Ethanol Sustainability U.S Ethanol Supply and Demand scenario and alternatives for Import Tariff Pha

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Ethanol SustainabilityU.S
Ethanol Supply and Demand scenario and
alternatives for Import Tariff Phase-out .

• Roberto Giannetti da Fonseca
• September, 2007

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World Energy Demand 1970 2025
(106 tonnes of oil equivalent)

• World energy demand will reach 15.7 million of
  tonnes of oil equivalent in 2025 with a growth
  rate of 1.8 y.y
• Developing countries would become significant
  consumers of energy with millions of people
  improving their life quality.

Source International Energy Outlook adapted
from UBRABIO
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World Oil Consumption and Production
HOW? 37 M bbl 23 years

• We are all currently addicted to oil.
• Oil consumption is forecasted to grow to 120
  million barrels per day by 2030 from the current
  83 million barrels per day (49 increase)

Source BP Statistical review july 2007,
projection by team analysis
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World Oil Consumption and Production
?
?
?
?

• How this consumption could be fulfilled?
• Existing reserves have we passed the Oil
  Peak?
• What remains there to be discovered?
• New technologies? New sources of fossil fuel?
  What will be the environmental impact of them? At
  what price?

Source National Petroleum Council july 2007
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End of Cheap Oil?
US / barrel

• Regardless of all questions We face the end of
  cheap oil!
• This new economic reality, combined with
  environmental awarness, will shape the future
  energy trends

Energy insecurity Environmental Anxiety
Source BP Statistical Review 2007 1861 to
1944 US average, 1945 to 1983 Arabian Light
posted at Ras Tanura, 1984 to 2006 Brent
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Share of Energy Source 1970 2025
8
20
48
38
Source International Energy Outlook adapted
from UBRABIO
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Future Energy Trends

New Oil Industry



Substitute Liquid Fuels
Efficiency
Conventional Oil
Kilowatt Gasoline
Unconventional Fossil Fuels






Enhanced Oll Recoverery
Biofuels
Deepwater
Negaoil


Tar Sands
Ethanol
Cellulosic Ethanol


Coal


Natural Gas
Biobutanol


Biodiesel
Oil Shale
Source Adapter from Future Energy, Bill Paul 2007
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Future Energy Trends

• How the new energy industry will change people,
  politics, and behavior?
• Which are the good opportunities for emerging
  countries and for equity investors on this new
  renewable energy cicle?
• Energy uncertainty and Environment anxiety, two
  new current syndromes.
• What is the clean tech revolution and when is
  going to take place?

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Future Energy Trends

• Alternatives energy sources
• will complement one another
• and will compete with one another.
• Time will be needed for substitution (adapt
  vehicle fleet and distribution infrastructure and
  network)
• Technology driven IT has changed the way we work
  and entertain during the 90s now technology is
  going to change the way we deal with energy.
• We need to learn to make better usage of the
  energy available (efficiency)

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World Fuels Production (million tonnes in 2005)
Fossil Fuels
Biofuels
Feedstock
Fuel
Feedstock
Fuel
Sugarcane 1.292
Gaso-line 1237 MT (53,8 BGJ)
Petroleum 4.252 (184,9 BGJ)
Corn 702
Diesel 1077 MT (46,1 BGJ)
Wheat 628
Total (Equiv. Energy)
115,7 BGJ
1,1 BGJ
Castor Oil 1,4
Renawable/Total 0,9
Notes 2003 para palma, gasolina e diesel.
Diesel destilado. BCJBilhões de Giga Joules.
Source Adapted from ICONE / UBRIBE, refering to
FAO, Oil World, F.O. Licht, LCM, EIA.
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Biofuels
Production
Marketing

• Agriculture land
• Sun
• Water
• Technology agriculural and industrial
• Which feedstock?
• Government Policy to support

• Logistics infrastructure
• Consumers
• Oil Majors and industry
• Gas stations
• Automobile industry (FFV)
• Government Policy to enforce

• Biofuels is a complement that will partialy
  replace fossil fuels to fulfill the increase on
  energy demand over the next decades.
• We could be using around 30 million barrels of
  biofuels per day by 2030 if it is to fulfill 80
  of the increase in the demand forecasted..

