2007 ethanol review
TRANSCRIPT
-
7/27/2019 2007 Ethanol Review
1/52
2007 Year in Review May 2008
U.S. ETHANOL Industry:
Eecutive Summary
1 Current State of the Industry
15 The Coming Rise of Advanced Biofuels
20 The U.S. Government as Venture Catalyst
23 Public Policy Considerations
25 Company Proles
41 List of Figures, Tables and Eamples
42 Appendi: Industry Reference Model
-
7/27/2019 2007 Ethanol Review
2/52
ABOUT THIS REPORTThis report was prepared by Brian Curtis as an independent consultant to the U.S.Department o Energy. It is intended to provide an objective view o the evolving ethanol
industry and many o its key participants. It is the rst eort to establish an annual Yearin Review, report or use by industry, investors, policy makers and regulators. This reportcovers the period Jan 2007 Feb 2008.
FUNDED BY THE OFFICE OF THE BIOMASS PROGRAMThe Oce o Energy Eciency and Renewable Energys Biomass Program works withindustry, academia and national laboratory partners on a balanced approach to advancebiomass as a signicant and sustainable energy source or the 21st century. Throughresearch, development and demonstration eorts geared towards establishing theintegrated biorenery model, the Biomass Program is helping transorm the nationsrenewable and abundant biomass resources into cost competitive high perormance
biouels, bioproducts and biopower.
In his 2007 State o the Union address, the President established aggressive goalsto reduce gasoline consumption through eciency and adoption o alternative uels,resulting in the December 2007 passage o the Energy Independence and SecurityAct o 2007. Consequently, the Biomass Program is ocusing its eorts to ensure thatadvanced biouels are cost competitive by 2012. Another major eort o the Program isto urther develop inrastructure and opportunities or market penetration o biobaseduels and products.
COMPLETED MAY 2008, PUBLISHED AUGUST 2008Available electronically at: www.BCurtisEnergies.com
Design and Illustration: Casella Creative www.CasellaCreative.com
AcknowledgementsThe author wishes to thank the ollowing people or their contributions and support: Larry Russo and Zia Haq o theOce o the Biomass Program; Research Assistant Bret Walburg; Ken Green and Seema Patel o BCS, Incorporated;and the many industry and government contacts too numerous to mention here that have elded questions andprovided great insight.
DisclaimerThis report was prepared according to high proessional standards and is believed to be a air and objectiverepresentation o the industry and companies. Industry and company data contained herein is based on pri-mary and secondary sources believed to be reliable and noted where possible. While this report has been peerreviewed, these sources have not been independently veried and are, thereore, not guaranteed or accuracy.Statements made and opinions expressed are strictly those o the author and not necessarily those o the U.S.Department o Energy.
-
7/27/2019 2007 Ethanol Review
3/52
CHAPTER 1EXECUTIVE SUMMARY
1 CURRENT STATE OF THE INDUSTRY
1 CORN ETHANOL AS INDUSTRY FOUNDATIONCorn Ethanol ProducersCorn Ethanol Cost StructureEthanol Pricing FactorsSidebar: 2008 Food Price Factors
7 GETTING PRODUCT TO MARKETTransportation and Blending LogisticsBlend Limits and Vehicle Technology
11 FINANCIAL HEALTH OF THE INDUSTRYRevenue And Prot DistributionStock PerormanceFunding Sources And Project Finance
Tax Subsidy BenetsCHAPTER 2 15 THE COMING RISE OF ADVANCED BIOFUELS
15 GEARING UP FOR TAKE OFFCellulosic Ethanol Conversion TechnologiesCost CurvesNext Generation Fuels
17 CELLULOSIC FEEDSTOCK SOURCES19 VENTURE CAPITAL TRENDS IN BIOFUELS
CHAPTER 3 20 THE U.S. GOVERNMENT AS VENTURE CATALYSTIntegrated Cellulosic BioreneriesEthanologen ProjectsThermochemical Solicitation
Small Scale Cellulosic BioneriesEnzyme Systems SolicitationBioenergy Research CentersEnergy Eciency Loan Guarantees
CHAPTER 4 23 PUBLIC POLICY CONSIDERATIONS
Current Policy SituationFurther Policy Study
CHAPTER 5 25 COMPANY PROFILES26 AG/BIO/CHEM29 PRODUCER/MARKETER31 GROWTH STAGE
35 INTEGRATED ENERGY37 SERVICES39 FINANCE
41 LIST OF FIGURES, TABLES AND EXAMPLES
42 APPENDIX: INDUSTRY REFERENCE MODEL
-
7/27/2019 2007 Ethanol Review
4/52
Funded by
Energy Efciency and Renewable EnergyOfce of the Biomass Program
-
7/27/2019 2007 Ethanol Review
5/52
The uel ethanol industry in the U.S. wit-nessed a signicant infection point inthe 20062007 timerame where capac-
ity was added quickly and the industryoutpaced policy measures by over 35 per-cent This growth was the result o capitalinvestment decisions made beginningmid2004 due to the anticipated 2005Energy Bill and already rising gasolineprices. Transportation capacity andterminalthroughput or ethanol were increased overthe same period, but struggled to keep upwith the new production.
Currently, capacity additions continue but
at a more measured pace as the industrytakes time to rationalize eedstock supply,logistics challenges and shiting pricingmechanisms. The second hal o 2007showed signs o stress in the overall systemas corn prices rose, and the industryexperienced supplydemand imbalanc-es at both the local and macro level.These actors, plus the move past the6 billion gallons per year (bgpy) MTBEreplacement mark have led the industry
away rom longterm product contractsand towards ethanol spot market pricingwith increasing pressure on ethano
producer economics. Meanwhile, thebenets o corn ethanol have come undescrutiny in the popular press or competing with ood supplies, contributing toincreased commodity prices, high wateuse and marginal energy balance im-provements. Further, some commentatorsquestion the costbenet impact on energysecurity and the environment o an industry that currently displaces only 5 perceno the gasoline consumption.
THE NExT INFLECTION POINTLine by line, these challenges are beingaddressed by both industry and govern-ment. As a result, the coming years arepoised to see the next infection point inuel ethanol capacity. Corn ethanol wilexperience some normalization as it maturesbut the undamentals suggest that it wilstand strong as a oundation or the industrywith capacity leveling out at 15 bgpy, morethan doubling over the next ew years as
Figure 0.1 $PSO&UIBOPM-FWFMT0VUBOE$FMMVMPTJD5BLFT0GG3FOFXBCMF'VFM4UBOEBSETFUTUBSHFUTUISPVHI
#JMMJPO(B
MMPOTQFS:FBS
Cellulosic Ethanol
Corn Ethanol
Other Advanced Biofuels
5IF/FYU*OGMFDUJPO1PJOUBTOFXUFDIOPMPHZSFBDIFTUIFNBSLFU$PTUPGQSPEVDUJPOTGBMMT#MFOEMJNJUTBSFPWFSDPNF*OGSBTUSVDUVSFJTCVJMUPVU
&BSMJFS*OGMFDUJPO1PJOUBTDPSOFUIBOPMDBQBDJUZJODSFBTFEEVFUP&1"DU)VSSJDBOF,BUSJOBBOE*SBRXBSJODSFBTFEBXBSFOFTTPGFOFSHZTFDVSJUZBOEHBTPMJOFQSJDF
BCURTIS ENERGIES & RESOURCE GROUP, INC. i | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
6/52
approved plants secure nancing and The ethanol industry is showing strength in
are built. Current projects on the books several areas:
will take the industry to approximately 14bgpy with airly good visibility. Advanced Corn ethanol has been solidly
biouels, including cellulosic ethanol, are established as a oundation or the
currently under development, but are industry and will continue to growexpected to begin showing results in the and mature.
next several years as well. Technology and innovation is being
This rst annual Year in Review, written or developed and applied across much
the U.S. Department o Energys Oce o o the value chain or both conventiona
the Biomass Program examines the issues and advanced biouels.
acing the ethanol industry as it strives to Feedstock supply is improving,move to and through the coming infec as planting patterns shit, newtion point. With a ocus on enabling the technologies enhance existingprivate sector and nancial community, it agricultural practices and newalso serves to highlight areas or system biomass sources are developed .improvements where legislation and gov-ernment policies and programs can assist Logistical bottlenecks are beingexisting players and new entrants. worked out as inrastructure catches
up with rapid production capacityPROMISE AND PERIL OF increases.INDUSTRY GROWTHAs the ethanol industry continues along New eedstock sources are more
its long term development path, there are geographically disperse, providing
strengths to be built upon and problems better transport economics and
that need to be solved. balancing inrastructure loads.
Table 0.1
[billion gallons per year]2007 Renewable Fuel Standard
Year TotalRFS,AllFuels199819992000200120022003200420052006 4.002007 4.702008 9.002009 11.102010 12.952011 13.952012 15.202013 16.552014 18.152015 20.502016 22.252017 24.02018 26.02019 28.02020 30.02021 33.02022 36.0
ActualCorn
Ethanol1.401.471.631.772.132.803.403.904.866.45
2007RFSCorn
EthanolOther
AdvancedBiofuels
9.010.5 0.612.0 0.8512.6 1.113.2 1.513.8 1.7514.4 2.015.0 2.515.0 3.015.0 3.515.0 4.015.0 4.515.0 4.515.0 4.515.0 5.0
CellulosicEthanol
0.100.250.501.001.753.004.255.57.08.510.513.516.0
BCURTIS ENERGIES & RESOURCE GROUP, INC. ii | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
7/52
There is a long term legislative trendand programmatic support:
1. The Energy Independence andSecurity Act o 2007 provides anaggressive RFS reaching outto 2022.
2. The DOEs Biomass Programis actively supporting industrydevelopment and technologycommercialization.
3. The United States Departmento Agriculture has a widerange o supporting activities,including programs or eedstockdevelopment, small scale
production and armbased use.
O course, there are challenges:
A blending limit exists as productionvolumes approach the E10 levelacross the country in the next 5 years.
Feedstock pricing or both grainand nongrain biomass sources willace upward pressure as the industryachieves greater scale.
Blending terminals and rail capacityare already under stress.
Technologies to produce advancedbiouels, in particular cellulosicethanol, have yet to be proven atcommercial scale.
Many potential nancing sourcesdo not have the expertise to assessinvestment risk across the severalstages o company development,including venture, growth, project
and expansion.
The investment risk prole is tooaggressive or complex or manypotential nancing sources.
The VEETC benets are not fowingthrough value chain in a predictablemanor.
$1 BILLION COMMITTED SINCE JAN07In order to acilitate industry developmenand mitigate some technical and demonstration phase risks, the U.S. Departmeno Energy has committed over $1 billionacross several programs since January2007. The goal is to expedite the development and commercialization process oadvanced biouel technologies.
