The Energy SituationThe Energy Situation
2006 2006
Mike WoolvertonMike Woolverton
Kansas State UniversityKansas State [email protected]@agecon.ksu.edu
Light Crude Oil, NYMEX, Light Crude Oil, NYMEX, $ per barrel$ per barrel
U.S. Oil Import SuppliersU.S. Oil Import Suppliers1.1. CanadaCanada
2.2. MexicoMexico
3.3. Saudi Arabia Saudi Arabia (OPEC)(OPEC)
4.4. Venezuela Venezuela (OPEC)(OPEC)
5.5. Nigeria Nigeria (OPEC)(OPEC)
6.6. IraqIraq
7.7. AngolaAngola
8.8. Algeria Algeria (OPEC)(OPEC)
9.9. RussiaRussia10.10. EcuadorEcuador Source: Energy Information Administration Source: Energy Information Administration
Years of Oil RemainingYears of Oil Remaining
Total Reserves Total Reserves 1,277,702,000,0001,277,702,000,000 5050yearsyearsUsage Rate Usage Rate 25,000,000,000 25,000,000,000
(Barrels)(Barrels)
Source: en.wikipedia.org/wiki/Fossil_fuelSource: en.wikipedia.org/wiki/Fossil_fuel
Estimated Extraction Cost per Estimated Extraction Cost per Barrel of Oil Barrel of Oil
U.S. U.S. $10 to $12$10 to $12
Arabian PeninsulaArabian Peninsula $1$1
The United States and OilThe United States and Oil
Use 20 million barrels per dayUse 20 million barrels per dayProduce 6 million barrels per dayProduce 6 million barrels per dayOil usage increases 2% per year but the Oil usage increases 2% per year but the economy has been growing at 3.3% per economy has been growing at 3.3% per yearyearUsage in barrels per dollar of GNP is one-Usage in barrels per dollar of GNP is one-half of the 1947 levelhalf of the 1947 levelCost per year to import oil - $175 to $200 Cost per year to import oil - $175 to $200 billion billion
Energy: Non-petroleum SourcesEnergy: Non-petroleum Sources
WindWind
SolarSolar
HydroHydro
Hydrogen cellsHydrogen cells
NuclearNuclear
Bio-fuelsBio-fuels
What it will take to replace imports?What it will take to replace imports?The U.S. uses 140 billion gallons of gasoline per The U.S. uses 140 billion gallons of gasoline per
year and 41 billion gallons of diesel fuel made year and 41 billion gallons of diesel fuel made from oil of which 65% is imported.from oil of which 65% is imported.
To replace the imported gasoline with ethanol To replace the imported gasoline with ethanol would require 33.6 billion bushels of corn. This would require 33.6 billion bushels of corn. This year’s production – 10.7 billion bushels.year’s production – 10.7 billion bushels.
To replace the diesel with soy-diesel would To replace the diesel with soy-diesel would require 26.9 billion bushels of soybeans. This require 26.9 billion bushels of soybeans. This years production – 3.2 billion bushels. years production – 3.2 billion bushels.
Land Needed to ReplaceLand Needed to ReplaceImported FuelsImported Fuels
Corn Corn 224 mil. A. (79.4 mil. A.)224 mil. A. (79.4 mil. A.)
SoybeansSoybeans 598 598 mil. A. (74.9 mil. mil. A. (74.9 mil. A.)A.)
Total NeededTotal Needed 822 mil. A.822 mil. A.
Total AvailableTotal Available 349 mil. A.349 mil. A.
Plus Idle LandPlus Idle Land 387.5 mil. A.387.5 mil. A.
