The impact of biofuels on the world fertilizer

market

By Oliver Hatfield, Director

Integer Research Ltd

TFI Conference, November 2007

Presentation overview

• Definitions and scope

• Factors which translate biofuel market

developments into fertilizer demand

• Recent global biofuel developments and

forecast

• The impact on fertilizer demand

Definitions and scope

Some definitions

• Biofuel – renewable crops used for

transportation

• Technology

• 1G – Bioethanol (sugar and starch-based)

and Biodiesel (vegetable oils)

• 2G (cellulosic, etc) - 5-10 years away

Transport fuel share of global energy consumption,total = 7.8 billion toe

Industry

27%

Commercial

& Residential38%

Non-energy*

9%

Transport

26%

*Non-energy uses primarily include fossil fuels used for petrochemicals

** Here electricity includes only non-fossil fuel sources such as hydro, nuclear energy, solar or geothermal

Fossil Fuels

97.5%

Biofuels

1.4%

Electricity**

1.1%

Source: IEA

Global farming industry energy production breakdown for 2006

Cereals63%

Oil Crops9%

Sugar Crops7%

Roots & Tubers6%

Others*6%

Fish, Meat and Animal Products

10%

Potential Feedstocks

for First Generation

Biofuels Technologies

Food & Beverage

62%

Livestock Feed

29%

Biofuels4%

Industry3%

Other**2%

* Pulses, vegetables, fruit, nuts etc.

** Seed production, processing losses, transportation losses, etc.

1100 Mtoe 1100 Mtoe

Source: FAO

Factors which translate biofuel in to fertilizer

demand

What factors translate biofuel market

developments into fertilizer demand?

Fertilizer

use for

biofuel

Fertilizer

app. rate

Crop

yield and

land

required

Raw

material

crop

required

Biofuel

output by

crop

Gov’t

mandated

targets

Political

Economic

- profit

incentive

Environ-

mental

factors

Oil priceCrop

price

Subsidy

required

Political drivers

• Energy security, diversity of sources, reduced

dependence

• Employment and industrial development

• Agricultural support

- Higher crop prices = happy farmers

Environmental drivers

• In general, CO2 saving with intensification

• Expansion of land = ?

Source: IEA, various

Economic drivers – rising oil pricesBrent crude oil, US$/TOE, $ of the day

0

100

200

300

400

500

600

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

Source: DOE

Relatively stable crop prices, until 2006

0

20

40

60

80

100

120

140

160

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

Rela

tive

Price

, 1

99

1 =

10

0

US - Maize Malaysia - Palm Oil EU - Wheat

Source: USDA, World Bank

Feedstock sensitivity analysis for

biodiesel cost of production vs. fossil diesel

Crude Oil: US$ 33 / bbl

Palm Oil: US$ 222 / ton

Soybean Oil: US$ 270 / ton

Rapeseed Oil: US$ 397 / ton

Crude Oil: US$ 98 / bbl

Palm Oil: US$ 667 / ton

Soybean Oil: US$ 810 / ton

Rapeseed Oil: US$ 1190 / ton

Source: Integer

Feedstock sensitivity analysis for

bioethanol cost of production vs. gasoline

Crude Oil: US$ 33 / bbl

Sugar Cane: US$ 9 / ton

Maize: US$ 61 / ton

Wheat: US$ 80 / ton

Crude Oil: US$ 98 / bbl

Sugar Cane: US$ 26 / ton

Maize: US$ 183 / ton

Wheat: US$ 239 / ton

Source: Integer

Projection of biofuel production

• Forecast fuel consumption

• National/regional targets: are these targets

achievable given economics, politics etc?