This ederal unding is spread acrossThe Oce o the Biomass Program, theBioEnergy Research Centers, researchgrants and several private sector demon-stration project solicitations. (see Table 0.2)
Enabling The Private Sector
While the ethanol industry has certainlybeneted rom government programs toreach its current state in the U.S., its development has not been without great private
Table 0.2 Federal Funding Committed for Cellulosic Biofuels, 2007-Present [million $]
Announced Programs and Solicitations: Amount Period
Integrated Cellulosic Bioreneries Feb 2007
Ethanologen Projects Mar 2007
BioEnergy Research Centers * Jun 2007
Thermochemical Solicitation Dec 2007
Small Scale Cellulosic Bioreneries Jan /Apr 2008
Enzyme Systems Solicitation Feb 2008
Open Solicitations:
Biomass Pyrolysis Research Due May 2008
University Research Due Jun 2008
$385 4yrs
$23.3 4yrs
$375 5yrs
$9.7 3yrs
$200.3 4yrs
$33.8 4yrs
$7.0 2yrs
$4.0 1yr
$1,038.1TOTAL
* Funded by DOE Ofce o Science Note:Actual unds deployed will depend on successul completion o solicitation processes.
BCURTIS ENERGIES & RESOURCE GROUP, INC. iii | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
8/52
sector eort. As the industry continues toprogress, business opportunities will con-tinue to become available or knowledge-able market participants. Further, the
technology innovation required and highgrowth necessary to reach our collectivegoals will provide great opportunity ornew entrants, some o which may comerom outside the immediate industry.
Policy Adjustments Will SpeedIndustry DevelopmentThrough legislation, regulation, com-mercialization programs, tax breaks and some would be quick to add tradeprotection, the government continues toprovide support to enable a strong pri-
vate sector. However, despite the contin-ued government eorts, the industry mustsucceed on its own economic merits i itis to receive the capital market and invest-ment support needed to ulll its promise.To this end, the most urgent governmentprograms are those that take investmentrisk out o the system at the outset andprovide a transition to a ree market atminimal cost to taxpayers.
As the ethanol industry in the U.S. increas-es its emphasis on cellulosic eedstocksand nonood energy crops public policymeasures must be adjusted to t the com-ing challenges. This report weighs theactors surrounding the ollowing possiblepolicy and program changes:
Reorm or elimination o the VolumetricEthanol Excise Tax Credit (VEETC)
Increased grant unding or theurther mitigation o technology andadoption risk
Strengthened loan guarantee programs
In This Report
Chapters 1 and 2 address in more detaithe current state o the industry and thecoming rise o advanced biouels.
Chapter 3 discusses how the U.S. government is acting as a catalyst or industrygrowth while encouraging healthy industryundamentals, helping the industry move
through the next infection point
Chapter 4 presents Public Policy Consid-erations based on the analysis presentedFinally, Chapter 5 provides proles o30 signicant private sector participantsacross six categories:
1. Ag/Bio/Chem
2. Producer/Marketer
3. Growth Stage
4. Integrated Energy5. Services
6. Finance
BCURTIS ENERGIES & RESOURCE GROUP, INC. iv | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
9/52
%PXOTUSFBNUP3FUBJM &UIBOPM1SPEVDFST 1SJNBSZ4VQQMJFST 4FDPOEBSZ4VQQMJFST
The U.S. ethanol industry can currently becharacterized as a maturing corn ethanolindustry with technology development
well unded to accommodate cellulosiceedstocks in the near uture. With etha-nol established as a ungible commodity,whether it is derived rom corn, celluloseor other raw materials, the inrastructureand market adoption issues apply toall production.
This chapter addresses the current stateo corn ethanol production and issueso getting that product to market. It alsocovers the nancial state o the existing
industry. The ollowing chapter discussesuture advancements and unding or newtechnologies as the industry approachesthe next infection point.
For the purposes o this study, the industryhas been divided into 3 major segments:
1. Agriculture and Biomass Production
2. Conversion and Production
3. Blending, Retail and Marketing
Figure 1.2 *OEVTUSZ$IBSBDUFSJTUJDT
Figure 1.1
64&UIBOPM$BQBDJUZCZDPNQBOZ NJMMJPOHBMMPOTQFSZFBSNBSLFUTIBSF
10&5
"QS5PUBM
$PNQBOJFT "%. NHQZFBDI
7FSB4VO
5IF"OEFSTPOT
$PNQBOJFT NHQZFBDI
3FOFXBCMFT
"WFOUJOF 4PVSDF3'"
)BXLFZF
Suppliers to these segments, includingtransportation and logistics, are handledseparately as they are generally pricedinto the product along the way.
CORN ETHANOL ASINDUSTRY FOUNDATIONAter a period o heady growth ollowed bygrowing pains, the corn ethanol industryhas ormed an industry oundation with thepotential to move into a period o greaterstability and continued growth.
-FHFOE.PSF
-FTT
"HSJDVMUVSF#JPNBTT4PVSDF $POWFSTJPO1SPEVDUJPO #MFOEJOH3FUBJM.BSLFUJOHMarket Size $18.3 billion
Operating
Cash Margin
Concentrated
TechnologyInnovations
FarmSubsidies
VEETC
Federal Grants
Venture Funding
Capital Markets
$8.7 billion $13.0 billion
$5.3b, 29%$2.7b, 46.7% $2.14b, 16.4%
BCURTIS ENERGIES & RESOURCE GROUP, INC. 1 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
10/52
1
As refected in the 2007 RFS, corn ethanolcapacity is expected to level o around15 bgpy in 2015. However, depending onmany actors, not the least o which is the
pace o roll out or cellulosic ethanol tech-nologies, the actual long term corn etha-nol capacity could level o somewherebetween 12 and 15 bgpy.
Beyond 2015, the corn ethanol segmentwill settle into a long range pattern withlimited capacity growth but continuousprocess improvement. Most urther sitedevelopment during this period will likelycome rom addition o colocated cellu-losic ethanol capacity and/or transition tomore sophisticated biorening capabilities
Corn ethanol producersThree tiers o corn ethanol producershave emerged with a capacity distributioncurve showing a long, at tail. More than50 percent o the capacity comes romsmall to medium size producers. Localand armerowned entities dominate thisThird Tier.
The Second Tier is made up o mediumsize players that operate a small number
&UIBOPMT-POH'BU5BJM'JSTU5JFS/VNCFSPG1MBOUTPOET [27]
o plants, but likely have the goals andmeans to expand to additional sites.
The First Tier comprises six large players
that produce over 200 mgpy, across manysites. Business models and competitiveadvantage vary sometimes dramatically across this tier.
ADM comes at the industry rom a BigAgriBiz perspective, but it must also bekept in mind that ADM CEO, PatriciaWoertz, came to the company rom theChevron where she was VP o the downstream products company.
POET works closely with the local arm
ing community to enable rural devel-opment and provide market accessHawkeye takes a similar approach but at asmaller scale.
VeraSun, in many ways, is approaching themarket rom a Wall Street angle as dem-onstrated in the two recent acquisitions oU.S. Bioenergy and AS Alliances.
Aventine has a developed strategiccapabilities in ethanol commodity trading
Figure 1.3
Hawkeye [2]
Aventine [3]
Verasun [15] 4FDPOE5JFS/VNCFSPG1MBOUTADM [7] Abengoa [4]The Andersons [3] Global Ethanol/MGP [2]
1SPEVDFST
$BQBDJUZ
White Energy [2]
Renew Energy [1]
Cargill [2]
Arkalon Energy [1]Golden Grain Energy [1]
New Energy Corp [1]
Absolute Energy [1]Advanced BioEnergy [1]
Glacial Lakes Energy [1]
Heartland Corn Products[1] 5IJSE5JFS/VNCFSPG1MBOUT78 Producers
4PVSDF3'""QSJM
BCURTIS ENERGIES & RESOURCE GROUP, INC. 2 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
11/52
Figure 1.4 Figure 1.5
$POTUSVDUJPO$PTUCZQSPDFTTBSFB
4PVSDF38#FDL
%%(4%SZJOH
%JTUJMMBUJPO'FSNFOUBUJPO
$PPLFST
8BTUFXBUFS5SFBUJOH
1SPEVDU)BOEMJOH'FFE)BOEMJOH
$PSO&UIBOPM$PTU4USVDUVSF2
4PVSDF*OEVTUSZ3FGFSFODF.PEFM
/FU'FFETUPDL
&OFSHZBOE8BUFS,
5PUBM$PTUHBM
1MBOU0QFSBUJPOT
*OEVTUSJBM
$IFNJDBMT
%FCU4FSWJDF
:FBTUBOE&O[ZNFT.BJOUFOBODF
%FOBUVSBOU
allowing the company a better position inthe market or their production acilities.
As described above, the corn ethanol in-dustry is not concentrated. While it hasbegun to experience some consolidation,the local ownership and rural economicaspects to the industry suggest that ex-treme consolidation is a long way o.
Corn ethanol cost structureCorn ethanol technology is a wellestab-lished process. As such, cost structure or both construction as well as operations varies mostly with commodity trendsand local supply and demand dynam-ics. For example, construction costs willvary with steel costs or equipment avail-ability. Engineering and labor can also beimpacted in high demand periods.
Corn ethanol operating economics mustconsider the broad supply chain, includ-ing primary and secondary suppliers as
well as sources o innovation that mayshit the landscape over time.
The largest cost category by ar is corneedstock. In recent years, corn pricesrose dramatically with a signicant im-pact on producer margins. Despite thecommon misconception that ethanol hasbeen the primary driver in the rising costo corn, closer analysis suggests that
Figure 1.6
$PSO'BSN$PTU4USVDUVSF
4PVSDF64%"
'FSUJMJ[FS
4FFET$IFNJDBMT
&OFSHZBOE8BUFS
%FCU4FSWJDF'BSNFS0QFSBUJPOT
Table 1.1
Top 3 U.S. Corn Seed Sales, 2006
Monsanto Dupont syngenta
Seed Revenue $4,028 $2,781 $1,743
sd rc 55% 10% 22% l
tl Rv $7,294 $28,982 $8,046
tl n Icm $689 $3,148 $504
n Mri 9.4% 10.9% 6.3%
Source: Company Reports
BCURTIS ENERGIES & RESOURCE GROUP, INC. 3 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
12/52
1
other external actors such as rising oilprices and an overall commodity boomhave had greater infuence.
Corn arm economics are mostly decou-pled rom corn prices due to commoditymarkets and subsidies. But, it is useul toanalyze to assess the overall health o theindustry.
