Office of the Chief Economist Office of Energy Policy and New Uses National Agricultural Credit...

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


BIOFRENZY


• REVIEW

• CURRENT ENVIRONMENT

• FUTURE

Overview


Source: Renewable Fuels Association

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Mill

ion

gal

lon

s

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

U.S. Ethanol Production, 1980-2008


• 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


• 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


• 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


• 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


• Financial Market Collapse & Tight Credit (decline in wealth)

• CONTRACTING ECONOMIES

• Dec ’08 annualized running rate ethanol production, 10 mmg

Current Environment: 2008 - today


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

5

May

-05

Sep-0

5

Jan-0

6

May

-06

Sep-0

6

Jan-0

7

May

-07

Sep-0

7

Jan-0

8

May

-08

Sep-0

8

Year

$/b

bl

Gasoline

WTI

Market Factor: Energy Prices

Source: EIA


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


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


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/

2000

1/7/

2001

7/7/

2001

1/7/

2002

7/7/

2002

1/7/

2003

7/7/

2003

1/7/

2004

7/7/

2004

1/7/

2005

7/7/

2005

1/7/

2006

7/7/

2006

1/7/

2007

7/7/

2007

1/7/

2008

7/7/

2008

1/7/

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

7/7

/2002

1/7

/2003

7/7

/2003

1/7

/2004

7/7

/2004

1/7

/2005

7/7

/2005

1/7

/2006

7/7

/2006

1/7

/2007

7/7

/2007

1/7

/2008

7/7

/2008

1/7

/2009

Do

llars


'Ethanol - Net Corn Costs

0.000.501.001.502.002.503.003.504.00

$/g

al

Profitability of Ethanol Sector: Profits down


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


Ethanol Plants and Capacity Existing and Under Construction

77

113

6244

5583

31

4336

95

1778


0

1000

2000

3000

4000

5000

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

0

20

40

60

80

100

120

Nu

mb

er

Plants Plants (UC) Capacity UC (L) Capacity

MARCH 2007



Ethanol Industry: Overview

0

2000

4000

6000

8000

10000

12000

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

Per

Yea

r

0

50

100

150

200

250

Nu

mb

er

Plants Plants (UC) Capacity UC (L) Capacity

Today



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

0

2000

4000

6000

8000

10000

12000

14000

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


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


FUTURE

LOOKING FORWARD


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


EISA – EPACT Renewable Fuels Standard

0

5

10

15

20

25

30

35

40

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


Cellulosic Biofuels

Other Biofuels

Biobased Diesel

Years

Bill

ion

Gal

lon

s


Second Generation Biofuels Cellulosic Feedstocks


RFS1



Cellulosic Ethanol Projects Under Development and Construction

26 Projects

400 million gallons capacity


Total Energy ConsumptionEIA 2005, 2006, 2007, 2008 & 2009

90

95

100

105

110

115

120

125

130

135

140

Year

QU

AD

BT

Us


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


0

20

40

60

80

100

120

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


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


• 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


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


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


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


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


• 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


What We Need To Know• Technology Development

– Crop productivity – across potential feedstocks

• Implications for other input use (fertilizer, water, chemicals,…)

– Conversion


THANK YOU!

Contact Information: Harry S. Baumes

[email protected]

202-401-0497

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