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Ethanol Breakthroughs
Global Ethanol Production (thousand kilolitres)
Production Breakthrough
Cellulosic Ethanol in 2015 (? - 2020)
Brazils Projected FFV Sales
Gasoline Diesel
Market Breakthrough
Flex Fuel Vehicles in 2003
Source F.O. Lichts, UNICA
FFV Ethanol
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Ethanol Production USA and Brazil

• USA is already the largest producer of ethanol,
  forecasted to produce 17.25 Bi gallons by 2015
  corn based
• Brazil, based on sugarcane, as the second largest
  producer of ethanol is forecasted to produce 50
  less than the USA by 2015

Source Bear Stearns ANP, F.O. Licht, UNICA,
Team Analysis - estimates
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Ethacorn Corn and Ethanol Production US

• By 2015 the US is forecasted to produce enough
  Ethanol to meet a nation-wide E10 mandate.
• Two major issues to be considered
• Corn Food vs. Fuel ethanol production in the US
  is not only pushing corn prices up, but is also
  overtaking areas used for other food crops e.g.
  soya beans
• Corn Energy Balance ethanol based on corn uses
  almost as much fossil fuels to produce as it is
  produced.

Source MBF Consult and Team Analysis
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Ethacorn Corn Production in the US
Corn Supply Disapperance

• 28 of US corn production is used for Ethanol

Corn Acreage Production and Yelds

• Ethanol production is promoting a shift from soya
  beans production into corn ethanol
• Soya bean prices are increasing

Source MBF Consult and Team Analysis
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Ethacorn Production in the US
Source McKinsey Betting on Biofuels, The
McKinsey Quarterly , Bill Ceaser, Jens Riese,
Thomas Seitz, 2007
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Ethacorn Biofuels - Energy Balance
Fuel Unit Energy Content / Fossil Fuel Unit Used
for Production
Ethanol
Biodiesel
Beetroot
Corn
Palm Oil
Cassava
Colza
Wheat
Sugarcane
Soybean Oil
Sorghum
Vegetable Oil
Source Adapted from ICONE / UBRIBE, refering to
World Watch Institute
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Ethacorn Vs. Ethacane

• Industry in the US is organizing to produce
  enough ethanol to supply E10 demand.
• This target could be achieved, but corn base
  ethanol will cause two problems
• Impact on food prices
• Will not help to increase the oil Industry
  life-cycle
• US import tariff is protecting local market and
  distorcing relative prices (ethanol/gasoline)
• US investors are increasing the installed
  capacity to produce ethanol
• But a sustainable solution is needed.

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Brazil Ethanol Exports to the US
2006 210.5 M gallons (JAN to JUL) FOB Avg. US
1.81/gal
Direct Exports Brazil to US (cu. meters)
2007 165.4 M gallons (JAN to JUL) FOB Avg. US
1.69/gal

• Brazil direct exports to the US in 2007 (JAN to
  JUL) are 27 lower when compared to same period
  last year.
• While exports from Brazil to CBI countries
  increased by 192 (JAN to JUL)

Brazil Ethanol Exports 2006
Brazil Ethanol Exports Jan to Jul 2007
USA CBI 2006 66 2007ytd 61
Source SECEX and Team Analysis
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Ethanol Brazil Sugarcane
Brazils exports to the US are being harm by the
tariff system

• Brazil is using 2.7 M hectares to produce 4.2 B
  gallons of ethanol
• There is 282 M hectares of agriculture land
  available to increase production
• 80 of Brazils production remains in the
  domestic market.
• Production is growing, but with better market
  access could grow even faster.

Sugarcane Brazil
Corn US
Beetroot EU
Sustainability Economic sense with lowest
environmental impact
Production Cost US / liters (US / gallon)
0.22 (0.83)
0.36 (1.37)
0.53 (2.00)
Productivity liters/hectare
7,000
3,500
5,000
Energy Balance
8.3
1.3
1.9
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Conclusions

• Entering a New Energy Era
• There is no magic solution to replace oil
• We need substitutes that will complement fossil
  energy.
• Challenge we need more energy volume (increasing
  energy demand) with small environmental impact
  (clean energy)
• Ethanol is the most promissing complement to
  increase the oil life-cycle.
• Corn based ethanol does not represent a
  sustainable solution.
• Brazil has enough agricultural land to provide a
  sustainable solution but need access to markets

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Suggested Approach

• To remove the US ethanol tariff in 2009 is not
  feasilble it will disrupt both markets,
  Brazilian and American.
• There are three alternatives for the tariff in
  2009
• 1) To just renew the tariff protection means to
  keep the artificial support to corn based
  ethanol means to move from one problem to
  another.
• 2) Scalling down the tariff slowly removing the
  tariff (5 years phase out).
• 3) Increase and broad ethanol duty free import
  quota
• To permit limited access for sugarcane ethanol
  (up to 15 US demand).
• To promote more competition (coastal eastern and
  western states).
• To improve product availability on the US market
  (E10 E85 throughout the country).
• Combining alternatives 2 and 3 means a
  sustainable approach to meet US supply and demand
  energy needs,without market disruption or
  indirect effects on food prices.

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Thank You !!!
Roberto Giannetti da Fonseca Executive Director -
FIESP Federação das Indústrias do Estado de São
Paulo President - Ethanol Trading S.A. e-mail
rgiannetti_at_e-silex.com.br