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Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
Energy & Natural Resources Policy
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FBR CAPITAL MARKETS & CO.
Benjamin Salisbury . 703.469.1052 . [email protected]
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 2
Disclosures
Important disclosures can be found at the end of this presentation.
**Not to be used in lieu of full research report**
This document was prepared on December 9, 2013.
This document is provided on a confidential basis for the sole use of the recipient and may not be modified or forwarded without the approval of FBR. The information is provided for illustration purposes only and does not represent a recommendation or solicitation to buy or sell any security or an endorsement of any particular investment strategy.
Research is provided by FBR Capital Markets & Co. Please see complete FBR Research reports concerning the subject issuers.
All graphics/tables/photos/charts from company Web sites, FBR Research, and various Web sites.
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
Biography RESEARCH
Benjamin Salisbury is charged with analyzing and forecasting
domestic and global political and policy trends likely to affect
energy and natural resource sector investments, including crude oil,
alternative energy, climate change, and environmental regulation.
Mr. Salisbury previously served as senior advisor for policy and
international affairs at the U.S. Department of Energy, where he
focused on climate change, economic analysis, and African and
Middle Eastern affairs.
Before joining the DOE, Mr. Salisbury spent three years as energy
policy analyst at Lehman Brothers, where he analyzed the impact
of policy trends and geopolitical developments on the capital
markets and advised institutional investors on the probability, timing,
and impact of events. His portfolio included the energy and natural
resource sectors, national security, transportation, and agriculture
in addition to campaigns and elections. He also served as a
legislative assistant to two members of Congress focusing on
natural resources, agriculture, financial services, and taxation. Mr.
Salisbury holds a B.A. in government from Georgetown University.
Benjamin Salisbury
Senior Research
Analyst, SVP
703.469.1052
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Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 4
Renewable Fuel Standard Increasing Volumes
Source: FBR Research and EIA
Biofuels
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5
10
15
20
25
30
35
40
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Conventional (Corn) Other Advanced Cellulosic Advanced
10% (2007) 10% (2013)
Renewable Mandate (Billion Gallons)
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 5
RFS Requirements are “Nested”
Source: FBR Research and EIA
Total Renewable Mandate
Cellulosic Biodiesel
Advanced
Biofuels
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 6
RIN Lifecycle
Source: FBR Research and EIA
Buy Liquid Biofuel Purchase RIN on
open market
Use Banked RIN
Biofuels
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 7
Three Components of Change in Gasoline Demand
Source: FBR Research and EIA
• Fuel Economy • Vehicle Miles Traveled • Biofuels
70,000
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Historical Gasoline Consumption (Incl Ethanol) Gasoline incl Ethanol (EIA)
Gasoline Demand (Thousand Gallons/Year)
Biofuels
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 8
Declining Expectation for Biofuels
Source: FBR Research and EIA
Projected availability of RFS Credits in AEO 2012 vs AEO 2013
Biofuels
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 9
Blend Wall Takes Center Stage
Source: FBR Research and EIA
Biofuels
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5
10
15
20
25
30
35
40
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Conventional (Corn) Other Advanced Cellulosic Advanced
10% (2007) 10% (2013)
Renewable Mandate (Billion Gallons)
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 10
Blend Wall Takes Center Stage
Source: FBR Research and EIA
Biofuels
2013
Statute
2013
Final
2014
Statute
2014
Proposed
Cellulosic biofuel 1.0 0.006 1.75 0.017
Biomass-based
diesel (billion gallons)
≥1.0 1.28 ≥1.0 1.28
Advanced biofuel 2.75 2.75 3.75 2.2
Renewable fuel 16.55 16.55 18.15 15.21
Legislated & EPA-proposed volumes of renewable fuel (billion ethanol-gallon equivalents)
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 11
EPA Elects to Waive Volumes
Source: FBR Research and EIA
Projected availability of RFS Credits in AEO 2012 vs AEO 2013
Oil
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tute
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tute
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ver
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ver
Bill
ion
Gal
lon
s
Banked RINs
Waiver
E85
Other Advanced
Cellulosic
Biodiesel (RIN)
Conventional (E10)
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
Renewable Fuel Standard
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Ethanol
Year
Total
Renewables Cap on Corn
Total non-
Corn
(Advanced) Cellulosic Biodiesel Other
2009 11.1 10.5 0.6 0 0 0.1
2010 12.95 12 0.95 0.0065 1.15 0.2
2011 13.95 12.6 1.35 0.00600 0.8 0.3
2012 15.2 13.2 2 0.01045 1 0.5
2013 16.55 13.8 2.75 .00600 1.28 0.75
2014 18.15 14.4 3.75 1.75 1+ 1
2015 20.5 15 5.5 3 1+ 1.5
2016 22.25 15 7.25 4.25 1+ 2
2017 24 15 9 5.5 1+ 2.5
2018 26 15 11 7 1+ 3
2019 28 15 13 8.5 1+ 3.5
2020 30 15 15 10.5 1+ 3.5
2021 33 15 18 13.5 1+ 3.5
2022 36 15 21 16 1+ 4
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Source: FBR Research, EIA
Renewable Mandate (Billion Gallons)
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
Blend Wall Approach Leaves Market Oversupplied RINs.
