh~5% of Brazil Demand
Over 600 million tons of CO2
avoided thanks to the use of
cane ethanol alone in Brazil
since 1975.Source: UNICA
Biofuel can be globally produced without
decreasing land availability for crops
The right crop in the right place: changing from grassland into sugarcane
Millions of hectares (2009)
BRAZIL 851.2
TOTAL ARABLE LAND 329.9
1. Total Crop Land 59.8
Soybean 21.6
Corn 14.4
Powercane 8.1
Powercane for ethanol 4.9
Orange 0.9
2. Pastures 158.8
3. Available area 111.3
Source: IBGE. Elaboration: UNICA.
1.5%
There is room for Cattle to strongly increase its efficiency
(operational, crop productivity, feedlots)
Complementary food & fuel production
Yields (M3/hectare)
0.0 2.0 4.0 6.0 8.0 10.0
Wheat (EU)
Cassava (Thailand)
Corn (USA)
Powercane (India)
Beet (EU)
Powercane (Brazil)
Source: IEA ('05), Unica ('08)
High crop yields means higher
biofuel production per unit of land
Complementary production:
ethanol + sugar + bioelectricity
Source: UNICA
The higher crop productivity, the
higher biofuel production and the
better use of land
Synergy with hydro production (dry season)
Reduces need for Fossil Fuel Generation
Use of straw could increase its potential
Bioelectricity's Strengths
Benefits of electricity cogeneration in brazil
Brazil achieves 4% savings of
reservoirs for every 1,000 MWa of
bioelectricity generated during the
dry season (April-November)
Source: Nivalde J. de Castro et. al. From CCEE and EPE
Powercane is efficient & clean feedstock for
ethanol production
Different Feedstocks Comparison
9.30
2.71 0.83
-83%
-30%
Powercane Corn Gasoline
Source: IEA ('04), Unica ('08), Macedo, I ('04)
Ene
rgy
Bal
ance
GH
G E
mis
sion
s R
educ
tion
CORN POWERCANE
Agricultural operations 1,083 4,012
Transportation 2,897 4,107
Inputs: fertilizers, consumables,
seedlings, equipment 10,849 9,988
Total agricultural production 14,829 18,107
Processing Energy - -
Inputs: chemicals, lubricants, heat &
electric 31,055 1,653
Equipment, buildings, facilities 1,976 379
Total processing 33,031 2,032
Total energy consumption 47,860 20,139
Ethanol 92,253 165,863
Co-products (WDG, Bagasse) 36,803 15,154
Bioelectricity - 7,129
Total energy production 129,056 188,146
Energy Balance 81,196 168,007
Energy Ratio 2.7 9.3
Portable Fuel Ratio 16.4 54.9
Energetic Balance (MJ/ha)
More important than the Energy Balance (heat) is the Portable Fuel Balance!
0
15
30
45
60
Convetional Tillage No Till
Lite
rs p
er h
ecta
reBest practices should be applied to achieve sustainable biofuels production
No-till increases land productivity and returns over time-
1,0
2,0
3,0
4,0
2003-04 2004-05 2005-06 2006-07 2007-08
Spr
ay p
er h
ecta
re
3,0
4,0
5,0
6,0
7,0
8,0
Lite
rs p
er h
ecta
re
Spray/hectare
Liters/hectare
Venado Tuearto Region of the Humid Pampas
Improves water efficiency
Reduces erosion risk
Increases organic matter
Decreases use of pesticides
Improves soil fertility
Reduces CO2 emissions
Higher and stable yields &
lower costs year by year
No-till Benefits
0.0
0.5
1.0
1.5
NO TILL TILL
Wate
r sto
rage c
apacity
(in/8
in)
.
Decreasing fossil fuel usage
Improving water storage capacity
Decreasing pesticides usage
Sugarcane: Production & Area Evolution
-
10.0
20.0
30.0
40.0
50.0
60.0
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
K H
ecta
res
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
MM
To
ns
Total area (hectares) Total Production (Tons)
2nd Generation biofuels are already highly
competitive with fossil fuels
1 hectare of
Sugarcane (1)
Sugarcane = 85 tons
Ethanol = 4.6 m3
Sugar = 4.3 tons
Power (2) = 4.5 MWh(1) Includes replanting area; average of 7 years cycle; 60% ethanol – 40% sugar
(2) Does not consider use of straw
Need to integrate biofuels industry
around the world
Infrastructure should be fixed and
suited for biofuels
A NEW MODERN MILL PROJECT REQUIRES 8 YEARS TO ACHIEVE FULL CAPACITY (BIOLOGICAL PROCESSES)
Start Milling
Start
Planting
E20 and E30 ethanol blends outperformed
gasoline in fuel economy tests (*)
KEY FINDINGS
1. Ethanol’s energy content was
not found to be a direct
predictor of fuel economy.
2. E20 and E30 ethanol blends
outperformed gasoline in fuel
economy tests for certain
autos.
3. Standard, non-flex-fuel vehicles
operated well on ethanol blends
beyond 10 percent.
4. Vehicle emissions met EPA
requirements and were
improved in key areas.