Renewable Fuels DriversRenewable Fuels Drivers
High oil priceHigh oil priceInstability in oil exporting regions of the worldInstability in oil exporting regions of the worldFlow of dollars out of the United StatesFlow of dollars out of the United StatesEnergy Policy Act of 2005Energy Policy Act of 2005Mandates and tax creditsMandates and tax creditsPhase out of MTBEPhase out of MTBEGood Returns on InvestmentGood Returns on Investment
Bio-refining AssumptionsBio-refining Assumptions
Petroleum will remain relatively expensivePetroleum will remain relatively expensive
Raw materials will be relatively inexpensive Raw materials will be relatively inexpensive
Raw materials can be replenished each year Raw materials can be replenished each year (sustainable)(sustainable)
Net Energy BalanceNet Energy Balance
ProductProduct Energy Out/Energy InEnergy Out/Energy In
GasolineGasoline .81 .81
Ethanol from grainEthanol from grain 1.351.35
Ethanol from celluloseEthanol from cellulose4.174.17
DieselDiesel .91 .91
Bio-dieselBio-diesel 3.243.24
Sources: Argonne National Laboratory and OECD International Energy AgencySources: Argonne National Laboratory and OECD International Energy Agency
ETHANOLETHANOL
Industry at a GlanceIndustry at a GlanceNumber of operating ethanol plants: 108 Number of operating ethanol plants: 108 Plants under construction and expanding: 62Plants under construction and expanding: 62Announced plants: 100+*Announced plants: 100+*2005 production: 3.9 BG2005 production: 3.9 BG Current production capacity: 5.1 BGPY Current production capacity: 5.1 BGPY Projected production capacity: 7.7 BGPY in 2007Projected production capacity: 7.7 BGPY in 2007Size: New plants 100 MGPYSize: New plants 100 MGPYProcess: wet or dryProcess: wet or dryDaily water usage – 1.5 million gallonsDaily water usage – 1.5 million gallonsFeedstock percentage:Feedstock percentage:
CornCorn 97 97SorghumSorghum 2 2Other 1Other 1
Ethanol Plant EconomicsEthanol Plant Economics
Cost to build a 100 MGPY plant -Cost to build a 100 MGPY plant - $140 million$140 million
Will purchase about 37 million bushels of cornWill purchase about 37 million bushels of corn
Natural gas expense - $16.5 millionNatural gas expense - $16.5 million
Payroll expense about $2 millionPayroll expense about $2 million
Distiller’s Dried Grains income about $25 millionDistiller’s Dried Grains income about $25 million
COCO22 income about $4 million (314,500 tons) income about $4 million (314,500 tons)
At current ethanol price $2.385 per gallon, theAt current ethanol price $2.385 per gallon, the
BE corn price is $5.06 per bushelBE corn price is $5.06 per bushel
Goal 30% R.O.I. Goal 30% R.O.I.
Ethanol Price, $ per gallonEthanol Price, $ per gallon
Distiller’s Grain FactsDistiller’s Grain FactsEach bushel of corn dry grind processed for Each bushel of corn dry grind processed for ethanol yields about 1/3 bushel of distiller’s ethanol yields about 1/3 bushel of distiller’s grain.grain.
Distiller’s grain retains one-third of the nutrient Distiller’s grain retains one-third of the nutrient value of corn.value of corn.
In N. America: In N. America: 45% dairy45% dairy
37% beef37% beef
13% swine13% swine
5% poultry5% poultry
Distiller’s GrainDistiller’s Grain
WDG – wet distiller’s grainWDG – wet distiller’s grainDDG – dried distiller’s grainDDG – dried distiller’s grainWDGS – wet with solublesWDGS – wet with solublesDDGS – dried with solublesDDGS – dried with solublesDDGS Ave. Nutrients (Percentage):DDGS Ave. Nutrients (Percentage):
Dry matter Dry matter 89.389.3Crude proteinCrude protein 30.930.9Crude fatCrude fat 10.710.7Crude fiberCrude fiber 7.27.2AshAsh 6.06.0LysineLysine .9 .9PhosphorousPhosphorous .75 .75
Distiller’s Grain Production and UseDistiller’s Grain Production and Use((MMT)MMT)
ProductionProduction DomesticDomestic ExportExport
05/0605/06 8.35 8.35 7.4 7.4 .94 .94
06/0706/07 10.8 10.8 9.2 9.2 est.est. 1.6 1.6 est.est.
11/1211/12 20.0 20.0 est.est. 12.0 12.0 est.est. 8.0 8.0 est.est.
Fermentable Sugar Cost Fermentable Sugar Cost per Gallon of Ethanol per Gallon of Ethanol
SugarcaneSugarcane $.30$.30
CornCorn .91 .91
SugarbeetsSugarbeets .95 .95
Corn/Ethanol Projections, U.S.Corn/Ethanol Projections, U.S.
