introduction to biofuels
DESCRIPTION
TRANSCRIPT
Renewables|Finance|Advisory
Biofuel Opportunities
June, 2009
STRICTLY PRIVATE & CONFIDENTIAL
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Agenda
1 Introduction and status of EU biofuels market 3
2 Identifying biofuels opportunities 14
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Agenda
1 Introduction and status of EU biofuels market 3
2 Identifying biofuels opportunities 14
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The EU biofuels market is policy-driven
2003 Biofuels Directive
National indicative targets
Reference targets
-2.0% (2005)
-5.75% (2010)
2003 Energy Taxation Directive
Allows Member States to grant tax reductions, exemptions or lower excise duties for biofuels
Common Agricultural Policy (CAP) Reform
Energy crops on set aside land
Up to €45/ha subsidy for energy crops
Trade barriers
Import duties of €19.2/100l on ethanol from Brazil and the US
Revision of the Biofuels Directive
EU Commission Communication in January 2007 proposed mandatory 10% blending target in 2020
Sustainability certification
Revision of the Fuel Quality Directive and EN590 diesel standard
2007 H1 review
Incorporation of carbon-reduction requirement
State aid for Energy Crops (CAP)
Extended to CEE Member States
Set-aside to be removed in medium-term, subsidy mechanism simplified and subsidy improved?
Review of other relevant Directives
Waste Framework Directive
Animal by-products legislation
EUBIOFUELSMARKET
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Support to agriculture, energy security and climate change behind biofuels policies
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The EU incentives have been met with an enthusiastic response in biodiesel …
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EU 25 totals (Million Tonnes) Capacity 2005: 5.1 U/C 2.6 Planned: 7.9 Announced: 2.4Total: 18.0 2010 demand (MS targets) 11.2 2010 demand (5.75%) 10.5
Source: EBB, Europa, CCC
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… and, to a lesser extent, in bioethanol
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EU 25 totals (Million Tonnes) Capacity 2005: 1.5 U/C 1.9 Planned: 2.8 Announced: 3.3Total: 9.6 2010 demand (MS targets) 7.3 2010 demand (5.75%) 10.7
Source: EBB, Europa, CCC
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The structure of capacity ownership in the markets reflects historical policy incentives
Current capacity: Biodiesel Current capacity: Bioethanol
Biopetrol Industries
6%
Bioverda 3%
Biofuels Corp5%
Diester Industrie
16%
Small Producers
62%
ADM8%
Cristanol10%
Tereos7%
Small Producers
20%
Sudzucker19%
Abengoa27%
Verbio17%
Agriculture majors Independents VI partnerships
Acciona-Repsol Cargill-Greenergy-Tesco Bunge-Diester
Agriculture players Tereos, Cristanol
Industrials Sudzucker Abengoa
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Industry offers growth, but fundamentals are tough
Industry characteristics Commodity processing
Capital-intensive Limited product differentiation Low value-add
Plus No correlation between input
and output prices New market opportunity High growth/policy risk
Shift from tax breaks to blending obligations
Extension beyond 2010? Other criteria?
Inexperienced sector
Implications Projects require
Lower unit capital costs Lower short-run marginal costs Product differentiation Control over the value chain
Long-term owners require Large balance sheets Diversified portfolios Track record/expertise Strong customer relationships
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The market environment is becoming more challenging
Market environment getting worse, especially for ‘independent’ projects Germany policy change Adverse commodity price movements Big players moving swiftly, making aggressive statements of intent
We expect the news flow to get worse as a consequence BFC Bankruptcies in Germany? Difficult IPO market for European players
However Development in Eastern Europe EU Commission proposed 10% mandatory target in 2020 Good projects will still get built: current capacity shortfall remains Consolidation?