Fertilizer makes up the largest cost cat-egory or corn armers, accounting orapproximately 36 percent o their costs.Considering that eedstock made up 56percent o ethanol costs in 2007, thatmeans ertilizer contributed roughly 20percent o the cost o ethanol. Derived
largely rom natural gas, ertilizer shouldnot only be considered a cost contributor,but must also be considered in energybalance calculations.
The second largest cost category orarmers is seeds, which can have a dra-matic aect on crop yields and is there-ore an area o technology developmentthat is quite relevant to the trajectory othe corn ethanol industry. Monsanto, thelargest producer o corn seeds in theU.S., is claiming that corn yields will in-crease rom todays average o 145165bushels per acre up to 300 by 2030.
These gains are coming rom advancesin molecular breeding and biotechnologyto improve stress tolerance. Specically,the advanced seeds allow or greaterdrought, herbicide and insect resistance.
Overall, industry experience suggests thatcorn is a viable eedstock to support the15 bgpy target laid out by the RFS without
disrupting other uses or corn. Farmershave been shiting their planting patternsto accommodate the ethanol industry with-out negative impact on corn volume to ood(or people), eed (or livestock), high ruc-tose corn syrup (or ood manuacturing) oror export. In act, since 2003, corn volumeto each o these markets with the excep-tion o corn syrup, which dropped by ap-proximately 1 percent has increased.
Table 1.2
Corn Ethanol Cost Detail,2005-2007
$/gal
2005 2006 2007
n Fdck 0.53 0.67 0.95
er d Wr 0.28 0.26 0.26
Idril Chmicl 0.14 0.16 0.17
y d ezm 0.04 0.04 0.04
Mic 0.04 0.04 0.04
pl ori 0.10 0.10 0.10
Db srvic 0.12 0.12 0.12
TOTAL COSTTO PRODUCE
1.25 1.39 1.69
Source: Industry Reference Model
Figure 1.7
Figure 1.8
2
$PSO1SJDF2#6
4PVSDF$#05
2
%%(41SJDF
4PVSDF64%"&34
UPOT
)*() -08
/PUF)JHIMZEFQFOEFOUPOSFHJPO
BCURTIS ENERGIES & RESOURCE GROUP, INC. 4 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
13/52
In order to support urther growth in cornethanol production, additional crop shit-ing will need to occur as well as increased
crop yields through advancements inseeds and arm management practice,all o which appears to be easible basedon past experience.
Figure 1.9
period in the beginning o the year whereethanol prices were higher than gasoline to a period in the all where it was
the opposite.
Ethanol pricing is a complex issue aect-ing the industry in many important ways: Ethanol revenue levels
Industry prot sharing
/BUVSBM(BT
4PVSDF#"
GU/PUF)JHIMZEFQFOEFOUPOSFHJPO
VEETC benets
Signals to supply and demanddynamics at macro and micro levels
Figure 1.10
+ ' . " . + + " 4 0 / %
&UIBOPM(BTPMJOF4QSFBE
4PVSDF0#1FTUJNBUFT 4QPU&UIBOPM(BTPMJOFBU3FGJOFSZ(BUF
Ethanol Pricing FactorsEthanol pricing is driven by many com-peting orces at any one time, includingundamental supply and demand, con-tract dynamics and ederal tax credits. Asa commodity, ethanol is more volatile thanthe product it is replacing in the market-place, namely gasoline, which itsel hascomplicated trading patterns. Figure 1.11
This report takes a twopronged approachto the topic. First, by analyzing the impactpricing has on the overall industry andsecond, by considering examples thatillustrate dierent pricing mechanisms.
The conclusion is that the high volatilityor ethanol pricing is due to the act thatthe marketplace can and oten does switch back and orth between dierentpricing mechanisms.
2007 was an interesting year that pointsout some o the challenges to players asthe price spread between ethanol andgasoline fipped mid year, going rom a
"3$0'
-*/ *" */,4
-".*
./.0
.5/%/&0)034%8"8*
8:
3FHJPOBM&UIBOPM3BDL1SJDFT'FC
4PVSDF01*4
BCURTIS ENERGIES & RESOURCE GROUP, INC. 5 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
14/52
1
Example 1.1
2008 Food Price Factors
1. Increased cost opetroleum inputs
2. Increased global ood
demand3. Global crop ailures in
2007
4. Weak dollar andresultant commodityhedging
5. Increased corn ethanolproduction
Ethanol Pricing Eample 1: Ethanol Spot Price
Ethanol spot price is the price o a marginal gallon o
ethanol on the open market ater all contracts are execut-ed. The spot market volume as a percentage o the overallmarket is highly dependent on public policy.
I regulations require a certain blend o ethanol, as withthe RFS or oxygenate requirements, blenders will signcontracts to cover their requirements. Conversely, i themarket has ullled requirements, blenders are likely toallow contracts to expire and utilize the spot markets. Asa result, spot market prices are oten quite dierent thancontract prices and can swing above or below, dependingon market conditions.
4PVSDF01*4
Example 1.2
Ethanol Pricing Eample 2: Ethanol Contract Dynamics
An example o a market where contract prices are lowerthan spot, similar to the second hal o 2007:
A small to medium sized producer may contract with to alarger distributor who, in turn, contracts with a blender.In this example, the spot price may be $2.50/gal. Thedistributor contracts at a discount or $2.35/gal andcharges a 10/gal ee. The actual producer sees a priceo $2.25/gal, illustrating why spot price is not necessarily agood estimate o overall industry prices.
Given a cost to produce o $2.19 in 1Q08, that leaves a$0.06/gal (
-
7/27/2019 2007 Ethanol Review
15/52
GETTING PRODUCT TO MARKETEthanol inrastructure is a complex sys-tem comprised o local transport or eed-stock and regional consumption (largely
trucks), long haul transport to distant mar-kets (mostly rail) and storage and blendingacilities (collectively known as terminals).To date, shipping ethanol via pipeline hasbeen impractical due to its miscibilitywith water and corrosion issues, althougheort is underway to address these.
The ability o a producer to get its prod-uct to market eects not only the basic vi-ability o the business, but as discussedabove also aects the market pricingmore generally.
Looking ahead as production levels con-tinue to rise, the level at which ethanolcan be blended into gasoline becomesa limiting actor. With gasoline consump-tion in the 150 bgpy range, E10 reaches ablend limit less than hal way to the 2007
Figure 1.13 RFS targets.
&UIBOPM*OEVTUSZ-BOETDBQF1SPEVDUJPO
Corn EthanolProduction
CellulosicEthanol
5SBOTQPSUBUJPO
Rail
Trucking
Barges
Terminals
Transportation and blending logisticsThe U.S. Transportation system or bulkchemicals and liquid uels has been estab-lished since the early days o our industria
revolution and is robust.
Having said that, the system has neededto make some adjustments to accommodate
Figure 1.12
5SBOTQPSUBUJPO.PEFT #BSHF 3BJM 5SVDL
'FFETUPDL &UIBOPM %%(4
4PVSDF""3"SNZ$PSQTPG&OHJOFFST$PNNPEJUZ'SFJHIU4UBUJTUJDT
$POTVNQUJPO
Low Blend Ethanol
Stations, estimated
E85 Stations
BCURTIS ENERGIES & RESOURCE GROUP, INC. 7 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
16/52
1
a rapidly growing ethanol industry. Thismeans development at the local level tohandle input and output at new processplants as well as at the systems level to
receive that output.
Areas o stress in 2007 include:
Blending terminals
Unit train destinations
Tank car manuacturing
Midstream product distribution assetsincluding storage tanks, blending termi-nals and pipelines, have been divestedrom the otherwise vertically integrated
oil majors. Enabled by the Master LimitedPartnership (MLP) structure to tap intopublic market nancing, this segment hasexperienced some level o consolidation.As it relates to ethanol, this representsthe main point o contact with its end usemarket. The companies in this space havebeen investing in equipment and capacityto handle higher ethanol volume but havenot always kept up with the growth o theethanol production capacity. The result isthat there have been bottlenecks at thelocal level despite sucient macrolevelsupply and demand.
In order to get ethanol to the blending ter-minals most cost eectively and ecient-ly, unit trains (that is, units o 80100 carsthat travel as a single unit) are the pre-erence. Unortunately, there is a limitednumber o terminals that have the capac-ity to handle unit trains (see Figure 1.15).Additional capacity is being built now andwill continue to expand to meet ethanolindustry needs.
While ethanol is still a small portion o railvolume today, it will increase substantiallyin the coming years. However, even asethanol breaks into the top 10 productsshipped by rail, it will only account or ap-proximately 5 percent o total rail tracin 2022. This suggests that the rail inra-structure in the U.S. will not be a majorbottleneck to the industry in the long run.
Figure 1.14
Selected Terminal andPipeline Operators
#6$,&:&
,*/%&3.03("/
."(&--"/
."3"5)0/
TRANSMONTAIGNE
4PVSDF$PNQBOZXFCTJUFTBOESFQPSUT
BCURTIS ENERGIES & RESOURCE GROUP, INC. 8 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
17/52
Figure 1.15
6OJU5SBJO%FTUJOBUJPOT
.BOMZ*"
64%FWFMPQNFOU(SPVQ)PVTUPO598BUDP.BHFMMBO
Figure 1.16
*O0QFSBUJPO6OEFS$POTUSVDUJPO1MBOOFE
%FFS1BSL59 5BNQB'-,JOEFS.PSHBO $495,JOEFS.PSHBO
4BVHFU*-(BUFXBZ5FSNJOBMT
'U-BVEFSEBMF'-'&$.PUJWB
4UPDLUPO$" /V4UBS
$IBSMPUUF4$.PUJWB
-JOEFO/+64%FWFMPQNFOU(SPVQ
#BMUJNPSF.%64%FWFMPQNFOU(SPVQ
"SMJOHUPO59
4FXBSFO/+.PUJWB&OUFSQSJTFT
$BSTPO$",JOEFS.PSHBO
"MCBOZ/:$JCSP
1SPWJEFODF3*.PUJWB
5FYBT$JUZ59.VSFY
'U8PSUI59.VSFY
.BOMZ5FSNJOBM
8BUTPO$",JOEFS.PSHBO
8IFSFXPVMEFUIBOPMSBOLJGUIF3'4XFSFBDIJFWFEUPEBZ3BJM3FWFOVFTCZ4FDUPSCJMMJPO
$PBM.JYFETIJQNFOUT
$IFNJDBMT'BSN1SPEVDUT
$BSTBOE&RVJQNFOU'PPE1SPEVDUT
&5)"/0-
"MMPUIFSDPNNPEJUJFT-VNCFSBOEXPPE
.FUBMT1VMQBOEQBQFS
4UPOFDMBZBOEHMBTT1FUSPMFVNBOEDPLF
/PONFUBMMJDNJOFSBMT8BTUFBOETDSBQNBUFSJBMT
.FUBMMJDPSFT&5)"/0-
Source: Association of American Railroads (Jan 2008); estimates
&UIBOPMXJMMCFBOJODSFBTJOHTPVSDFPGSBJMSFWFOVFT
BCURTIS ENERGIES & RESOURCE GROUP, INC. 9 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
18/52
BDLMPH
E10BlendLimi
t
E20Blen
dLimit
1
Figure 1.17
Only 3 tank carmanufacturers in the U.S.:
1. American RailcarIndustries
2. Trinity Industries
3. Union Tank CarCompany
The top ve rail players:
1.BNSF
2. CSX
3. Kansas City Southern
4. Norolk Southern
5. Union Pacic
5BOL$BS#BDLMPH
2
/FX0SEFST%FMJWFSJFT
2
2
2
4PVSDF3BJM4VQQMZ*OTUJUVUF
Besides the short term bottlenecksassociated with unit train destinations, theindustry is currently experiencing a twoyear backlog or chemical tank cars.