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Ethanol
Source: FBR Research, EIA, DOE, OMB Bloomberg
Projected 2014 RIN Deficit Under Various Scenarios
2013 2014 Statute 2015
Statute
2014 Blend Wall
Approach
2015 Blend Wall
Approach
2014 -1.7B Cellulosic; +E85 600 +Biod 333 Scenario
2015 -2.9B Cellulosic; +E85 1.021 +Biod 710 Scenario
EIA 8/6/13 STEO Scenario
Gasoline Forecast 133.17 132.95 130.29 132.95 130.29 132.35 129.27
E10 Ethanol 13.05 13.29 13.03 13.29 13.03 13.23 12.93
Cellulosic Adjustment (1.73) (2.97) (1.73) (2.97)
Total RFS2 16.55 18.15 20.50 15.21 15.53 16.42 17.53
Biodiesel (Gallons) 1.29 1+ 1+ 1.29 1.29 1.70 2.00
Advanced Volumes 3.75 5.50 2.20 2.53 2.02 2.53
Biodiesel (1.5 Ethanol Equiv RINs) 1.94 1.94 1.94 1.94 1.94 2.55 3.00
Total Ethanol Call 14.61 16.21 18.56 13.28 13.03 13.87 14.53
Cellulosic 1.75 3.00 0.02 0.03 0.02 0.03
Other Advanced (Sugar) 0.06 0.56 0.25 0.57 - -
Blend Wall (Corn) 13.22 12.90
Undifferentiated Call (Corn) 14.40 15.00 13.01 13.00 13.85 14.50
Corn Deficit (0.63) (1.57)
E85 (74% Ethanol Content) 0.44 0.76
Actual Corn Ethanol Consumed 13.01 13.00 13.66 13.68
RIN Balance
Annual RIN Surplus (Shortfall) (1.56) (2.92) (5.53) - - (0.19) (0.82)
Previous Year RIN Carryover 2.59 1.03 (1.88) 1.03 1.03 1.03 0.84
Year End Rin Carryover 1.03 (1.88) (7.42) 1.03 1.03 0.84 0.03
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
Pricing Implied High Blend Competitiveness
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Ethanol
Source: FBR Research, EIA, Bloomberg
$2.77
$2.54
$2.29
$2.13
$1.97
$1.81
$1.65
$1.49
$2.56 $2.54 $2.52 $2.51 $2.50 $2.48 $2.47 $2.46
$- $0.37 $0.75 $1.00 $1.25 $1.50 $1.75 $2.00
E85 In E10 Equivalent Price E15 In E10 Equivalent Price E10 Break Even (77%)
Energy Equivalent Retail Pricing By RIN Value Scenarios ($2. 63Rbob/$2.81CBOT Ethanol)
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
E85 Becoming More Competitive
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E85
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013 16
Legislative and regulatory agendas are subject to change at the discretion of leadership or as dictated
by events. The future course of domestic and international supply and demand and the prices of energy
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investment, technology, and geophysical factors affecting the production of energy commodities. These
variables are likely to interact with one another and to create outcomes that may cause future prices to
differ substantially from our forecasts.
Risks
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
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Disclosures
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
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Rating FBR Research Distribution1 FBR Banking Services in the past 12 months1
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Disclosures
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
Rating FBR Research Distribution1 FBR Banking Services in the past 12 months1
BUY [Outperform] 47.84% 17.65%
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SELL [Underperform] 3.03% 0.00%
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Disclosures
Benjamin Salisbury 703.469.1052 [email protected] December 9, 2013
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