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Office of the Chief EconomistOffice of Energy Policy and New Uses
National Agricultural Credit Committee
Harry S. BaumesAssociate Director
Office of Energy Policy and New Uses
Washington, DCMarch 19, 2009
ETHANOL OUTLOOK
Office of the Chief EconomistOffice of Energy Policy and New Uses
BIOFRENZY
Office of the Chief EconomistOffice of Energy Policy and New Uses
• REVIEW
• CURRENT ENVIRONMENT
• FUTURE
Overview
Office of the Chief EconomistOffice of Energy Policy and New Uses
Source: Renewable Fuels Association
0
1000
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7000
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9000
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Mill
ion
gal
lon
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1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
U.S. Ethanol Production, 1980-2008
Office of the Chief EconomistOffice of Energy Policy and New Uses
• Policy– Farm Security and Rural Investment Act of
2002– Energy Policy Act of 2005– Energy Independence and Security Act of
2007– Food, Conservation, and Energy Act of
2008
Review: 2005 - 2008
Office of the Chief EconomistOffice of Energy Policy and New Uses
• Environment– High Energy Prices– Low commodity price– Accessible credit– Global economic expansion – Political Support
• Bush State of the Union Addresses• Advanced Energy Initiative• 20X25
Review: 2005 - 2008
Office of the Chief EconomistOffice of Energy Policy and New Uses
• Production 9.2 bg• Jan 2008 to Jan 2009
– Added 4.6 bil. gal. capacity– Added 53 plants
• Ethanol Industry Utilized – 23% ’07/08 corn crop– 31% ’08/09 corn crop
• Ethanol about 7.0% gasoline market (volume basis)
Review: 2008 Industry Perspective
Office of the Chief EconomistOffice of Energy Policy and New Uses
• Historic rise and collapse commodity prices – including energy prices
• Food and Fuel Issues
• Texas Waiver Request of RFS
• RFS2 Rulemaking (EISA)– Greenhouse Gas Emissions– Indirect Land Use
Current Environment: 2008 - today
Office of the Chief EconomistOffice of Energy Policy and New Uses
• Financial Market Collapse & Tight Credit (decline in wealth)
• CONTRACTING ECONOMIES
• Dec ’08 annualized running rate ethanol production, 10 mmg
Current Environment: 2008 - today
Office of the Chief EconomistOffice of Energy Policy and New Uses
RFS1
Conventional Corn Starch
WTI and Conventional Gasoline Prices
0
20
40
60
80
100
120
140
160
180
Jan-0
0
May
-00
Sep-0
0
Jan-0
1
May
-01
Sep-0
1
Jan-0
2
May
-02
Sep-0
2
Jan-0
3
May
-03
Sep-0
3
Jan-0
4
May
-04
Sep-0
4
Jan-0
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May
-05
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Jan-0
6
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-06
Sep-0
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Jan-0
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-07
Sep-0
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8
May
-08
Sep-0
8
Year
$/b
bl
Gasoline
WTI
Market Factor: Energy Prices
Source: EIA
Office of the Chief EconomistOffice of Energy Policy and New Uses
Profitability of Ethanol Sector: Ethanol Prices Lower than past 3 years
U.S. Average Ethanol Prices
0.00
0.50
1.00
1.50
2.002.50
3.00
3.50
4.00
4.50
$/g
al
Office of the Chief EconomistOffice of Energy Policy and New Uses
Profitability of Ethanol Sector: Corn Prices Lower than last year
U.S. Average Corn Prices
0.001.002.003.004.005.006.007.008.00
$/b
u
Office of the Chief EconomistOffice of Energy Policy and New Uses
Market Factor: Corn – Ethanol PricesEthanol – Corn Price Spread Profitability Indicator
Ethanol - Corn Price Spread
-1.000.001.002.003.004.005.006.007.008.009.00
1/7/
1999
7/7/
1999
1/7/
2000
7/7/
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1/7/
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7/7/
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2009
Per
Bus
hel
Ethanol and Corn Prices
0.001.002.003.004.005.006.007.008.00
1/7
/1999
7/7
/1999
1/7
/2000
7/7
/2000
1/7
/2001
7/7
/2001
1/7
/2002
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/2003
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/2004
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/2004
1/7
/2005
