Energy and Ethanol Situation and Outlook

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Energy and Ethanol Situation and Outlook

• Matthew C. Roberts
• [phone]
• roberts.628_at_osu.edu
• http//aede.osu.edu

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Global Economic Growth, 1990-2005
China
US
World
Oil Use
Source IMF
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World Oil Consumption Growth
Oil demand growth, million bbl/d
World oil demand, million bbl/d
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Crude Oil Production
World
OPEC
Source Energy Information Administration
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World Oil Spare Production Capacity
Forecast
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Currency Impact on Oil Prices
225
171
Source Energy Information Agency, OANDA.com
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Refining Margin
Oil Price
Margin
Source Energy Information Administration
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Current Liquid Fuels Outlook

• Oil Prices Increasing
• Demand remains strong in face of high prices
• Very weak USD
• Gasoline Prices Declining
• Refining Capacity Utilization Rising
• Stocks Rising
• Just in time for Fall shutdowns?
• Diesel Prices stable
• US diesel surplus
• Summer is weak diesel seasonal

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NYMEX Natural Gas
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Natural Gas Storage
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Long-Run Natural Gas Outlook

• Consumption is growing 2/year
• Peak power plants will continue to be built w/ NG
• But in 2007, it appears industrial use softening
  somewhat
• How about all that ethanol?
• Production is growing 1/year
• Additional reserves in Alaska Canada, but
  pipelines must be built5-7 years lag.
• DOE projects higher imports to close the gap
• LNG costly to transport. Lots of NIMBY
• Will need to build many more import terminals.
• Good News Globally, lots of extra NG.
• Bad News Its expensive to move around.

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Why Biofuels?

• National Security

• Energy Self-Sufficiency
• Pro Coal
• Pro Nuclear
• Solar, Wind, Biomass
• Energy Conservation
• Pro Biodiesel
• Pro Ethanol of all types
• Brazilian Ethanol?

• Environment

• Reduce C, SOx, NOx
• Anti Coal
• Nuclear?
• Solar, Wind, Biomass
• Energy Conservation
• Pro Cellulosic Ethanol
• Unsure about Corn Ethanol and Biodiesel.
• Brazilian Ethanol?

Rural Development

• Economic Revival
• Coal?
• Pro All Biofuels
• Anti Imported Biofuels

Peak Oil

• Replace Fossil Resources

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Ethanol Drivers Gasoline Prices
Source Aug 6 Prices, NYMEX, CBOT
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Demand Curve for Ethanol
Price
Renewable Fuel Standards/Oxygenation
Quantity
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Demand Curve for Ethanol
Price
Renewable Fuel Standards/Oxygenation
Octane Enhancement
Motor Fuel Use
Quantity
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EPA FFV Fuel Economy
2.25 E85 2.65 Gasoline
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Ethanol is 33 cheaper than unleaded Current
ethanol prices are quite high to Brazilian
Consumers!
Unleaded
5.61/g
3.54/g
Ethanol
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Ethanol Drivers Economic Profits

• Assumptions
• 75mgpy Plant
• 2/gpy Construction Cost
• 8 Interest Rate

• DGS 75 of Corn
• 8/Dtherm NG
• 3g denatured/bushel

• E85 sells for 80 of gasoline
• 60 equity, 40 debt

Source ethanolsuccess.xls spreadsheet model by
Doug Tiffany, available at http//www.agmrc.org/a
gmrc/commodity/energy/ethanol/ethanol.htm
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Chart courtesy www.NARMSinc.com
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Ethanol Drivers Shutdown Point
Source ethanolsuccess.xls spreadsheet model by
Doug Tiffany, available at http//www.agmrc.org/a
gmrc/commodity/energy/ethanol/ethanol.htm
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Ethanol Production Methods
Grass/Straw
Stover
Enzymes
Waste Paper
Digestion of Cellulose
Corn
Enzymes
Heat
Heat
Dextrose (Sugar)
Fermentation of Sugars/Starches
Enzymes
Fermentation of Sugars/Starches
Alcohol
CO2
DGS
Alcohol
CO2
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Ethanol Outlook

• Last 9 months cost of construction increased
  75-100
• Shortage of management?
• Margins have collapsed.
• New construction halted.
• Biggest Dangers
• Legislative Opposition
• BTU-based pricing
• Slowing of RFS momentum
• Rapid Plant Expansion
• Lower oil prices
• Market is waiting to see what happens

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Acreage Needed For Ethanol

• Where does the land come from?
• Corn displaces soybean
• Soybean displaces wheat
• Corn displaces cotton
• CRP to corn
• Sorghum?

• Benign Assumptions
• China remains exporter
• Non-ethanol use flat
• Exports at 2bn bu/year

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Food vs. Fuel?

• Corn prices have nearly doubled over last 12
  months.
• Competition for acres-gtsoybean wheat prices
  also have risen.
• Livestock
• Beef, pork, poultry prices up.
• Dairy prices up.
• Causation or correlation?

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But does Food vs. Fuel matter?

• Yes

• No

• Food prices will rise approximately 14-20bn/yr.
• Poor are even less able to absorb higher prices.
• Ethanol can only meet a fraction of our gasoline
  demand.

• Americans spend 450-500bn/year on food.
• Poor are likely to eat more highly processed
  foods.
• Thats better than nothing.

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But does it matter?

• No

• Yes

• Livestock have been getting cheap grain for
  years.
• Its a small price to pay for energy security.
• The subsidies arent that much

• Two rights dont make a wrong.
• Energy security will be largely unaffected by a
  5-10 increase in supplies.
• Even in DC, 4bn can go a long way

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Questions? If you would like a copy of this
presentation, please email me, citing the date
and location of the presentation.
Matt Roberts [phone] roberts.628_at_osu.edu ht
tp//aede.osu.edu/people/roberts.628