Special Committee on Energy

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Status of the Kansas Ethanol IndustryProduction,
Transportation Profits

• Daniel OBrien, Ph.D.
• Extension Agricultural Economist
• K-State Research and Extension

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(No Transcript)
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Kansas Ethanol Production (2005-2008)
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The Kansas Ethanol IndustryPlants In-Production
as of August 1, 2008
Arkalon Energy Hayne/Liberal (SW) 110 MGY
Bonanza Bioenergy, LLC Garden City (SW) 55 MGY
Reeve Agri-Energy Garden City (SW) 15 MGY
Western Plains Agri Energy, LLC Campus/Oakley (WC) 48 MGY
ESE Alcohol, Inc. Leoti (WC) 2 MGY
Prairie Horizon Agri-Energy Phillipsburg (NW) 40 MGY
White Energy Russell (Central) 52 MGY
Kansas Ethanol Lyons (SC) 55 MGY
MGP Atchison (NE) 6 MGY
NESIKA Energy, LLC Atchison (NE) 10 MGY
East Kansas Agri-Energy Garnett (EC) 35 MGY
State Total 11 Plants 428 MGY
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The Kansas Ethanol Industry (more)Plants
Off-Line or Under Construction as of 8/1/08
Abengoa (off-line) Colwich (SC) 25 MGY
Gateway Ethanol (off-line) Pratt (SC) 55 MGY
Goodland Energy Center (Start pending) Goodland (NW) 20 MGY
State Total 3 Plants 100 MGY

• Other Ethanol Plants Under Consideration
• Abengoa, Hugoton (115 MGY 85 MGY Grain-based
  30 MGY Cellulosic)
• Everton Energy, Concordia (100 MGY) ????
• Others ????

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U.S. Ethanol IndustryComparing Years 2006 2008

• 2006 2008
• Number of operating ethanol plants
  97 163
• Plants under construction or expanding
  35 47
• Announced plants 300 (17)
  ???
• Current production capacity (BGPY)
  4.8 9.5
• Projected production capacity 12.4
  BGPY end of 2008
• 13.6 BGPY end of 2009
• Corn Used for Ethanol Production of U.S.
  Crop
• Bu. (mln.) of U.S. Crop
• 2006/07 2,100 20
• 2007/08 3,000 23
• 2008/09 4,100 33

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Kansas Feedgrain Supply-Use

• Grain ethanol production at current plant
  capacity would use 153 million bushels of
  feedgrains / year
• 27 of 2005-2007 avg. corn production (566 mln.
  bu.)
• Livestock feeding estimates averaged 158 million
  bushels / year over 2005-2007 period
• Kansas Imports of Supplemental Feedgrains
• Predominant inter-state sources Iowa Nebraska
• Projected feedgrain deficits in Nebraska Iowa
  in the near future due to in-state ethanol
  development

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Max. Potential DDG Feed Use Supply (2005-2008)
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Ethanol Production Capacity In Use by Crop
Reporting District (2005-2008)
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Regional Grain Use By Ethanol PlantWestern
Kansas Locations
Plant Location Campus / Oakley Phillipsburg Garden City (2 plants) Hayne / Liberal
Plant Capacity (MGY) 48 MGY 40 MGY 70 MGY 110 MGY
Feedgrain Use (mln bu) 17.5 mln. bu. 14.5 mln. bu. 25.5 mln. bu. 40 mln. bu.
Counties Gove Logan Sheridan Thomas Graham Norton Osborne Phillips Rooks Smith Finney Gray Haskell Hodgeman Kearny Lane Scott Grant Haskell Meade Seward Stevens
Grain Production 41.0 46.8 32.3 53.1
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Regional Grain Use By Ethanol PlantCentral
Eastern Kansas Locations
Plant Location Lyons Russell Garnett State Total
Plant Capacity (MGY) 55 MGY 52 MGY 35 MGY 428 MGY
Feedgrain Use (mln bu) 19.6 mln. bu. 18.9 mln. bu. 12.7 mln. bu. 153 mln. bu.
Counties Barton McPherson Rice Reno Stafford Barton Ellis Ellsworth Lincoln Mitchell Osborne Rooks Allen, Anderson Bourbon Coffey Franklin Linn Miami Osage Woodson All Counties
Grain Production 51.0 44.3 62.4 25.7
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Comparative Transportation Advantages of Kansas
Ethanol Plants

• WDGS Sold to Local Cattle Feeders
• Lower drying / natural gas costs
• Selling 50 of Denatured Ethanol via Truck to
  Blenders within 150 miles of Plants
• Reduced cost vs plants relying on rail
  transportation
• Reduced Rail Transportation Cost of Denatured
  Ethanol to Western U.S.
• Geographic cost advantage for the Western Corn
  Belt

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Trucking Needs of Kansas Ethanol Plants