In addition to investments in blendingacilities, some companies have begunto pursue dedicated ethanol pipelines.Historically, it has been impossible tomove ethanol by pipeline or several rea-sons:
Unlike rened petroleum products,
ethanol is miscible with water and, asa result, will pick up any water andcontaminants anywhere along the wayin a ungible product pipeline.
Ethanol is a good solvent, meaningthat introduction o ethanol into apipeline will cause years o build upto loosen up and contaminate thepipeline.
Ethanol has materials compatibilityissues with steels and elastomers. In
particular, it is known to cause stresscorrosion cracking.
Magellan and Buckeye are leading theway in this arena and announced inFebruary 2008 that they were launchingan eort to assess the easibility o build-ing a dedicated pipeline rom the cornethanol production region in the Midwestto the largest consumer market along
BCURTIS ENERGIES & RESOURCE GROUP, INC.
the eastern seaboard. A preliminary cosestimate has been quoted at roughly$3 billion. The pipeline would be about1,700 miles long and would take severa
years to build.
Blend limits and Vehicle TechnologyThe currently accepted ethanol blends areE10 and E85 with 10 percent and 85 per-cent ethanol, respectively, blended withgasoline. With limited roll out to date o E85uelling stations in the U.S. (about 1,400 outo 170,000 stations oer E85) and an equally limited roll out o fex uel vehicles (about6 million out o 250 million cars), the E10blend poses a limit to growth in the etha-nol industry that may be reached in the ou
to ve year time rame. Testing is currentlyunder way that suggests higher blendssuch as E15 are easible and sae in todaysauto feet. A major hurdle or wide accept-ance o blends above E10 is the potentiacost to auto manuacturers that have largewarranty liabilities to consider. Once this isovercome, the blend limit can extend thetime required to turn over the vehicle feetand bring more fex uel vehicles to markeas needed.
In the long run, a popular scenario to consider is that o midlevel blends such as E15 oE20 across the country with specic marketssuch as the Midwest that will deploy E85 ona larger scale, thus bringing the national av-erage blend up to a higher rate.
Figure 1.18
#MFOE-JNJUT
Corn Ethanol
Cellulosic
Ethanol
OtherAdvanced
Biofuels
10 | THE NEXT INFLECTION POINT
#JMMJPO(BMMPOTQFS:F
BS
-
7/27/2019 2007 Ethanol Review
19/52
Figure 1.19
FINANCIAL HEALTH OFTHE INDUSTRY2007 was a dicult year or the corn etha-nol industry. Some o the diculties were
a unction o industry growing pains andbalancing o prot distribution while otherdiculties were a result o broader eco-nomic conditions including rising globalcommodity prices, lending market crisesand an overall economic downturn in theUs. As a result, ethanol stocks were hithard and new construction came to a haltin the second hal o 2007. Some etha-nol plants were shut down to weather thecurrent economic conditions.
4VQQMZBOE3FWFOVF'MPXT
"HSJDVMUVSF#JPNBTT4PVSDF $POWFSTJPO1SPEVDUJPO
#MFOEJOH3FUBJM.BSLFUJOH
&/%64&
4FDPOEBSZ4VQQMJFST
4FDPOEBSZ4VQQMJFST 1SJNBSZ4VQQMJFST
1SPEVDUT4FSWJDFTBOE5SBOTQPSUBUJPO 3FWFOVF
-FHFOE
chain is considered with industry averageTheoretical industry models suggest margins or that particular sector. For the
that the undamental economics or corn purpose o analysis, operating cash fowethanol are still sound, but this is o little is the ocus so that it can be more easilycomort to some o the operators trying to demonstrated how cash fows through thenavigate the current market. In the long industry. Also, capital structure can varyterm, the market will likely recover and greatly amongst industry players, whichresume growth to meet the RFS targets. can be considered separately. The result-
ing revenue and prot distribution guresRevenue And Prot Distribution highlight the industrys struggle to nd aThe primary model considered in this re market equilibrium as it grows.port is based on average industry pricesor gasoline and spot prices or ethanol As shown in Figure 1.20, the industry revover time. Each segment o the supply enues are highly dependent on produc
Figure 1.20 5PUBM*OEVTUSZ3FWFOVFT)JHImCCMPJMFUIBOPMBUQSFNJVN.JEm.BJOUBJO1BDFCBTFEPO'FCQSJDFT-PXmCCMFUIBOPMBUEJTDPVOU/PUF&UIBOPMTQPUQSJDFEPFTOPUGVMMZSFGMFDUBMMDPOUSBDUQSJDJOHJONBSLFU
4DFOBSJPTTIPXO
C
C
C
&UIBOPM7PMVNFCHQZ
1BDF
4DFOBSJPT
&UIBOPM3FUBJM3FWFOVF&UIBOPM1SPEVDFS3FWFOVF
"WH(BTPMJOF3FUBJM1SJDFAll Grades, All Formulations
"WH&UIBOPM4QPU1SJDFBCURTIS ENERGIES & RESOURCE GROUP, INC. 11 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
20/52
1
Figure 1.21 $PSO&UIBOPM*OEVTUSZ1SPGJU%JTUSJCVUJPO
0QFSBUJOH$BTI.BSHJO
%PXOTUSFBNUP3FUBJM
&UIBOPM1SPEVDFST
1SJNBSZ4VQQMJFST
4FDPOEBSZ4VQQMJFST
7&&5$&GGFDU
7&&5$&GGFDU
Note: See Appendix on page42 for Industry Reference
Model used for revenue and
prot analysis, 2005-2007
pricing. Likewise, prot distribution ishighly dependent on the price spreadbetween gasoline and ethanol. While thismodel is only theoretical and based onindustry averages, Figure 1.21 is illus-trative o the dramatically dierent protscenarios in 2006 and 2007. It also showsthat the industry structure allows or mucho the prots to fow upstream to primaryand secondary suppliers, where primary
suppliers are dened as those rms sup-plying directly to the ethanol producers(or example, corn armers)and second-ary suppliers are suppliers to them (suchas seed producers).
The nature o prot distribution impactsthe industry in several important ways:
Contract negotiations and pricingdynamics
Ability to raise capital, oten refected
in stock prices
Tax subsidy benets
1. VEETC Sharing
2. Future public policy
3. Contract pricing impact
As outlined on page 6 ethanol pricingdynamics is a complex topic. One o
the many actors playing into this is protdistribution across the supply chain. Eachcontact point along the supply chain represents a contract and pricing relationshipOver the long term, the only way or anindustry to survive is i there is a relativelyair prot distribution. Otherwise, chroni-cally underrewarded segments wouldbecome unattractive or investors and operators, thus causing industry breakdown o
restructuring.
Stock Performance2007 was an overall good year or energystocks with the S&P Global Energy Indexoutperorming the S&P 500 roughly 25 to30 percent or the period o January 2007to Feb 2008. Ethanol stocks, however, werea notable exception. With major losses bypure play ethanol companies, the sectoexperienced a serious correction.
There are several explanations or this dra-matic downturn. First, stocks were overvaluedat the time o IPO due in part to valuationsbased on an irrational prot split in the 2006timerame when many o the ethanol com-panies went to market. So, when the prosharing scenario fipped over in 2007, ethanol stocks were valued on earnings in adierent prot split paradigm.
In the medium to long term, ethanol unding
BCURTIS ENERGIES & RESOURCE GROUP, INC. 12 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
21/52
"H#JP$IFN
1SPEVDFS.BSLFUFS
Figure 1.22 3FMBUJWF4UPDL1FSGPSNBODFJan 2007- Feb 2008
MON
ADMMROCVX 41
(MPCBM
&OFSHZ*OEFY
COP
BP
S&P500 DD
VSEPEIX
AVRVRNM
*OEJWJEVBM$PNQBOZ(BJOT-PTTFT5SBEJOH#BOETCZTFDUPS
*OUFSHSBUFE&OFSHZ
4141(MPCBM&OFSHZ*OEFY
through public markets will see arecovery. Analysts will be smarter aboutthe industry and will be able to identiygood opportunities as corn ethanolcontinues to grow.
Secondary suppliers, especially theagribiz companies have done very wellor the period with Monsanto as a stand-out stock gaining more than 125 percentsince January 2007. More than 50 per-cent o their revenues are derived romseed sales. Another interesting stock towatch is ADM, which has beneted romits broad agricultural businesses but isone o the First Tier ethanol producers.
Advanced biouel stocks will likely bevalued as a dierent segment due todierentiated economic and risk proles.
Funding sources and project nanceAlong with, or perhaps as a result o, poorpublic stock perormance, nancing orcorn ethanol project development driedup in 2007, resulting in the reezing oalmost all new construction.
Project nance or ethanol can be brokendown into 2 categories: project equity andproject debt.
On the equity side, there are public mar-
kets and private equity, which may proveto be counter cyclical as the industry hasits ups and downs.
Corn ethanol received a air amount oventure capital in the past ew years, buwill likely not produce any urther venturenancing. Future biouels venture investments will likely be ocused on technologyrisks as discussed in Chapter 2.
On the debt side, there may be somedisruption as debt sources move rom the
traditional agricultural banks towards nancial institutions. The arm banking systemis showing signs that its portolio allocation or ethanol project debt is reaching itslimit, implying that the arm banking sectoris not large enough to absorb the contin-ued industry growth. There will be somelag time as new sources o debt warm upto the industry and let the current wave o
BCURTIS ENERGIES & RESOURCE GROUP, INC. 13 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
22/52
1
Figure 1.23
Top Ag Banks:
1.Agstar
2.CoBank
3. Farm Credit Services4. First National Bank o
Omaha
5. Home Federal
6. Stern Brothers
7. West LB
(MPCBM'JOBODJOH3BJTFE
AssetFinancing
Venture Capital/Private Equity
PublicMarkets
64CJMMJPO
4PVSDF/FX&OFSHZ'JOBODFdiculties ride through. Additionally, theallout rom the subprime mortgage cri-sis is broadly aecting debt markets andmay continue or some time.