• % share of biofuel of total transport fuel

consumption

• Biofuel production forecast:

• By region, by fuel

Biofuel raw material crop requirements

• Biofuel capacity/production by crop

• US – ethanol from corn, diesel from

soybeans

• Brazil – ethanol from sugar, diesel from

soybeans

• Europe – ethanol from cereals, diesel from

rapeseed

Land requirements and fertilizer consumption

• Crop production/yield = land use by crop

• Fertilizer application rate x land use by crop =

biofuel related fertilizer consumption

Recent global biofuel developments and forecast

Biofuel production split – bioethanol & biodiesel

Source: Integer

Biofuel production split, by region

Source: Integer

Biofuel production forecast – total by region

Source: Integer

0

10

20

30

40

50

60

70

80

90

Bio

fuel P

rod

uct

ion

, Mto

e

US Brazil EU SEA ROW Downside Upside

0

2000

4000

6000

8000

10000

12000

2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Eurostat, Integer

EU –targets elusive, but still major impact on land useBiofuel planted area (thousand hectares)

USA – biofuel demand taking over cornCorn use for ethanol as % of total corn production

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: USDA, Integer

Brazilian biofuel area continuing to expand –

strong fundamentals, mature marketPlanted area (million hectares)

0

1

2

3

4

5

6

7

8

9

Source: Dept of Agriculture, Brazil; Integer

Rest of the World

• Indonesia and Malaysia – oil palm growth and

strong potential

• But doubts over exports, recent economics

unfavourable, no subsidies

• Rest of the world

• Developing - lower on political agenda than food

security

• Developed- many schemes and targets, but

compared to ‘big 3’, biofuels potential is much smaller

Impact on fertilizers

Measuring the biofuels effect on fertilizers

• Factors to consider:

- Impact overall: change in world fertilizer consumption as

a result of crop production related to biofuel

- Change in fertilizer consumption at country/region level

in biofuel producing/consuming countries

- Changes in other countries/regions affected indirectly –

increased fertilizer use as a result of shifting crop patterns,

supply gaps, higher crop prices

Base case: N, P and K fertilizer consumption on

crops used to produce biofuels(thousand tonnes nutrient)

0

1000

2000

3000

4000

5000

6000

7000

2006 2007 2008 2009 2010 2011 2012

USA EU-27 Brazil SE Asia Rest of the world

Source: Integer, FAO, USDA, ANDA, IFA

The relative impact of biofuels growth

• Assuming non-biofuel fertilizer demand increases by a

straight line 2.5% per year to 2012:

• Increase in nitrogen demand for biofuels 7% of total

increase (biofuels + non-biofuels)

• Increase in phosphate demand for biofuels 8% of

total increase

• Increase in potash demand for biofuels 15% of total

increase

What is happening at a country/region level

• Growth in nitrogen in US for corn, at the expense of

soybeans (low N)

• In the EU:

• Switch to rapeseed in Europe, biggest increase in

nitrogen

• Expansion of area – reduction of set aside

• Growth in sugar cane in Brazil, some expansion of

soyabeans for diesel, more so to compensate for lower

US production

Knock-on effect on other countries/regions

• EU/US area is constrained such that productivity increases

are insufficient to supply new biofuels market demand

• Impact of biofuels on crop markets:

• Lower US corn availability for export

• Lower US soyabeans availability

• Lower EU cereals crop availability

• Reflected in higher cereal/oilseed prices

• Positive impact on countries with potential for intensification

(dormant crop yields, immature fertilizer use)

• And potential for land expansion – Brazil

Summary and conclusions

Summary and conclusions

• The relationship between land and energy is now

strongly established

• Technological lock in, sunk investments, political

commitments

• Winners – land owners, farmers, input suppliers

• Losers – crop consumers, tax payers?

• Biofuels and renewable energy are high on the political

agenda, even though 1G economics are questionable

Summary and conclusions

• Biofuels will continue to exert significant positive

influence on the fertilizer industry:

• Across all nutrients

• In biofuel producing/consuming countries

• In countries with intensification/expansion potential

for filling crop supply gaps

• But, key point to watch

• Longer term growth rate subject to swings in energy

and crop prices, and political decision making