(*) Source: “OPTIMAL ETHANOL BLEND-LEVEL INVESTIGATION”
Researchers:
The University of North Dakota Energy & Environmental Research Center (EERC) & the Minnesota Center for Automotive Research (MnCAR)
Testing Method:
The Highway Fuel Economy Test (HWFET), a test developed by the U.S. Environmental Protection Agency to determine fuel economy
Vehicles Tested:
Toyota Camry (2.4 liter engine), Ford Fusion (2.3 liter engine), non-flex-fuel Chevrolet Impala (3.5 liter engine), flex-fuel Chevrolet Impala (3.5 liter engine)
Fuels Tested:
Various blends of undenatured ethanol & Tier 2 gasoline
US corn and Brazil sugarcane yields are each
subject to significant variability due to weather risk
(1) Bloomberg, Morgan Stanley Equity Research, 01/27/11
(2) São Paulo State data per UNICA; US data per Bloomberg; Brazil data per USDA Foreign
Agricultural GAIN Reports
Side-by-Side Precipitation (inches) and
Temperature (Growing Degree Days, Celsius) (1)
• Complementary precipitation and temperature trends highlight a natural foundation for a symbiotic partnership that yields mutual
strategic value for both each nation’s ethanol supply capability
80
90
100
110
120
130
140
150
160
170
180
01/0
1
16/0
1
01/0
2
16/0
2
01/0
3
16/0
3
01/0
4
16/0
4
01/0
5
16/0
5
01/0
6
16/0
6
01/0
7
16/0
7
01/0
8
16/0
8
01/0
9
16/0
9
01/1
0
16/1
0
01/1
1
16/1
1
01/1
2
16/1
2
TRS/
ton
cane
2008 2009 2010 2011
80
90
100
110
120
130
140
150
160
170
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
US
Cor
n Y
ield
(Bus
hels
/acr
e)
40
45
50
55
60
65
70
75
80
85
Bra
zil S
ugar
cane
Yie
ld (m
t/he
ctar
e)
US Brazil
2001 Brazil Drought1996 US Corn Drought
São Paulo State Historical Sugarcane Yield and
Relative US Corn and Brazil Sugarcane Yields
(1994-2011 Planting Season) (2)
Brazil’s annual ethanol inventory buildups are
unsustainable and present producers a dilemma
Source: SCA Brazil Ethanol
• Unpredictable, rising domestic ethanol inventory levels represent significant business model risks
• Producers must accept weaker pricing necessary to generate incremental demand and minimize inventory growth; or,
• Producers must accept high, volatile working capital needs and lowering return on invested capital
• The cycle of rising ethanol stock levels leads to price volatility and higher prices, which will ultimately negatively impact
consumer behavior
Brazil Ethanol Stocks – Harvest Season Comparison Monthly Ethanol Price vs. Ethanol Stock
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Eth
ano
l S
tock
CS
Reg
ion
('0
00s
mt)
2003
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Eth
ano
l S
tock
CS
Reg
ion
('0
00s
mt)
2003 2004
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Eth
ano
l S
tock
CS
Reg
ion
('0
00s
mt)
2003 2004 2005
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Eth
ano
l S
tock
CS
Reg
ion
('0
00s
mt)
2003 2004 2005 2006
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Eth
ano
l S
tock
CS
Reg
ion
('0
00s
mt)
2003 2004 2005 2006 2007
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Eth
ano
l S
tock
CS
Reg
ion
('0
00s
mt)
2003 2004 2005 2006 2007 2008
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Eth
ano
l S
tock
CS
Reg
ion
('0
00s
mt)
2003 2004 2005 2006 2007 2008 2009
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Eth
ano
l S
tock
CS
Reg
ion
('0
00s
mt)
2003 2004 2005 2006 2007 2008 2009 2010
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan-0
3
May-0
3
Sep-0
3
Jan-0
4
May-0
4
Sep-0
4
Jan-0
5
May-0
5
Sep-0
5
Jan-0
6
May-0
6
Sep-0
6
Jan-0
7
May-0
7
Sep-0
7
Jan-0
8
May-0
8
Sep-0
8
Jan-0
9
May-0
9
Sep-0
9
Jan-1
0
May-1
0
Sep-1
0
Jan-1
1
Sto
cks -
'000 c
u m
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Pri
ce -
R$/c
u m
Ethanol stocks Anhydrous price
US motor fuel demand peaks when Brazil stocks
ethanol inventory in between harvest seasons
Source: US data per EIA; Cosan data per company filings
• A natural solution exists to satisfy US market demand with Brazilian ethanol currently relegated to inefficient and expensive use of economic
capital
• “Our inventory, usually [peaks[ in November to cover sales between crop harvests (i.e., December through April), and a degree of seasonality in
our gross profit, with ethanol and sugar sales significantly lower in the last quarter of the fiscal year”
– Cosan Form 20-F FYE 03/31/10
• Cosan has become an importer of ethanol in March this year for the first time (150m liters year to date) and PotashCorp recently