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/2005
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/2006
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/2006
1/7
/2007
7/7
/2007
1/7
/2008
7/7
/2008
1/7
/2009
Do
llars
Office of the Chief EconomistOffice of Energy Policy and New Uses
'Ethanol - Net Corn Costs
0.000.501.001.502.002.503.003.504.00
$/g
al
Profitability of Ethanol Sector: Profits down
Office of the Chief EconomistOffice of Energy Policy and New Uses
September November November November Jan/Feb2005 2006 2007 2008 2009
Corn Price, Cash $/bu 1.79 3.58 3.84 3.51 3.75
Feedstock $/gal 0.65 1.30 1.40 1.28 1.36DDG $/gal 0.21 0.31 0.42 0.39 0.38Net Corn Cost $/gal 0.44 0.99 0.97 0.89 0.98
Energy $/gal 0.15 0.13 0.14 0.22 0.15Other $/gal 0.35 0.35 0.35 0.40 0.40
Cost to Produce $/gal 0.94 1.47 1.46 1.51 1.54
Ethanol Price $/gal 2.54 2.09 1.91 2.03 1.85
Net to Ethanol Producer $/gal 1.60 0.62 0.45 0.52 0.31
Tax Credit Blenders $/gal 0.51 0.51 0.51 0.51 0.45Net Cost of Ethanol $/gal 2.03 1.58 1.40 1.52 1.40
Gasoline (wholesale) $/gal 2.21 1.67 2.46 1.39 1.32
Premium to Blend $/gal 0.18 0.09 1.06 -0.13 -0.08
Ethanol 101
Office of the Chief EconomistOffice of Energy Policy and New Uses
Ethanol Plants and Capacity Existing and Under Construction
77
113
6244
5583
31
4336
95
1778
Source: Renewable Fuels Association
0
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4000
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6000
7000
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Mar-06 Sep-06 Oct-06 Dec-06 Feb-07
Mil G
al P
er
Year
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Nu
mb
er
Plants Plants (UC) Capacity UC (L) Capacity
MARCH 2007
Office of the Chief EconomistOffice of Energy Policy and New Uses
Source: Renewable Fuels Association
Ethanol Industry: Overview
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14000
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Mar-09
Mil
Gal
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Yea
r
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Nu
mb
er
Plants Plants (UC) Capacity UC (L) Capacity
Today
Office of the Chief EconomistOffice of Energy Policy and New Uses
Source: Renewable Fuels Association
Ethanol Industry Capacity Overview
2706.8 3100.8 3643.74336.4
5583.2
7888.4
10569.4 10358.4
00
00
0
0
1906 2017
483598
754
1778
6244.2
5536
2066 2066
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12000
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16000
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Mar-09
Mil
Gal
Per
Yea
r
Operating Capacity Shut Down Capacity Under Construction/Expansion
Office of the Chief EconomistOffice of Energy Policy and New Uses
Source: Renewable Fuels Association, March 5, 2009
• Ethanol Capacity– 12.4 bg capacity– 2.1 bg capacity under construction/expansion– 14.2 bg total capacity– 2.0 bg capacity / 23 plants idled
• RFS 2009– 10.5 bg ethanol– 0.6 bg advanced biofuel (0.5 biodiesel)– 11.1 bg renewable fuels
Office of the Chief EconomistOffice of Energy Policy and New Uses
FUTURE
LOOKING FORWARD
Office of the Chief EconomistOffice of Energy Policy and New Uses
Relevant Policy • Energy Independence Act of 2007 (EISA)
– RFS2 36 bgpy by 2022– Caps corn starch ethanol at 15 bgpy– Focus on advanced biofuels – cellulosic– GHG Thresholds – Research and Development
• Food, Conservation, and Energy Act of 2008 (FCEA)– Biofuel Production Incentives– Rural Development Programs– Research, Development & Commercialization
Office of the Chief EconomistOffice of Energy Policy and New Uses
EISA – EPACT Renewable Fuels Standard
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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Billion Gallons
Yea
rs
RFS1 Conventional - Corn Starch Biobased Diesel Cellulosic Biofuels Other Advanced Biofuels
RFS1
Conventional Corn Starch
Cellulosic Biofuels
Other Biofuels
Biobased Diesel
Years
Bill
ion
Gal
lon
s
Office of the Chief EconomistOffice of Energy Policy and New Uses
Second Generation Biofuels Cellulosic Feedstocks
Office of the Chief EconomistOffice of Energy Policy and New Uses
RFS1
Conventional Corn Starch
Source: Renewable Fuels Association
Cellulosic Ethanol Projects Under Development and Construction
26 Projects