Project nancing will likely require someadditional saeguards and assurances inorder to rebound. This can be achieved inseveral ways:
Insurance
Hedging and risk management
Federal loan guarantees
Ta Subsidy BenetsTax subsidies fow into the ethanol indus-try as a blenders credit and are sharedacross the supply chain as a unction omidstream pricing.
In 2007, the $0.51 per gallon credit wasapplied to 6.45 billion gallons or a totalvalue o $3.29 billion. Due to a shitingprice delta between ethanol and gasoline
(ethanol price was higher rst hal o theyear and lower in the second hal), thetax credit benet shited rom the produc-ers to the blenders over the course othe year.
See Chapter 4 and Figure 4.1 (page 21)or urther discussion.
BCURTIS ENERGIES & RESOURCE GROUP, INC. 14 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
23/52
The idea o making liquid uels rom cel-lulosic biomass is not new. What is newis being able to do it at low cost and on a
large scale. Over the past several years,technologies have been in developmentto address these core issues and drivethe biouel industry to and through thenext infection point.
This chapter discusses the topics o timing,technology, eedstock and nancing tosupport the next generation o biouels.
GEARING UP FOR TAKE-OFFAter years o research, several criti-
cal actors have come into alignment toenable the takeo o cellulosic ethanol.
First, cellulosic conversion technology iscoming o age as costs continue to all andcommercialscale demonstration projectsbreak ground. As discussed in the ollowingsection, there are many technologies beingdeveloped in parallel with many potentialwinners. While it implies tough competitionamong technology startup companies, thisdynamic technology environment bodeswell or the industry as a whole.
Second, rural development has been a ma-jor driver in the adoption o avourable locapolicy and incentives that are encouraging
industry development. Compared to corn asa eedstock source, cellulosic biomass has amuch wider ootprint across the U.S., allow-ing or communities to build local industry inways that were previously unavailable.
Third, the inrastructure or ethanol hasbeen pushed orward by the existing cornethanol industry, which will allow or rapiddeployment o technology as it proven ademonstration and commercial scale.
Fourth, there is signicant legislative andpolitical will to advance renewable en-ergy. With respect to biouels, this wasmaniested in the new RFS signed intolaw in December 2007 laying out targetsto reach 16 bgpy o cellulosic ethanol by2022, which is more than twice the cur-rent corn ethanol capacity in the U.S.The commitment is also made cleathrough the $1 billion in ederal undingmade available to advanced biomassprograms.
Figure 2.1 &UIBOPM5FDIOPMPHZ&WPMWFT5IF/FYU*OGMFDUJPO1PJOU
1FSGPSNBODF
BOE$BQBDJUZ
5FDIOPMPHZ*OOPWBUJPO1IBTF3FTFBSDI%FWFMPQFNFOU%FNPOTUSBUJPO
$FMMVMPTJD&UIBOPM/FX5FDIOPMPHZ$VSWF
5FDIOPMPHZ$PTUBOE*OGSBTUSVDUVSF#SFBLUISPVHIT
$PSO&UIBOPM&YJTUJOH5FDIOPMPHZ$VSWF
3FTPVSDF$POUSBJOUT5IF/FYU*OGMFDUJPO1PJOU
5JNFBOE&GGPSUBCURTIS ENERGIES & RESOURCE GROUP, INC. 15 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
24/52
2
Figure 2.2
$FMMVMPTJD&UIBOPM$PTU4USVDUVSFCZ1SPDFTT5BSHFUTIPXOJOOPUJODMVEJOHGFFETUPDL
#JPDIFNJDBM 5IFSNPDIFNJDBM 'FFE)BOEMJOHBOE1SFIZESPMZTJT5SFBUNFOU %SZJOHOFU'VFMT
&O[ZNFT 4BDDIBSJGJDBUJPOBOE
'FSNFOUBUJPO
%JTUJMMBUJPOBOE 4PMJET3FDPWFSZ
#BMBODFPG1MBOU
4ZOUIFTJT(BTJGJDBUJPO4ZOHBT$MFBOVQBOE$POEJUJPOJOH1SPEVDUJPO3FDPWFSZBOE1VSJGJDBUJPO#BMBODFPG1MBOU
Lastly, nancing largely in the orm oventure capital has been available toback advanced biouels commercial de-velopment.
As each o these actors begins to reacha critical point, the net result is a multipliereect that will likely lead to a steep infec-tion point in the next 35 year timerame.
Cellulosic ethanol conversion
technologiesCellulosic ethanol technologies can bebroken down into 2 main categories :biochemical and thermochemical. Mucheort has been given to the technicalassessments o these technologies, sothis report will not attempt to cover thetechnical details. For the purposes here,each o these pathways will be consideredin terms o technology adoption and howthat may transorm the industry landscapeover time.
The primary driver or any technology ina commodity market is cost, which canbe broken down to include capital cost tobuild a plant and operating cost to run theplant. As illustrated in Figure 2.2, the bio-chemical and thermochemical pathwaysrequire dierent equipment and operatingcost categories.
4PVSDF#JPNBTT.VMUJ:FBS1SPHSBN1MBO
Cost curvesIn contrast to corn ethanol processing tech-nologies which are in the phase o makingcontinuous incremental improvementscellulosic ethanol conversion technologiesare making dramatic cost improvementsas they move rom the lab to demonstration and, ultimately, to ull commerciascale. Figure 2.2 shows the Department oEnergys cost structure targets or best oclass technology or both biochemical and
thermochemical processes. The $0.82/gashown here is based on advanced tech-nology that has not yet been deployed atull scale and does not include eedstockActual technologies may take several yearsto reach these cost points in a productionenvironment.
Figures 2.3 and 2.4 show the currentcosts by process and their anticipateddownward trajectory over the next veyears. Biochemical processes have seendramatic improvements in enzyme costsover the past several years and are turning now to overall systems improvementsThermochemical processes are oten en-gineered with capital vs operating costradeos in mind. Overall, it is dicult toassess technology cost curves on an aggregate basis as each technology has dierent advantages to be proven/disprovenat large scale.
BCURTIS ENERGIES & RESOURCE GROUP, INC. 16 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
25/52
5BSHFUHBM
Figure 2.3
4UBUVT 5BSHFU 5BSHFU 5BSHFU 5BSHFU 5BSHFU
$FMMVMPTJD&UIBOPM1SPEVDUJPO$PTU
4PVSDF/3&-
#JPDIFNJDBM5IFSNPDIFNJDBM
.PEFMFEDPTUBUOUIQMBOU
Figure 2.4
Full Scale CellulosicProjects DOE GrantSelectees:
1. Abengoa
2.ALICO
3. Bluere Ethanol
4.POET
5. Iogen
6. Range Fuels
7. West LB
4UBUVT 5BSHFU 5BSHFU 5BSHFU 5BSHFU 5BSHFU
*OTUBMMFE$BQJUBM
4PVSDF/3&-
BOOVBMHBM
#JPDIFNJDBM5IFSNPDIFNJDBM
.PEFMFEDPTUBUOUIQMBOU
$PTU$PSO1MBOU
As a point o reerence, the average costto produce corn ethanol in 2007 was$1.69/gal (see Table 1.1 above) and hasclimbed above $2.00 in early 2008. I the
Early Stage Companies net eedstock cost is subtracted out o theWorking On Net cost to produce corn ethanol, the cost isGeneration Fuels: about $0.74/gal, which is cheaper than
the target $0.82/gal or cellulosic tech-1. Amyris Biotechnologies
nologies. However, when eedstock costs2.Gevo are considered, projections or cellulosic
costs are much lower at $1.33/gal in 2012.3. LS9 O course, this is a theoretical target and
subject to many external actors as thecellulosic eedstock industries evolve.The good news is that, unlike corn, cellu-losic biomass is not (yet) highly subject tocommodity swings and external actors.This comparison, though, does highlight
the importance o how the cellulosic eedstock market develops, which is discussedin more detail on the ollowing page.
Net Generation FuelsSeveral examples exist o advanced biou-els being developed that have the poten-tial to complement or even replace ethanoas the dominant biouel in the U.S. Whilestill in early stage development, these uelsare being created in order to improve ueproperties and/or circumvent bottlenecksin getting product to market. Examplesinclude technologies used to producealternative alcohols to be blended withgasoline. BP and DuPont have beenworking together on butanol. And, start
ups such as Amyris Biotechnologies areworking with synthetic biology to producealternative uels.
Important uel properties to consider are: Energy density
Octane
Vapor pressure
Miscibility with water (ie, ability totransport via pipeline)
Other companies are working on nonalcohols that can be introduced into the sup-ply chain in dierent ways than ethanolFor example, ADM and ConocoPhillips areworking together on the development obiocrude rom cellulosic eedstock sourc-es that can be introduced at the oil ren-ery level. Another example is startup LS9which is producing renewable petroleumthat can be distributed through traditionapipelines.
CELLULOSIC FEEDSTOCK SOURCESWith the publishing o the Billion TonStudy by the USDA and DOE in 2005it has been well accepted that there issucient cellulosic biomass eedstockavailable in the U.S. to support a signicant biouels industry. While somewould argue the validity o the outsideestimates, even a conservative reading
BCURTIS ENERGIES & RESOURCE GROUP, INC. 17 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
26/52
2
Among the systems tobe developed are:
1. Harvesting
2. Handling
3. Preprocessing
4. Shipping
5. Storage
6. Market mechanisms
o the data gets the U.S. a long ways to-wards energy independence or consumer
transportation.
However, the systems required to bringthis biomass to into useul production willtake years, probably decades, to devel-op. The Oce o the Biomass Programpredicts that approximately 250 milliondry tons will be accessible by 2017, ram-ping up along side the cellulosic ethanolIndustry as it pushes through the nextinfection point.
It is important to note the diversity o cel-
lulosic eedstocks available. The 2 largestsources o cellulosic eedstock are orest-ry resources and corn stover. In both cas-es, these sources can leverage existingmarkets and inrastructure (paper/pulpand corn grain industries, respectively).
New dedicated energy crops such asswitch grass and perennial trees will takelonger to develop. Aside rom the sys-tems mentioned above, these crops arebeing developed rom the ground up be-ginning with seeds and crop engineering.Companies today are working on theseaspects but the timing o large scalerollout is necessarily dependent on thedevelopment o easible cellulosic conver-sion technologies. Feedstock producerswill not have the incentive to plant largeareas until they can be guaranteed thatthere will be a market pull or their output.
Lastly, the diversity o cellulosic eed-stocks also leads to geographic diversityo cellulosic ethanol production acilities.