• Assumptions
• 100 of feedgrains transported by truck to plants
• 50 of ethanol transported by truck (50 by rail)
• 90 of Distillers Grains sold in Wet Cake form
  (i.e., Wet Distillers Grains)
• Quantities per Truckload
• 1 truckload of feedgrains 950 bushels
• 1 truckload of Ethanol 9,000 gallons
• 1 truckload of WDGs 25 tons

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Daily Trucking Use by Ethanol Plants Kansas
estimates as of August 1, 2008
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Annual Trucking Use by Ethanol Plants Kansas
estimates as of August 1, 2008
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Ethanol-Related Costs for the Kansas Trucking
Industry / Year (July 2008 estimates)
Truck Loads Time / Load No. Trucks Cost / Truck Total Cost
Grain 177,033 2.5 hrs 217 105,329 22.9 mln
DGS 120,772 3.0 hrs 181 103,071 18.7 mln
Ethanol 25,694 6.5 hrs 77 131,439 10.1 mln
Total 328,035 475 51.6 mln
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Corn Ethanol WDG Value vs Corn Nebraska /
Kansas s, February 2007 - August 15, 2008
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Ethanol Profit Margin Est. ( / gallon)

• Prices July 07 Aug 08 Change
• Corn (/bu.) 3.27 5.09 1 58
• Ethanol /gal 1.91 2.10
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• RBOB Gas /gal 1.98 2.84 51
• Profit Margin 0.26 0.01 2
• 1 Prices Aug 12, 2008. Breakeven corn price -
  5.15
• 2 Ethanol profit for a 100 million gallon plant
  1 million
• Distillers Grain revenue would be about 54.6
  million.
• To compete with gasoline as substitute, ethanol
  price would need to fall to 1.88 per gallon.

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NE-KS Ethanol ProfitabilityCalculated Returns
per Gallon February 2007 - August 15, 2008
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Questions or Comments?

• K-State Agricultural Economics
• Extension Website
• www.AgManager.info

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Supplemental Reference Information
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Ethanols Impact on Irrigation

• Increased water use due primarily to increased
  corn acreage, secondarily to more intensive
  irrigation / acre ? Effect of Ethanol Demand
• Greater Irrigated Corn Acreage
• Higher profitability of corn vs alternative crops
  
• More Intensive Irrigation per Acre
• Impact of ? corn on irrigation cost-benefit
  decisions
• Greater water use for corn vs alternative crops
• Other Analysis Jeff Peterson _at_ KSU

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Water Use by Ethanol Plants For Grain Dry
Milling Processes

• Process Water ? 33 of Plant Use
• Water in contact with grain
• Mixing, slurry, fermentation, saccharification
  processes
• Non-Process Water ? 67 of Plant Use
• Water not coming in contact with grain
• 90 of non-process water used in heating-cooling
• Plant Water Use 4.23 gal. / gal. ethanol
• Water use for a 40 mln gal. capacity Ethanol
  Plant ? water use by 2 ¾ pivot irrig.
  systems / yr (18-20 a.i.)

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Net Energy Balance Alternative Energy Sources

• Product Energy Out / Energy In
• Gasoline 0.81
• Ethanol from grain 1.67
• Ethanol from cellulose 2.00
• Diesel 0.83
• Bio-diesel 3.20
• Source Congressional Research Service, RL32712,
  May 18, 2006

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Input-Output Values of Oil vs Corn

• 100 worth of Will produce
• Oil _at_ 120/barrel 16.6 gal. of gasoline
• 11.6 gal. of diesel
• Corn _at_ 5/barrel 56 gal. of ethanol
• ? 40 gal. of gasoline

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Comparing Corn Cellulosic Ethanol

• Corn Cellulosic
• Capital cost per gallon 2.00 5-6.00 est.
• Raw mat. cost per ton 200 100
• Enzyme cost per ton 3.15 33.00
• Ethanol yield per dry ton 100-110 gal. 75-90
  gal.
• Conversion process simple complex
• Water use per gallon 3-5 6-10
• Processing time, days 2 7
• Cost of prod. per gallon 2.00 3.50
  est.
• Sources Testimony of Keith Collins, USDA Chief
  Economist, 26 Aug. 2006 Popp and Hogan
  presentation at Farm Foundation Conference 12-13
  April 2007 and M. Woolverton calculations.

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Ethanol Plant Economics

• Cost to build a 100 MGPY plant 160 million
• Purchases ? 37-39 million bushels of corn
• 240,000 acres of Irrigated Corn _at_ 163 bu. /acre
  in Western Kansas
• Daily water use 1.5 million gallons
• Natural gas expense 15 to 25 million
• Payroll expense ? 2 million / year
• Distillers Dried Grains income ? 25 million /
  year
• CO2 income ? 4 million /year (?????)
• Goal 30 R.O.I.