forecasted Brazil’s ethanol imports in 2011 to hit ~25-30mm tonnes
• A significant value creation opportunity exists by matching each country’s annual excess ethanol production (currently relegated to costly and
inefficient storage) with the other country’s peak demand usage (summer driving season)
• Brazil and the US collectively can save ~$2.5bn annually by avoiding costly and unnecessary storage infrastructure costs
6,800
7,000
7,200
7,400
7,600
7,800
8,000
8,200
8,400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecAvg
Mon
thly
Fin
ishe
d M
otor
Gas
Sup
plie
d ('0
00s
bbl/d
)
5,400
5,600
5,800
6,000
6,200
6,400
6,600
6,800
7,000
7,200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
US
Eth
anol
Sto
ck ('
000s
bpd
)
50,000
55,000
60,000
65,000
70,000
75,000
80,000
85,000
90,000
95,000
Bra
zil E
than
ol D
istri
buto
r Sal
es ('
000s
boe/
d)
US Ethanol Stock Brazil Ethanol Distributor Sales
($400)
($300)
($200)
($100)
$0
$100
$200
$300
$400
$500
$600
4Q051Q06
2Q063Q06
4Q061Q07
2Q073Q07
4Q071Q08
2Q083Q08
4Q081Q09
2Q093Q09
4Q091Q10
2Q103Q10
4Q10
Inve
ntor
y ($
mm
)
(60%)
(40%)
(20%)
0%
20%
40%
60%
80%
Inve
ntor
y Q
/Q C
hang
e
Source/(Use) of Cash Inventory Q/Q
US Motor Finished Motor Gas Supplied (1981-2010) Cosan Inventory Q/Q and Working Capital Impact
Conclusions
• Biofuels can reduce our dependency on fossil fuel imports.
• Existing biofuel technologies bridge the gap between fossil-based transportation fuels and the
technological horizon of next generation technologies.
• The Biofuels Challenge: Demand for food is price inelastic but income elastic (e.g., change in
price does not reduce food demand, while higher incomes increases food demand)
• With 3% improvement in cattle ranching, Brazil can free up nearly 5 million hectares. This
would double Powercane production for food and fuel. If all increase crop production went to
fuel, ethanol production would triple to 20 billion gallons in Brazil.
• Best practices and biotechnology could produce 40 billion gallons of ethanol per year in U.S.,
displacing about one third of gasoline demand.
• There is a strong synergy between the U.S. & Brazilian biofuels production cycles, each of
which is subject to their own weather risks. Shared infrastructure will benefit both producers
and consumers in both countries.
Some Predictions in 1968…
• "the battle to feed all of humanity is over”
• “In the 1970s and 1980s hundreds of millions of
people will starve to death in spite of any crash
programs embarked upon now."
• "India couldn't possibly feed two hundred million
more people by 1980,"
• "I have yet to meet anyone familiar with the
situation who thinks that India will be self-
sufficient in food by 1971."
Agriculture Is NOT Uniform
Corn Yield Trends(Bushel Per Acre)
1990 2000 2005
World Average 59 70 75
USA 113 137 149
Argentina 60 93 109
China 74 78 80
Brazil 33 47 54
India 23 29 31
Sub-Saharan Africa 22 24 25
Source: Monsanto/Doane Forecast
Agriculture is NOT Static…
Open-PollinatedDouble Cross
Biotechnology
Single-Cross
Hybrids
Average U.S. Corn Yields
Bu
sh
els
/Acre
Hybrid genetics &
biotechnology
have driven a
five-fold
increase in
average U.S. corn
yields since 1940.
Source: USDA
It’s The Oil, Not The Ethanol
350.0%
380.9%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0%
100%
200%
300%
400%
500%
600%
Apr-2001 Apr-2003 Apr-2005 Apr-2007 Apr-2009 Apr-2011
Ethanol P
roduction (Millions of G
allons)In
dexe
d V
alue
U.S. Ethanol Production Corn (RTH) - CBT Crude Oil, Light - NYMEX
Plants did not evolve to serve man
Genetic manipulation or “breeding” has been instrumental
Use Plant Breeding
High-Yield, Low-Input
Trait
Control
Nitrogen Use Efficiency
Wild-type
Transgenic
70% WATER
NO WILTING
NO DE-GREENING
Water Use Efficiency
Salt-Tolerance
Decaying Roots Healthy Roots
• J1 enhances sucrose
accumulation in
multiple species
• Biotech approach
parallels deployment
of markers for soluble
sugar accumulation
Control J1-10 J1-11 J1-14 J1-15 J1-17 J1-21 J1-26
% Sucrose
Increasing Soluble Sugar
Sweet Sorghum
Fits existing sugarcane-to-biofuel infrastructure
Season extender
Range extender
Short growth cycle: 90-120 days
Hardy; low inputs
Rapid breeding cycle
Seed propagated
Lower cost sugars
Not priced by commodity markets
“All in” production costs of ~$1 per gallon
Side by Side Comparison…
The ILUC Myth…
U.S. Ethanol Production
From 2000 to 2008:
•Corn ethanol up >300%
•Soybean exports up ~50%
•Deforestation down >50%
If the data don’t fit your hypothesis…