06/0706/07 07/0807/08Corn AcresCorn Acres 79.4 mil.79.4 mil. 86.2 mil.86.2 mil.Corn ProductionCorn Production 10.7 bil. Bu.10.7 bil. Bu. 12.0 bil. Bu.12.0 bil. Bu.Corn ExportsCorn Exports 2.2 bil. Bu.2.2 bil. Bu. 2.0 bil. Bu. 2.0 bil. Bu.Corn for EthanolCorn for Ethanol 2.15 bil. Bu.2.15 bil. Bu. 2.85 bil. Bu.2.85 bil. Bu.Ethanol ProductionEthanol Production 5.1 bil. Gal.5.1 bil. Gal. 7.7 bil. Gal.7.7 bil. Gal.DDG ProductionDDG Production 10.5 MMT10.5 MMT 14.3 MMT 14.3 MMT
(Thirty to 40 percent will replace corn in rations. Sixty to 70% will replace soybean meal.)(Thirty to 40 percent will replace corn in rations. Sixty to 70% will replace soybean meal.)
Dangers Ahead for EthanolDangers Ahead for Ethanol
Over expansion – On-line capacity will exceed Over expansion – On-line capacity will exceed the mandated usage in 2007 the mandated usage in 2007
Drop in the price of ethanol that causes Drop in the price of ethanol that causes production to become unprofitableproduction to become unprofitable
Competition from iso-octane and iso-octene Competition from iso-octane and iso-octene oxygenates made in converted MTBE plantsoxygenates made in converted MTBE plants
Low cost importsLow cost imports
Food or fuel debateFood or fuel debate
BIO-DIESELBIO-DIESEL
The Bio-diesel FormulaThe Bio-diesel Formula
100 gallons of veg. oil or animal fats100 gallons of veg. oil or animal fats
+10 gallons of methanol+10 gallons of methanol
==
100 gallons of bio-diesel100 gallons of bio-diesel
+10 gallons of glycerol+10 gallons of glycerol
Advantages of Bio-dieselAdvantages of Bio-diesel
No sulfur and less carbon emissionsNo sulfur and less carbon emissions
Higher cetane rating – better mileageHigher cetane rating – better mileage
Superior lubricitySuperior lubricity
One disadvantage:One disadvantage:
Bio-diesel requires an additive to prevent Bio-diesel requires an additive to prevent jelling at low temperaturesjelling at low temperatures
Bio-diesel Processing Margin per Gallon, Bio-diesel Processing Margin per Gallon, Dec. 5thDec. 5th
Diesel Fuel Diesel Fuel (Wholesale per gallon)(Wholesale per gallon) $ 1.762$ 1.762
Soybean oil Soybean oil ($ .289 per pound)($ .289 per pound) $ 2.17 $ 2.17
Glycerin credit = Methanol cost 0Glycerin credit = Methanol cost 0
Net Margin Net Margin $ -.41 $ -.41
U.S. Soy-diesel ProductionU.S. Soy-diesel Production
Currently 65 plants in U.S. Currently 65 plants in U.S.
Total capacity 365 mg – ave. size 7.45 mil.Total capacity 365 mg – ave. size 7.45 mil.
Output 2005 – 75 mg of biodiesel Why?Output 2005 – 75 mg of biodiesel Why?
Plants under 10 mg batch process using waste Plants under 10 mg batch process using waste fats and oils fats and oils
Much of output has been going to soap and Much of output has been going to soap and shampoo rather than biodieselshampoo rather than biodiesel
U.S. Soy-diesel ProductionU.S. Soy-diesel Production
58 plants expanding or under construction58 plants expanding or under construction
projected capacity 713 mil. gal.projected capacity 713 mil. gal.
Many of the new plants - 30 mil. gal. Many of the new plants - 30 mil. gal.
(Requires the oil from 400,000 A. soybeans.)(Requires the oil from 400,000 A. soybeans.)
Continuous processing using multiple Continuous processing using multiple feedstocks of vegetable oilfeedstocks of vegetable oil
Vegetable Oil YieldsVegetable Oil Yields
CornCorn 18 gal./A.18 gal./A.