This is signicant in the development otransportation system to get ethanol tomarket. In the long range, inrastructurewill be urther developed rom the tradi-tional Midwest sources, but also romnew regions such as the Southeast wherethere is large potential or cellulosicdevelopment.
Figure 2.5
.BKPS$FMMVMPTJD'FFETUPDL4PVSDFT-POH3BOHF0VUMPPL3PVOEFEFTUJNBUFTCBTFEPO#JMMJPO5PO4UVEZ4DFOBSJP5FDIOPMPHZDIBOHFXJUIQFSFOOJBMDSPQTBOEMBOEVTFDIBOHF
$PNCJOFE'PSFTUSZ4PVSDFT365m dry tons | 32%
$PSO4UPWFS250m dry tons | 22%
1FSFOOJBM5SFFT
200m dry tons | 8%
.JTDBOUIVT90m dry tons | 8%
4XJUDIHSBTT90m dry tons | 8%
8IFBU4USBX50m dry tons | 4%
0UIFS3FTJEVFTBOE$SPQT200m dry tons | 8%
Figure 2.6
.BKPS$FMMVMPTJD'FFETUPDL4PVSDFT&TUJNBUFTCBTFEPO#JPNBTT1SPHSBN.:11BUUBSHFUGFFETUPDLQSJDFT
Feedstock (m dry tons/yr)
0 50 100 150 200 250
505"-
Corn Stover
Private Woody Biomass"TTVNFT
SwitchgrassDPOWFSTJPOSBUFPG
Cereal Straw HBMESZUPOPublic WoodyBiomass
0 5 10 15 20 25Ethanol (bgpy)
BCURTIS ENERGIES & RESOURCE GROUP, INC. 18 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
27/52
VENTURE CAPITALTRENDS IN BIOFUELSVenture capital has been a signicant driv-ing orce in the development o conventional
and advanced biouels with over $650 mil-lion invested in the U.S. rom the beginningo 2007 through rst quarter 2008. As awhole, the venture community has a broadinvestment mandate ranging rom earlystage seed investments to preIPO rounds.However, most rms tend to specialize incertain categories. The early stage invest-ments tend to be smaller and ocus ontechnology risks whereas later stage dealsemphasize growth and execution.
2007 was airly evenly split between early
stage and late stage deals, with 15 and 19deals, respectively. However, the trend in1Q08 is towards ewer later stage deals.This trend is likely due to 2 main actors: 1)momentum o deals that were rst undedin 2007, and, 2) early stage venture rmstaking a wait and see approach to watchdevelopment o technologies, exit perorm-ance o late stage deals and outcome ocurrent public policy debate.
Interestingly, the location o venture invest-ments is skewed towards regions that havelong history o venture capital and technol-ogy innovation, namely the west coast andthe northeast, rather than the location oproduction acilities and eedstock sourc-es. This is an indication o what the industrystructure may look like down the road withtechnology innovation taking place sepa-rate rom production.
Lastly, it is notablethat o the 50plusventurecapital rms that have been active in biou-els, very ew seem to have a keen ocus on
the sector. Khosla Ventures o Menlo Park,CA is a stand out with 10 investments overthe period. This is mostly due to the actthat most venture rms consider biouels asubsector o a larger investment categorylooking at clean energy and environmentalprotection. Each rm denes the categorydierently based on their own analysis andmarket theses.
Table 2.1
Biofuels Venture Dealsmillion $
2007 1Q08
# ofDeals
CapitalRaised
# ofDeals
CapitalRaised
West Coast 13 $182.02 1 $3.00
Northeast 6 $64.22 2 $32.50
Southwest 5 $53.85
Midwest 4 $33.25 2 $19.50
Northwest 3 $76.25
Rockies/Plains 2 $48.23 1 $100.00
Alaska/Hawaii 1 undiscl
Southeast 1 $42.00
34 $457.82 7 $197.00
Notes: Includes ethanol, biodiesel and waste to energy; 2007 and
1Q08 had 5 deals and 1 deal, respectively, of undisclosed amount
Figure 2.7
/VNCFSPG7FOUVSF%FBMT#Z3FHJPO2
0 2 4 6 8 10 12 14 16West Coast
Noertheast
Midwest
Southwest
Noerthwest
Rockies/Plains
Alaska/Hawaii
Southeast
Table 2.2Other Biofuels Venture Statistics# of Deals 2007 1Q08Investment $250,000 $2.5m Size Range - $70m - $100m
Mean $15.8m $32.8m
Median $7.1m $30m
# o Active Firms 43+ 16
Stage
Seed/First Round 19 1
Followon 15 6
Firms with more than 1 deal
Khosla Ventures 7 3
Nth Power 3
Mohr Davidow 3
@ Ventures 2
Capricorn 2
Pinnacle 2
General Motors 2
Source above: Cleantech Network LLC
BCURTIS ENERGIES & RESOURCE GROUP, INC. 19 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
28/52
3
Figure 3.1
The U.S. Department o Energy has beenplaying a central role in the developmento a large scale biouels industry in the
U.S.. With a broad scope o activitiesranging rom undamental research todeployment and commercialization, theprograms have served as a catalyst inorming viable private sector ventures.
Major unding or biouels industry devel-opment fows primarily through two DOEprogram oces: The Oce o the BiomassProgram and The Oce o Science. Asshown in Figure 3.1, over $1 billion ounding has been allocated since the
beginning o 2007, over $650 million owhich comes out o the annual BiomassProgram budget to support commerciali-zation o biouel technology and privatesector eorts. $375 million was commit-ted by the Oce o Science to supportthree new Bioenergy Research Centers toaccelerate basic research. 1. Oce o the Biomass Program:
#JPNBTT1SPHSBN#VEHFU
REQUEST
MILLIONS
The ollowing breakouts provide excerptsrom the DOE websites and describe eacho the unding programs underway nowFurther inormation can be ound at the ollowing websites:
www.eere.energy.gov/biomass
2. Oce o Science: www.er.doe.gov
Integrated Cellulosic BioreneriesOn February 28, 2007, DOE selected six biorenery projects to develop commercialscaleintegrated bioreneries demonstrating the use o a wide variety o cellulosic eedstockssuch as corn ber, wood wastes, agriculture residues, municipal solid wastes and po-tential energy crops. The goal is to demonstrate that integrated bioreneries can operateprotably once their construction costs are covered and can be replicated. DOE will investup to $385 million in the six projects over the next our years. When ully operational, theseacilities will be capable o producing more than 130 million gallons o ethanol per year.
Ethanologen Projects - Development of Fermentative OrganismsIn March 2007, DOE selected ve projects ocused on developing highly ecient ermen-tative organisms to convert biomass material to ethanol. Commercialization o ermenta-tive organisms, capable o ermenting both hexose and pentose sugars, is crucial to the
success o biochemical based integrated bioreneries. Over $23 million in ederal undingwill be available. When combined with industry cost share contributions, more than $37million could ultimately be invested in the ve projects.
BCURTIS ENERGIES & RESOURCE GROUP, INC. 20 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
29/52
Thermochemical SolicitationOn December 4, 2007, DOE announced that our cellulosic biouel projects will receive up to $7.7 million inunding over the next three years. When combined with the industry cost share, more than $15.7 million willbe invested in the our projects rom scal year 2008 to scal year 2010. The projects will demonstrate the
thermochemical conversion process o turning switchgrass, corn stover, wood, and the nonedible parts oother organic materials into biouel. The ve projects will validate technologies or removing contaminants rombiomassderived synthesis gas to very low levels. Ater veriying the proposed cleanup technology can achievethe required low contaminant level, the projects will advance to the second phase where a uel synthesis trainwill be coupled to the gas cleanup system. The uel synthesis train will use catalysts to convert the cleanedsynthesis gas to Fischer Tropsch hydrocarbons and/or mixed alcohols.
Small-Scale Cellulosic Bioreneries (10% Validation)On January 29, 2008, the Department o Energy (DOE) announced it will provide up to $114 million, over ouryears, to support the development o smallscale cellulosic bioreneries. The projects will develop bioreneriesat 10% o commercial scale that produce liquid transportation uels as well as biobased chemicals and bioprod-ucts used in industrial applications. Combined with industry cost share, more than $331 million will be investedin these our projects. On April 18, 2008, DOE announced an additional $86 million over the next 4 years inthree new smallscale bioreneries will produce ethanol rom nonedible cellulosic biomass sources, such as
corncobs, wood chips, and switchgrass.
Enyme Systems SolicitationIn February 2008, DOE announced its investment o up to $33.8 million over our years (Fiscal Years 20082011)in our projects that will ocus on developing improved enzyme systems to convert cellulosic material into sugarssuitable or production o biouels. These our projects seek to more costeectively and eciently break downprocessed biomass into ermentable sugars, a signicant challenge in converting biomass into uels. Projectswere selected based on their demonstrated ability to reduce the cost o enzymespergallon o ethanol byimproving an enzymes perormance.
Bioenergy Research CentersIn June 2007, DOE Oce o Science announced the establishment o three new Bioenergy Research
Centers to accelerate basic research in the development o cellulosic ethanol and other biouels. TheCenters will bring together diverse teams o researchers rom 18 o the nations leading universities,seven DOE national laboratories, at least one nonprot organization, and a range o private companies.The Departments three Bioenergy Research Centers include:
The DOE BioEnergy Science Center led by the DOEs Oak Ridge National Laboratory in Oak Ridge, TN
The DOE Great Lakes Bioenergy Research Center will be led by the University o Wisconsin inMadison, WI.
The DOE Joint BioEnergy Institute will be led by DOEs Lawrence Berkeley National Laboratory inBerkeley, CA.
The centers are expected to begin work in 2008 and will be ully operational by 2009.
Energy Efciency Loan GuaranteesOn April 11, 2008, DOE announced that it will issue solicitations in June, oering up to $10 billion in loan guar-antees or energy eciency, renewable energy, and electric transmission projects. The $10 billion will be parto a larger $38.5 billion loan guarantee package that will support a variety o energy technologies. Selectioncriteria or the clean energy projects will ocus on the avoidance o emissions o greenhouse gas emissionsand other air pollutants; the speed at which technologies can be commercialized; the costsaving potential orconsumers; the prospect o loan repayment; and the potential or longlasting success o these technologies inthe marketplace.