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Feedstock has long been flagged as an issue for biodiesel
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Palm Soy Rape Tallow Sunflower
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RoW
EU
33% 34% 71% 79% 121%
2010 volume implied by 5.75% target
2005 EU25 biodiesel production1
1 Source: Frost & Sullivan
Sources for chart: UKRA, US Department of Agriculture, CCC estimates
Vegetable oil and animal fat production, 2004/5
EU25 target % of world market
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Recent commodity price dynamics are testing for biodiesel
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02/10/03 02/04/04 02/10/04 02/04/05 02/10/05 02/04/06 02/10/06
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Sunflower oil P1 Ex-Tank 5 ports Soyoil-Dgummed Ex-Mill Deg Dutch
Rapeoil-Dutch P1 Ex-mill NL/Europ Palmoil RBD P1 Cif Rotterdam
Brent North Sea
Source: Reuters
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Although ethanol does not face the same availability problems, current pricing is challenging
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19/10/2004 08/03/2005 26/07/2005 13/12/2005 02/05/2006 19/09/2006
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Brent North Sea (LH) Premium unleaded FOB NWE (LH)
Ethanol NYH NY Harbour (LH) Feed Wheat UK P1 British Feed (RH)
Source: ReutersSource:
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Recent market sentiment has been poor
Company Date Million €
Petrotech Nov '06 95
Verbio Oct '06 264
Cropenergies Sep '06 200
BDI Sep '06 83
Biopetrol Nov '05 74
EOP Sep '05 26
(40%)
(30%)
(20%)
(10%)
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EOP BDI CropEnergies
Verbio Petrotech
Issue price
End of first day
Initial price range (rebased)
Bearish IPO market due to concerns - on biodiesel oversupply- oil price decline- German policy uncertainty
Recent IPOs have underperformed on issuance In addition to IPOs below, a number have been
pulled Market remains active with IPOs planned for
coming monthsⁿ
Source: Reuters
1 Including BKN Biokraftstoff (Feb)
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Petrotech Verbio Cropenergies
BDI EOP Biopetrol
Issued European biofuels IPOs IPO pricing trends
Market update Recent biofuels IPO performance
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Agenda
1 Introduction and status of EU biofuels market 3
2 Identifying biofuels opportunities 14
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What makes a good biofuels opportunity?1. Lower unit capital costs
Difficult to secure a meaningful advantage through technology, especially for independent projects Limited number of established technology providers
Potential strategies: Scale (INEOS) Re-use of sites with existing process infrastructure Single EPC contractor for multiple sites
“Copy” > ”Paste” approach to plant development results in savings Potential for modular approach (D1)
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What makes a good biofuels opportunity? 2. Lower short-run marginal costs
Short-run costs driven by: Feedstock (c.80%) Energy Logistics
Feedstock Low cost and secure
‘Unusual’ Term contracts Tariff avoidance Feedstock-flexible
plant with port-side location
Energy CHP Integrated site MSW/RDF
Logistics Match supply with
regional demand Proximity to
feedstock supply (port?)
Proximity to customers
Proximity to markets for by-products
Good logistics for backup
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“Good” project schematic
Refinery/ distribution
Port
Crop-growing hinterland
Integrated industrial site to share services and use co-products
Project
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What makes a good biofuels opportunity? 3. Product differentiation
Basics Consistency of supply Customer relationship
Longer-term value Sustainable sourcing with an audit trail Low carbon with independent assessment Quality?
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What makes a good biofuels opportunity? 4. Control over value chain
Stable input costs (output costs easier to hedge)
Additional margin/margin flexibility Reduces exposure to competitive
pressure from agriculture majors
Stable output costs (alternative to hedging)
Reduces exposure to competitive pressure from oil majors
Additional margin/margin flexibility
Crushing Own Toll
Seed Longer-term contracts Farmer equity
Captive demand (fleets etc.) Distribution/marketing agreements Longer-term contracts
Upstream Downstream
Strategies Strategies
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What makes a good biofuels opportunity?5. Company characteristics
Large balance sheet Diversified portfolio Track record/expertise Strong customer relationships Management with capital project experience and understanding of
commodity markets
Size matters…
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Size matters – but who wins?
Feedstock supply
Crushing Biodiesel refining
Bioethanol production
Distribution and blending
Marketing
Participants
The biofuels value chain
Agriculture majors
Independents
Oil majors
Chemicals majors
Fuel traders/ distributors
Supermarkets
?
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There is still space for new, independent projects
“Good” projects will still attract investment Smart thinking is required by developers:
Find niches Exploit the best untapped sites Use specific expertise or relationships, particularly in feedstock
supply Integrated concepts Others…
Expect a bumpy ride Supply-demand imbalances as capacity additions balance policy
shifts Consolidation, but potential opportunity for good independent
players to exit through M&A
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Biodiesel SWOT analysis
Well-established market Expected growth in diesel demand EU short of diesel refining capacity Policy drivers compelling for EU
Potential overbuild and commoditisation Limited feedstock availability Uncorrelated input and output price with limited
availability of hedging instruments Limited value-added in refining
Value can be created through vertical integration and strategic partnerships
Value can be created through asset consolidation
Used cooking oil and tallow will occupy advantageous position on supply curve if availability and quality issues can be overcome
Demand dependent on EU policy Supplier and customer market power and market
entry Competition from developing countries Vehicle standards remain unchanged First-generation technology risk Overbuild?
Strengths Weaknesses
Opportunities Threats
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Bioethanol SWOT analysis
No feedstock availability constraints No fuel quality issues Technology well-known
Distribution network EU long on gasoline Lower energy content than gasoline
EU wheat surplus Market short on bioethanol Increasing popularity of flex fuel vehicles
Resistance from oil majors Policy-driven market
Strengths Weaknesses
Opportunities Threats
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Contact
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Tel: +44 (0)1529 455 289Fax: +44 (0) 0529 455 289
www.re-fin.com
Renewables|Finance|Advisory