400 million gallons capacity
Office of the Chief EconomistOffice of Energy Policy and New Uses
Total Energy ConsumptionEIA 2005, 2006, 2007, 2008 & 2009
90
95
100
105
110
115
120
125
130
135
140
Year
QU
AD
BT
Us
Office of the Chief EconomistOffice of Energy Policy and New Uses
Price, Light Crude, EIA FORECASTS 2005, 2006, 2007, 2008, 2009
(2007 Basis)
30.00
50.00
70.00
90.00
110.00
130.00
150.00
Year
$/B
BL
Office of the Chief EconomistOffice of Energy Policy and New Uses
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1980 1990 2000 2010 2020 2030
Nuclear
Natural Gas
Liquid Fuels
Coal
Renewables (excl liquid biofuels)
Non-fossil energy use grows rapidly, but fossil fuels still provide 79 percent of total energy use in 2030
History Projection
Liquid Biofuels
quadrillion Btu
Source: EIA, AEO 2009, early release
Office of the Chief EconomistOffice of Energy Policy and New Uses
0
5
10
15
20
25
1970 1980 1990 2000 2010 2020 2030
Industrial
Transportation
Residential and Commercial
Electric Power
Petroleum-based liquids consumption is projected to be flat as biofuels use grows
Biofuels
million barrels per day
History Projections
Source: EIA, AEO 2009, early release
Office of the Chief EconomistOffice of Energy Policy and New Uses
• Issues and Concerns– Climate Change– Sustainability– Environment (Land, Water, Air)– Supply and Consistency of feedstock quality– LOW CARBON FUEL STANDARD
• Policy Objectives– ECONOMY– Energy security– Food security– Climate Change– Implementation EISA– Implementation FCEA
Bioenergy Complicated and Interdisciplinary
Office of the Chief EconomistOffice of Energy Policy and New Uses
Energy Independence and Security Act of 2007
Fuel categories must meet greenhouse gas life cycle performance threshold
20% life cycle reduction threshold – Conventional Biofuels (ethanol derived from corn starch from new facilities)
50% life cycle reduction threshold – Advanced Biofuels
50% life cycle reduction threshold – Biomass-based Biofuels
60% life cycle reduction threshold – Cellulosic Biofuels
Life Cycle Analysis must include direct and indirect land use change due to biofuel feedstock
production
Baseline fuel comparison to gasoline and diesel fuel in 2005
Office of the Chief EconomistOffice of Energy Policy and New Uses
Moving Forward – Which Way to Go?• Economy must improve – demand for gasoline dropped in 2008
and is expected to fall further in 2009
• New Administration’s team is being put in place – seems clear of support for bio or renewable energy – commitment to alternative energy (beyond transportation fuels)
• Recognition that bioenergy is not independent of climate change, environment, and sustainability
• Alternatives to fossil based energy is a global concern
Office of the Chief EconomistOffice of Energy Policy and New Uses
Moving Forward – What will it take?• Recognize the complexity of developing, deploying,
and using alternative bioenergy - Systems approach to solutions
• Interdisciplinary cooperation and collaboration – research teams
• Commitment to Research and Development
• Continue to be a role for STABLE public policy especially in the short-term
Office of the Chief EconomistOffice of Energy Policy and New Uses
Moving Forward - What we need to know
• Overcoming Infrastructure Constraints– Blend Wall
• Vehicles• E-85 availability
– Transport of “ethanol”– Production, harvest, transport, & storage biomass
• Concentrate or improve energy density of biomass– Other uses
• Marine, motorcycles, small engines
Office of the Chief EconomistOffice of Energy Policy and New Uses
• Biomass Production– Alternative Feedstocks
• Switchgrass, miscanthus, algae, …
– Supply, Use & Price– Feedstocks for energy (not exclusively
transportation fuels)– Land Use and availability
• Direct & Indirect effects
– Life Cycle Analysis
Moving Forward - What we need to know
Office of the Chief EconomistOffice of Energy Policy and New Uses
What We Need To Know• Technology Development
– Crop productivity – across potential feedstocks
• Implications for other input use (fertilizer, water, chemicals,…)
– Conversion
Office of the Chief EconomistOffice of Energy Policy and New Uses
THANK YOU!
Contact Information: Harry S. Baumes
hbaumes@oce.usda.gov
202-401-0497