BCURTIS ENERGIES & RESOURCE GROUP, INC. 21 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
30/52
3
Table 3.1 CELLULOSIC ETHANOL GRANT SELECTEES
Program Announced Recipients Amount
Integrated Cellulosic
Bioreneries
Feb 2007 Abengoa $76
ALICO * $33
BlueFire Ethanol $40
POET $80
Iogen * $80
Range Fuels $76
subtotal $385
Ethanologen Projects Mar 2007 Cargill $4.4
Verenium $5.3
DuPont $3.7
Mascoma $4.9
Purdue University $5.0
subtotal $23.3
BioEnergy Research Centers Jun 2007 Oak Ridge National Lab $125
* funded by DOE Ofce of Science University o Wisconsin $125
Lawrence Berkeley National Lab $125
subtotal $375
Thermochemical Solicitation Dec 2007 Emergy Energy $1.7
Iowa State University $2.0
Research Triangle Institute $2.0
Southern Research Institute $2.0
Gas Technology Institute $2.0
subtotal $9.7
Small Scale CellulosicBioreneries
Jan/Apr 2008 ICM
Lignol Innovations
$30.0
$30.0
10 percent Validation Pacic Ethanol $24.3
NewPage Stora Enso $30.0
Mascoma $26.0
RSE Pulp & Chemical $30.0
Econ $30.0
subtotal $200.3
Enyme Systems Solicitation Feb 2008 DSM TBD
Genencor TBD
Novozymes TBD
Verenium TBD
subtotal $33.8
TOTAL $1,027.1
* The company has since announced its intention to withdraw from the solicitation.
BCURTIS ENERGIES & RESOURCE GROUP, INC. 22 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
31/52
While the ethanol industry is most easilyconsidered within the context o energypolicy, it is undamentally as much a mat-
ter o national resources and economicdevelopment. Any sound public policychoices must be made within this greatercontext and taken holistically to includesuch topics as energy security/inde-pendence, rural revitalization, agriculturalproduction, oreign trade, ood security,environmental protection and strategictechnology innovation.
And, while corn ethanol technology is rel-atively mature, the ethanol industry as a
whole is still in its emergent stage vis a visthe oil industry in terms o both capacityand technology. As such, industry devel-opment outcomes are decidedly path de-pendent. Without a solid corn ethanol in-dustry, cellulosic conversion technologieswould not have a platorm rom which tolaunch. As a result, public policy meas-ures that aect the corn ethanol industryalso aect the nations ability to tap intothe large renewable biomass resourcesavailable in the U.S. today.
CURRENT POLICY SITUATIONCongress passed the Energy Indepen-dence and Security Act (EISA) inDecember 2007, included in which is anew and airly aggressive RenewableFuel Standard (RFS; see Figure 0.1).
4PVSDF0#1FTUJNBUFT4QPU&UIBOPM
(BTPMJOFBU3FGJOFSZ(BUF
7&&5$#FOFGJU4IBSJOH
+ . "' . ++ " 4 0 / %
1SPEVDFSTDBQUVSFNPTUPG7&&5$
7&&5$4IBSFE
#MFOEFSTDBQUVSFNPTUPG7&&5$
7&&5$4IBSFE
However, to date, exact regulations andenorcement mechanisms have yet to berolled out.
Meanwhile, two important economic toolsare reaching their end o lie, with a notabletiming gap o 2 years. Namely, the ethanoimport tari o $0.54 expires in Decembe2008 and the Volumetric Ethanol ExciseTax Credit (VEETC or Blenders Credito $0.51 expires in December in 2010These measures are closely linked due inpart to the act that the import tari must beset at least at the level o the VEETC in or-der that U.S. taxpayers are not subsidizing
oshore growers and producers.
Various options or VEETC reorm havebeen discussed, including reduction o thecredit, complete elimination o the credior a change to a variable credit based oncommodity indices (ie, oil and corn). It hasalso been discussed to move the entrypoint o the credit rom blenders to producers. The logic in making this move is thathe credit can fow more reliably across theindustry while allowing or elimination o theimport tari. Product pricing and the price
spreads are the primary mechanisms otax credit sharing across the supply chain(see Figure 4.1).
Other importanteconomicactorsto considein public policy decisions are long range oiprices as well as the potential or long rangeood infation (see side bar on page 6).
Further Policy StudyAny new policy measures should be vetted andmodelled in detail to ully understand intended andunintended consequences. The ollowing marketimpacts should be assessed:
1. Production/Consumption
2. Supply/Demand
3. Treasury impact
4. Capital investment impact
5. ProductionInrastructureTechnology development investment
Further, the economic models should take into accountseveral possible long rage market scenarios.
Figure 4.1
BCURTIS ENERGIES & RESOURCE GROUP, INC. 23 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
32/52
BCURTIS ENERGIES & RESOURCE GROUP, INC. 24 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
33/52
U.S. ETHANOL Industry:
Industry Report May 2008
1
2
3
4
5
6
Company
Archer Daniels Midland
Danisco
DuPont
Monsanto
NewPage
Novozymes
Category
Ag/Bio/Chem
Ag/Bio/Chem
Ag/Bio/Chem
Ag/Bio/Chem
Ag/Bio/Chem
Ag/Bio/Chem
Ownership
Public
Public
Public
Public
Public
Public
7
8
9
10
Abengoa Bioenergy
Aventine Renewable Energy
POET
VeraSun Energy
Producer/Marketer
Producer/Marketer
Producer/Marketer
Producer/Marketer
Public
Public
Private
Public
11
12
13
14
15
16
17
18
Alico
BlueFire Ethanol
Iogen
Lignol Innovations
Mascoma
Pacic Ethanol
Range Fuels
Verenium
Growth Stage
Growth Stage
Growth Stage
Growth Stage
Growth Stage
Growth Stage
Growth Stage
Growth Stage
Public
Public
Private
Private
Public
Public
Private
Public
19
20
21
22
BP
Chevron
ConocoPhilips
Marathon Oil
Integrated Energy
Integrated Energy
Integrated Energy
Integrated Energy
Public
Public
Public
Public
23
24
Bateman Litwin
CH2M HILL
Services
Services
Public
Private
25
26
Fagen
ICM
Services
Services
Private
Private
Sources: Companyreports, websites, pressreleases, stock pricedata and other publiclyavailable inormation.
27
28
29
30
Goldman Sachs
Morgan Stanley
CoBank
Khosla Ventures
Finance
Finance
Finance
Finance
Public
Public
Private
Private
Companies highlighted in green were DOE grant selectees. Due to timing oannouncements and scope o initial coverage, not all selectees are profled
in this report.
BCURTIS ENERGIES & RESOURCE GROUP, INC. 25 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
34/52
5Ag/Bio/Chem
ARCHER DANIELS MIDLANDSegment: ConversionLocation: Decatur,ILOwnership: Public
Key Financial Metrics:Revenue: $44.0 bNet Earnings: $2.2 bNet Margin: 4.9 %Market Cap: $24.9b
ADMs strategy is to leverage its supply,technical and nancial strength advan-tages to enjoy economies o scale or
production. The company also main-tains a national transportation systemincluding rail, trucks, barges and stor-age acilities.
Ethanol is a signicant contributor tocorporate prots. 19% o ADM protsare derived rom bioproducts while theproduct segment makes up only 7% orevenue.
Selected Headlines: ADM is partnering with Purdue
University to study cellulosic ethanoltechnologies, ocusing on biologicalprocesses.
ConocoPhillipsand ADM orm allianceto develop nextgeneration biouelsincluding the production and reningo biocrude.
Archer Daniels Midland Company, ADMis engaged in logistics, processing, andmerchandising agricultural commodities
and products. The company is one o thetop three largest ethanol producers.
NYSE: ADM | Jan 2007 Feb 2008
."3 +6/ 4&1 %&$ '
Segment: Enzymes Genencor is the second largest supLocation: Palo Alto, CA plier o enzymes to the ethanol industryOwnership: Public with R&D programs in place to urther
advance the biological pathway or bioKey Financial Metrics: uel production. Genecor was acquiredRevenue: $90.7 m (est) by Danish ood ingredient company,
Danisco, in 2005.DOE Grant Selectee: ezm sm, m tBD Selected Headlines:This project plans to reduce In October 2007, Genecor announced
the enzymedose level the release o the rst commercially
required or biomass sac available enzyme to break down
charication by improving cellulosic biomass in to ermentable
the specic perormance sugars.o the Trichoderma Reeseimix o ungalbased cellu
In June 2007, the company released anew enzyme product or corn ethanol
lases to acilitate productionproduction that increases the value o
o cellulosic ethanol rom sugars produced by the
DDG byproducts.
saccharication process. In May 2008, DuPont and Genencor,a division o Danisco, announced a50/50 joint venture, DuPont DaniscoCellulosic Ethanol LLC to developcellulosic ethanol technologies.
BCURTIS ENERGIES & RESOURCE GROUP, INC. 26 | THE NEXT INFLECTION POINT
Ag/Bio/Chem
DANISCO
Genencor, a Division o Danisco, USA, Inc.discovers, develops, and sells enzymesto the agricultural processing, industrial processing, and consumer productsindustry.
CPH:DCO | Jan 2007 Feb 2008
."3
+6/
4&1
%&$
'
-
7/27/2019 2007 Ethanol Review
35/52
Ag/Bio/Chem
DUPONTSegment: Seeds, ConversionLocation: Wilmington, DEOwnership: Public
Key Financial Metrics:Revenue: $29.0bNet Earnings: $3.1bNet Margin: 10.8%Market Cap: $38.8b
DOE Grant Selectee:ehl prjc, $3.7m
DuPont approaches the biouels marketas a supplier as well as a potential u-ture producer. The company is a market
leader in dierentiated seed productsand crop protection chemicals.DuPontis pursuing cellulosic ethanol tech-nologies together with POET and bi-obutanol as a next generation bioueltogether with BP.
Selected Headlines: In June 2007, DuPont announced
it will invest $58 million in biouelproduction assets at two acilitiesas part o a partnership with BP andBritish Sugar.
In May 2008, DuPont and Genencor,a division o Danisco, announced a50/50 joint venture, DuPont DaniscoCellulosic Ethanol LLC to developcellulosic ethanol technologies.
DuPont is a diversied materials andproducts company with activities in agri-culture and biobased materials. DuPon
owns leading corn seed producer PioneeHiBred.
NYSE:DD | Jan 2007 Feb 2008
."3 +6/ 4&1 %&$ '
Segment: Seeds, Ag Inputs Monsanto is developing new strains oLocation: St Louis, MO corn seed to increase crop yields up toOwnership: Public 300 bu/acre rom todays ~150 bu/acre
average. The company has also investKey Financial Metrics: ed in Mendel Biotechnology to supportRevenue: $8.6b the development o energy crops andNet Earnings: $993m seeds to support the cellulosic biouelsNet Margin: 10.9 % industry.Market Cap: $56.8b
Selected Headlines: Released in December 2007, harvest
data rom across the United Statesshowed that armers who used
proprietary Monsanto seeds sawdoubledigit yield advantage overcompeting seed corn brands andtechnologies in 2007.
In March 2007, Monsanto and BASFannounced $1.5 billion JV to developGMO crops to meet growing demandor vegetable based uels marks thecontinued progress o the biobutanolinitiative rst announced in June 2006.
