the ohio state universityagricultural, environmental and development economics ohio state university...

The Ohio State University Agricultural, Environmental and Development Economics

Ohio State University Extension

Biofuels Outlook

Dr. Matthew C. Roberts

[email protected]

The Ohio State University

Agricultural, Environmental and Development Economics


Stephen Colbert’s Tips on Being an Expert(Wired Magazine, August 2006)

• Pick a field that can’t be verified• Be sure to use lots of abbreviations and acronyms• Don’t be afraid to make things up• Don’t limit yourself to current knowledge• Get an honorary PhD• Make a habit of name-dropping




The New International Symbol for ‘Gas Station’




Some Energy Statistics

• In 2005, the US– consumed 139.9bn gallons of gasoline. (EIA)– produced 3.9bn gallons of ethanol. (RFA)– consumed 43.2bn gallons of diesel. – produced 75m gallons of biodiesel.– imported 65% of all petroleum.




Some Biofuels Statistics

• 1 bushel corn=2.7 gallons ethanol• 7.5lbs soybean oil = 1 gallon B100• Ethanol has 1.33 energy ratio• B100 has a 3.2 energy ratio




Outline• Ethanol

– Drivers• RFG• Refining Capacity• High Gasoline Prices• Margins• MTBE replacement

– Dangers• WTO• Public Opinion• Lower Oil Prices• Cellulosic Ethanol• DGS Marketing

– Outlook

• Biodiesel– Drivers

• ULSD• Diesel Prices• Cost of Construction

– Dangers• Alternative Feedstocks• Lack of Standardization

– ASTM 675– ASTM 975.01

• Higher P.E.D.• Feedstock Costs

– Outlook




Ethanol Drivers: Gasoline Prices

$1.00

$1.25

$1.50

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arM

ay Jul

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RBOB

Unleaded

Ethanol

WTI

Source: 14 August Closing Prices, NYMEX, CBOT




Ethanol Drivers: Margins

• Rules of thumb:– VC(E100) = 0.77 + 0.35 C + 0.034 NG – 0.0029 DGS – FC = $1/g capacity– Current VC = 0.77 + 0.35*2 + 0.034*7 – 0.0029*80 = 1.47– Total Margin = Price – Transit + Tax Credit – Cost– Assume:

• 0.10 Transport• 0.52 Tax Credit• 25% return• Price = .7*NYHHU

– Total Margin = 1.40 – 0.10+0.52-1.47=32c




Ethanol Drivers: Policy

• In the past 5 years, MTBE displacement has been biggest driver.

• New Energy Bill ends RFG, now has RFS– Mandates total RF usage of 7.5bn g by 2012.– RF is ethanol or biodiesel– Cellulosic/Waste derived ethanol counts 2.5x

• We will exceed 7.5bn g by ’08!• State-level RFS matter more• MTBE gave a big boost, but it’s a one-time change!




Ethanol Risks: Public Opinion

• Pimental, et altera – Claims ethanol net energy < 1.0– If its that easy to get pubs in his field, I’m switching…see

RFA for very interesting rebuttal.– Carried in

• NY Times• Washington Post• Et cetera

– Prominent Misconception among public• Seems to be fading from public view…




Ethanol Outlook• Biggest Dangers:

– Lower oil prices– DGS price collapse

• Degermination• Cofiring DGS

– Slowing of RFS momentum• Expect market to continue expanding…• When was the last time a bubble like this ended happily?• Markets adjust…

– Relatively long lag on construction– If corn prices increase, and fuel prices decline, construction

will slow.




Pulling: Ethanol From Corn

• Where does the DGS go?– Degerming prior to distillation.

• Where do we get all of these acres?• Where will get all of this N & P?• When does cellulosic matter?

Ethanol Corn to E(Yld) Other Total Acres Add'l to Acres Add'l to Year bgpy Ethanol bu/ac Use Use Needed 05/06 Needed 05/062006 5.61 2.15 149.00 9.6 11.74 78.76 3.66 78.76 3.662007 6.73 2.58 152.51 9.7 12.28 80.52 5.42 80.71 5.612008 8.08 3.10 155.08 9.8 12.90 83.15 8.05 83.64 8.542009 8.89 3.41 157.70 9.9 13.31 84.37 9.27 85.00 9.902010 9.77 3.75 160.35 10 13.75 85.72 10.62 86.50 11.402011 10.75 4.12 163.06 10.1 14.22 87.21 12.11 88.15 13.052012 11.83 4.53 165.80 10.2 14.73 88.86 13.76 89.98 14.88

100% Productivity 90% Productivity




Biodiesel Drivers:Low Sulphur Diesel• In 2006, on- and off-road diesel fuel sulphur limits decrease

from 500ppm to 15ppm.• B2 (2% blend) will provide all necessary lubricity and (maybe)

meets ASTM D 975 (i.e. it is diesel)• If all diesel went to B2, it would require 780m gallons of

biodiesel.– But there will be competing additives




Biodiesel Drivers:Diesel Costs

• In IL, B11 is now cheaper than diesel• Rule of thumb: each 1% of blend increases price

over diesel by 1c.




Gasoline vs. Diesel Prices

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ies

el)

DieselDieselGasolineGasolineGas-DieselGas-Diesel




Biodiesel Drivers:Cost of Plant Construction

• Plants can be relatively small.• Cost about $1/gallon of capacity.• Full economies of scale at around 10m.• Currently have ~395m gallons of capacity.• 700m+ gallons of new capacity under construction




Biodiesel Dangers

• Lack of standardization– ASTM 6751: Biodiesel ‘Blendstock’ not fuel.

• Much less stringent than…– ASTM 975: Diesel fuel

• This is the diesel fuel standard; and it is very, very strict.

• B2: 2% ASTM 6751 + 98% ASTM 975– It might still meet ASTM 975,– It might not.




Pulling: Biodiesel

• SBO has much more competition

• Unlikely to exceed 2.5-3bn lbs of virgin SBO for a long time.

• Major substitutes:

– Corn Oil (reduces DGS volume.)

– White/Yellow Grease

• Future of relative value of SM vs. SO?

100% Yld 90% YldB100 % Reqd Non BD Total Crush Total Trend Acres Acres vs. Acres vs.

Year m gal Soy bn lbs Use Use Reqd Use Yld Reqd 05/06 05/062006 150 91% 1.02 19.18 20.2 1.74 2.99 41.39 72.27 0.87 0.872007 173 90% 1.16 19.66 20.8 1.80 3.05 41.93 72.62 1.22 1.262008 216 89% 1.44 20.15 21.6 1.86 3.11 42.48 73.25 1.85 1.952009 270 89% 1.79 20.65 22.4 1.93 3.18 43.04 74.00 2.60 2.792010 323 88% 2.13 21.17 23.3 2.01 3.26 43.60 74.74 3.34 3.612011 388 87% 2.53 21.70 24.2 2.09 3.34 44.17 75.59 4.19 4.562012 466 86% 3.01 22.24 25.3 2.18 3.43 44.75 76.59 5.19 5.67




Biodiesel: Dangers

• Alternative Feedstocks– Yellow Grease– Rapeseed/Canola– Poultry Fats– Animal Fats– Corn oil

• Higher Price Elasticity of Demand?• Trailback: only rack-blended.




Biodiesel Outlook• Much better energy balance than ethanol.• Smaller, more dispersed plants.• Higher feedstock costs as %age of input.• Less fuel spec certainty & research than ethanol.• Probably 1-3 yrs behind ethanol in consumer acceptance.

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