II Fuel Ethanol International Seminar

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• II Fuel Ethanol International Seminar
• Cali, Colombia 
• Sugar, ethanol and biofuel markets
• 13 July 2006
• Dr Leonardo Bichara Rocha
• Economist
• International Sugar Organization
•  

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Sugar or ethanol?
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Ethanol and feedstocks

• 80 litres per tonne of sugar cane. Cost USD
  0.25/l
• Up to 250 litres per tonne of molasses. Cost USD
  0.4/l
• About 350 litres per tonne of corn/wheat. Cost
  gtUSD 0.4/l

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Sugar cane ethanol diversification

• Several sugar cane producing countries on ethanol
  diversification path
• International Sugar Organization and Common Fund
  for Commodities focus on development
• Membership of the ISO 74 countries

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World Sugar Market

• Reform of the EU Sugar Regime 4 mln tonnes of
  sugar taken out of the world market from 2006
• Higher sugar prices prompting large supply
  response in sugar cane producing countries
  export supply elasticity is 0.25
• Ethanol production expected to be boosted as a
  result too

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Sugar and the energy markets

• Ethanol demand boosted in recent years
• Launch of flexifuel cars
• High oil prices
• Environmental and health concerns renewable
  energy

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Oil and sugar
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Oil and ethanol
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Great potential for biofuels

• Current gasoline consumption
• 500 bln litres
• 50 bln litres
• 40 bln litres
• 35 bln litres
• 30-35 bln litres

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Government support

• Fuel excise exemptions
• Abolishing of MTBE
• Progressive establishments of biofuel inclusion
  mandates

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Ethanol from sugar crops - efficiency
4,000 6,000 litres per hectare 2,000
litres per hectare 1,000 litres per hectare
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Sugar cane ethanol versus sugar beet ethanol

• Sugar beet ethanol still costly compared to sugar
  cane
• Reform of the EU Sugar Regime will lower beet
  costs and give farmers some extra incentives to
  grow beet for ethanol rather than sugar
• However large scale beet ethanol contingent on
  government policy

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Ethanol production costs - molasses

• Ethanol from cane molasses -around USD 0.35/l
  fuel ethanol production to grow from 300 mln
  litres to 500 mln litres this year
• Ethanol from cane molasses and cassava. Molasses
  prices too high (gtUSD 120/tonne) production
  offtake slow costs above USD 0.5/l

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World ethanol production
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World fuel ethanol production
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Country highlights fuel ethanol - LA

• 300 mln litres of fuel ethanol
• 16 bln litres of fuel ethanol (2nd largest USA
  at 16.2 bln litres)
• Importing 1,000 barrels a day (gt50 mln litres a
  year)
• Dehydrates ethanol for exports and domestic use

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Country highlights fuel ethanol -

• 16.2 bln litres produced, consumption at 17 bln
  litres, estimated to grow to 28 bln in 6 years
• 1.5 bln litres produced, consumption estimated at
  2 bln litres and expected to grow to 4 bln litres
  under EU biofuels Directive

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Country highlights fuel ethanol -

• About to implement legislation mandating use of
  fuel ethanol. Target 95 octane gasohol within 2
  years 91 octane gasohol within 4 years.
• 60 mln litres of production of fuel ethanol from
  grains research on cane ethanol
• Production to increase to 1 bln litres if 10
  blend ratio is mandated

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Fuel ethanol risks and concerns

• Large land requirements - e.g. 19 of EUs arable
  land required to meet EU targets with homegrown
  biofuels.
• Second-generation technologies (forestry waste,
  bagasse, wood chips or switchgrass) still under
  development might take time
• High import tariff barriers
• Economies of scale

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Brazil as a role model?

• Over 90 new sugar and ethanol mills to come on
  stream between now and 2010. Area under cane
  expanding at well over 5 per year (more than 2
  mln ha in 4 years)
• Fuel ethanol export availability estimated to
  grow from the current 1.8 bln litres to over 5
  bln litres by 2010.
• Brazils sugar exports also set to grow

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Market movements

• Concentration
• Globalisation
• New trade opportunities
• Direct investments in infrastructure

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Conclusions

• Sugar crops most efficient and economical
  feedstock for ethanol production
• High energy balances for ethanol from sugarcane

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Conclusions

• High oil prices continue to support spread of
  biofuel use
• Raw material costs and land availability are key
  drivers
• Government incentives tax breaks and mandates
  are fundamental in current and future expansion

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