BCURTIS ENERGIES & RESOURCE GROUP, INC. 27 | THE NEXT INFLECTION POINT
Ag/Bio/Chem
MONSANTO
Monsanto has 2 business units covering1) seeds and genomics using modernbiology, and 2) agricultural productivityincluding crop protection products.
NYSE:MON | Jan 2007 Feb 2008
."3 +6/ 4&1 %&$ '
-
7/27/2019 2007 Ethanol Review
36/52
5
Segment: Conversion NewPage is entering the biouels marLocation: Miamisburg, OH ket with supply side knowledge and exOwnership: Private pertise or cellulosic sources developed
through its paper and pulp operations.Key Financial Metrics: Further, the company already producesRevenue: $4.8 b 50% o its energy needs through utiliNet Earnings: $28m zation o steam produced during theNet Margin: 2.3 % pulp manuacturing process. The bio-
uels activities will urther drive energyNote: Financial metrics are annualized based on 1Q08 due to recent rapid eciency in the paper industry.improvement in operating perormance.
Selected Headlines:DOE Grant Selectee: In early May 2008, NewPage Groupsmll scl Clllic led documents in preparation or anBirfr, $30m IPO.The proposed plant will be
located in Wisconsin Rapids, In May 2008, NewPage announcedWisconsin, and proposes to nancial results including the rst ull
take wood wastes and con quarter since the acquisition o Stora
vert it to FischerTropsch Enso North America. Net income was
diesel uel. $7 million in the rst quarter comparedto a net loss o $20 million in the rstquarter o 2007.
Ag/Bio/Chem
NEWPAGE
NewPage Corporation is the largest printing paper manuacturer in North Americabased on production capacity.
Segment: Enzymes Novozymes is the largest supplier oLocation: Bagsvaerd. DNK enzymes to the uel ethanol industry.Ownership: Public The company utilizes gene sequencing
technology and bioinormatics to adKey Financial Metrics: vance its product perormance.Revenue: $1.56 bNet Earnings: $219mNet Margin: 14 % Selected Headlines:
In September 2007, Novozymes
DOE Grant Selectee:concluded a development agreement
ezm sm, m tBDwith CTC, the Brazilian sugar cane
This project aims to improve industrys technical center, and will
perormance o Novozymes contribute enzyme technology or
most advanced enzyme developing bioethanol rom bagasse.system by decreasing the In June 2007, Novozymes and ellowdosage o enzyme required Danish company Xergi announced anto hydrolyze biomass agreement to develop microorganismsinto ermentable sugars and environmental technologies or thesuitable or cellulosic optimal harvest o energy rom manureethanol production. products.
Ag/Bio/Chem
NOVOzYMES
Novozymes is a leader in enzymes and microorganisms, producing over 600 prod-ucts that are used in the production othousands o industrial processes.
Copenhagen: NZYM.COJan 2007 Feb 2008
."3 +6/ 4&1 %&$ '
BCURTIS ENERGIES & RESOURCE GROUP, INC. 28 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
37/52
Segment:Conversion Abengoa owns and operates six ethaLocation:HQ:Madrid, Spain nol plants (4 in operation, 2 under con
U.S: Chesterield,MO struction) and three new technology
Ownership:Public plants in the U.S.. The company hascommitted $500 million in the next ve
Key Financial Metrics: years to commercialize cellulosic ethaRevenue: $3.9 b nol. Abengoa also provides ethanolNet Earnings: $318 m trading services including a mix o shortNet Margin: 8.1 percent and long term contracts and dierentialMarket Cap: $2.3 b pricing structures.
DOE Grant Selectee: Selected Headlines:Ird Clllic Birfr, In October 2007, Abengoa opened $76m a pilot plant or the conversion oThe proposed Kansas plant biomass in Nebraska. The plant,will produce 11.4 million which involves an investment o
gallons o ethanol annually $35 million, is dedicated to R&D orand enough energy to lignocellulosic biomass part o a 2003 power the acility, with any DOE agreement.excess energy being used to power the adjacent corn dry grind mill.
Producer/Markete
ABENGOA BIOENERGYAbengoa Bio Energy is a Spanish technology company addressing sustainabledevelopment in the inrastructure, environ
ment and energy sectors.MCE:ABG | Jan 2007 Feb 2008
."3 +6/ 4&1 %&$ '
Segment: ConversionLocation: Pekin, ILOwnership:Public
Key Financial Metrics:Revenue: $1.6bNet Earnings: $54.9mNet Margin: 3.5 %Market Cap: $502m
Aventines business model includesproduction o ethanol, marketing alli-ances with other ethanol producers andpurchase/resale operations.
Aventine markets and distributesnearly our times as much ethanol asit produces. However, the majority oprots come rom ethanol production.Additional marketing activities are highvolume/low prot, but are considered ahigh value strategic activity.
Selected Headlines: Aventine announced in June 2007
that it had nalized the engineering,procurement and construction (EPC)contracts or its planned capacityexpansions at Mt. Vernon, Indianaand Aurora, Nebraska.
Producer/Markete
AVENTINE RENEWABLEENERGY
Aventine Renewable Energy HoldingsInc. is a producer, marketer and endtoend distributor o ethanol to energy com-panies in the United States. Aventine isalso a marketer and distributor o relatedbyproducts as well as biodiesel.
NYSE:AVR | Jan 2007 Feb 2008
."3 +6/ 4&1 %&$ '
BCURTIS ENERGIES & RESOURCE GROUP, INC. 29 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
38/52
5
Segment: ConversionLocation: Sioux Fall, SDOwnership: Private
DOE Grant Selectee:Ird ClllicBirfr, $80m
The plant is in Emmetsburg,IA, and will produce 125million gallons o ethanolper year, o which roughly25 percent will be cellu-losic ethanol. The cellulosiceedstock will include cornber, cobs, and stalks.
POET is an integrated ethanol producerand one o the top three largest in theU.S. The business model relies on local
ownership/investors, local employeesand local corn supply. The companysProject Liberty is pursuing cellulosicconversion o corn cobs, largely to becolocated at existing plants. POET isconcentrated in the Midwest regionbut is beginning to expand outwardsthrough services.
Selected Headlines: Despite a construction slow down
beginning in second hal o 2007,POET has continued to break ground
and open new plants. Plant projectssince 2H07:
Apr 2008,Alexandria, IN opened
Jan 2008,Leipsic, OH opened
Sep 2007,Portland, IN opened
Aug 2007,Fostoria, OH broke ground
Producer/Markete
POETPOET has 21 plants in six states producingover 1 bgpy o ethanol. Activities includedevelopment, design, engineering, con
struction, management and marketing.
Segment: Conversion VeraSun Energy leverages large econLocation: Brookings, SD omies o scale in production, marketingOwnership: Public and transportation. The company has
approximately 150 branded E85 retailKey Financial Metrics: locations under contract in more thanRevenue: $559m teen states and Washington, D.C.Net Earnings: $75.7m VeraSun is developing at its Aurora aNet Margin: 13.6 % cility a process to extract oil rom driedMarket Cap: $1.2b distillers grains, a coproduct o the
ethanol process, or use in biodieselproduction.
Selected Headlines:
VeraSun announced the opening o 20VE85 ueling locations at existing E85Kroger convenience stores in Texas.
In August 2007, VeraSun announcedit has made a minority investment inSunEthanol, a Massachusettsbasedcompany working to commercializeproprietary cellulosic ethanolproduction technology.
Producer/Markete
VERASUN ENERGY
VeraSun Energy Corporation is a produceo renewable uel and marketer o E85 nationwide. VeraSun acquired AS Alliancesand U.S. BioEnergy in 20072008 to become one o the top three ethanol producers in the U.S..
NYSE: VSE | Jan 2007 Feb 2008
."3 +6/ 4&1 %&$ '
BCURTIS ENERGIES & RESOURCE GROUP, INC. 30 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
39/52
Growth Stage
ALICOSegment: Conversion Alico is traditionally a land managementLocation: La Belle, FL company that has expanded into agriOwnership: Public business and crops with potential use
or bioenergy applications, includingKey Financial Metrics: sugarcane and, in the uture, energyRevenue: $134.8 m cane. Ethanol activities have centeredNet Earnings: $(13.8) m on possible roll out o the gasication/Net Margin: (10.3) % ermentation technology developed byMarket Cap: $266m Bioengineering Resources Inc. (BRI) o
Fayetteville, AK.DOE Grant Recipient:Ird ClllicBirfr, $33m
Note: The company has since announced its
intention to withdraw from the solicitation.The proposed plant will bein LaBelle, FL. The plantwill produce 13.9 milliongallons o ethanol a year
and 6,255 kilowatts oelectric power, as well as8.8 tons o hydrogen and50 tons o ammonia perday. For eedstock, theplant will use 770 tons perday o yard, wood, andvegetative wastes andeventually energycane.
Alico, Inc., is an agribusiness and landmanagement company, primarily engagedin the production o citrus, sugarcane, cat-
tle, sod and orest products.NASDAQ:ALCO | Jan 2007 Feb 2008
."3 +6/ 4&1 %&$ '
Segment:Conversion BlueFire uses an improved concentratLocation:Irvine, CA ed acid hydrolysis process to convertOwnership:Public cellulose to ethanol rom wood wastes,
urban trash (postsorted MSW), riceKey Financial Metrics: and wheat straws and other agriculturalRevenue: prerevenue residues. The company has operated aMarket Cap: $81.0m pilot plant near its Southern Caliornia o-
ces or roughly ve years. Since 2003,DOE Grant Selectee: the technology has also been successIrd Clllic ully used by an unrelated, independentBirfr, $40m company in Japan to produce uel etha-
nol or the local market.The proposed plant will
be in Southern Caliornia. Selected Headlines:The plant will be sited on In May 2007, Bluere announced thean existing landll and location or a 3 million gallon per yearproduce about 19 million cellulosic ethanol acility in Northerngallons o ethanol a year. Los Angeles County. Final design andAs eedstock, the plant construction was announced in Aprilwould use 700 tons per day 2008.o sorted green waste andwood waste rom landlls.
Growth Stage
BLUE FIRE ETHANOL
Blue Fire Ethanol plans to produce etha-nol rom opportunistic sources o celluloseusing advanced biological pathways
OTC:BFRE | Jan 2007 Feb 2008
."3 +6/ 4&1 %&$ '
BCURTIS ENERGIES & RESOURCE GROUP, INC. 31 | THE NEXT INFLECTION POINT
-
7/27/2019 2007 Ethanol Review
40/52
5
Segment:Conversion/ Iogen is a developer and manuacEnzymes turer o enzymes or various industriesLocation: Ottawa, CAN including its own advanced biouels
Ownership: Private activities. The co