SoybeansSoybeans 6666
SunflowersSunflowers 102102
RapeseedRapeseed 127127
Castor BeansCastor Beans 151151
Oil PalmOil Palm 635635
World Production of Fats and Oils, World Production of Fats and Oils, 2003/04, MMT2003/04, MMT
VegetableVegetable TropicalTropical
SoySoy 30.130.1 PalmPalm 28.728.7
RapeRape 14.114.1 Palm Kernel Palm Kernel 3.5 3.5
SunSun 9.3 9.3 CoconutCoconut 3.3 3.3
PeanutPeanut 5.0 5.0
CottonCotton 3.8 3.8
OliveOlive 2.8 2.8
Source: USDA, Agricultural Statistics, 2005.Source: USDA, Agricultural Statistics, 2005.
Soybean/Bio-diesel Projections, U.S.Soybean/Bio-diesel Projections, U.S.
06/0706/07 07/0807/08Soybean AcresSoybean Acres 75.675.6 69.0 69.0Soybean ProductionSoybean Production 3.2 bil. bu.3.2 bil. bu. 2.8 bil. bu. 2.8 bil. bu.Soybean ExportsSoybean Exports 1.1 bil bu.1.1 bil bu. 900 mil. bu. 900 mil. bu.Soybean Oil for BDSoybean Oil for BD 2.35 bil lbs.2.35 bil lbs. 4.65 bil. lbs. 4.65 bil. lbs.Bio-diesel ProductionBio-diesel Production 400 mil. g. 730 mil. g. 400 mil. g. 730 mil. g.
(330 from SBO) (600 from SBO)(330 from SBO) (600 from SBO)
Soybean Meal ExportsSoybean Meal Exports 7.5 MMT 11 MMT7.5 MMT 11 MMT
Source: Paul Smolen, AgriNetwork Management and Mike Woolverton, KSUSource: Paul Smolen, AgriNetwork Management and Mike Woolverton, KSU
Bio-diesel ConclusionsBio-diesel Conclusions
The industry is ramping up production capacity.The industry is ramping up production capacity.
Increased demand for vegetable oil will drive Increased demand for vegetable oil will drive price up. price up.
Bio-diesel production will be constrained by the Bio-diesel production will be constrained by the supply and price of vegetable oil.supply and price of vegetable oil.
Soybean meal will become the by-product and Soybean meal will become the by-product and increased supply will cause price to fall.increased supply will cause price to fall.
U.S. soybean meal exports will increase.U.S. soybean meal exports will increase.
Corn and soybeans will continue to be fierce Corn and soybeans will continue to be fierce competitors for available acres of land.competitors for available acres of land.
Alternative TechnologiesAlternative Technologies
Cellulosic EthanolCellulosic Ethanol
Bio-diesel from Algae OilBio-diesel from Algae Oil
NITROGENNITROGENFERTILIZER ECONOMICSFERTILIZER ECONOMICS
Farm Price of NH3Farm Price of NH3
Pre-KatrinaPre-Katrina $175-200 per ton$175-200 per ton
Post-KatrinaPost-Katrina $500+ per ton$500+ per ton
Nitrogen FactsNitrogen Facts
Imports are now about 50% of annual usageImports are now about 50% of annual usage
No new U.S. plants; shut down old plants No new U.S. plants; shut down old plants
U.S. high natural gas cost compared to U.S. high natural gas cost compared to overseas competitorsoverseas competitors
Production capacity growth 5.7% - all outside Production capacity growth 5.7% - all outside U.S. U.S.
Major suppliers – Trinidad, Mexico, and Major suppliers – Trinidad, Mexico, and VenezuelaVenezuela
Natural Gas Price, Natural Gas Price, $ per thousand cubic feet$ per thousand cubic feet
NH3 Farm Price EstimatorNH3 Farm Price Estimator
Approximate Farm Price for ton of NH3 = Approximate Farm Price for ton of NH3 =
NG price per kcf X 33.5 + $100NG price per kcf X 33.5 + $100
$8.50 X 33.5 + $100 = $384.75 $8.50 X 33.5 + $100 = $384.75
Anhydrous and Diesel Price ForecastsAnhydrous and Diesel Price Forecasts
www.agmanager.info/farmmgt/machinerywww.agmanager.info/farmmgt/machinery
At the same website find a paper by Dhuyvetter At the same website find a paper by Dhuyvetter and Kastens on the impacts of rising fertilizer and Kastens on the impacts of rising fertilizer and fuel prices and fuel prices