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ETHANOL OUTLOOK. National Agricultural Credit Committee Harry S. Baumes Associate Director Office of Energy Policy and New Uses Washington, DC March 19, 2009. BIOFRENZY. Overview. REVIEW CURRENT ENVIRONMENT FUTURE . Source: Renewable Fuels Association. Review: 2005 - 2008. Policy

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ETHANOL OUTLOOK

National Agricultural Credit Committee

Harry S. Baumes

Associate Director

Office of Energy Policy and New Uses

Washington, DC

March 19, 2009


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BIOFRENZY


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Overview

  • REVIEW

  • CURRENT ENVIRONMENT

  • FUTURE


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Source: Renewable Fuels Association


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Review: 2005 - 2008

  • Policy

    • Farm Security and Rural Investment Act of 2002

    • Energy Policy Act of 2005

    • Energy Independence and Security Act of 2007

    • Food, Conservation, and Energy Act of 2008


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Review: 2005 - 2008

  • Environment

    • High Energy Prices

    • Low commodity price

    • Accessible credit

    • Global economic expansion

    • Political Support

      • Bush State of the Union Addresses

      • Advanced Energy Initiative

      • 20X25


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Review: 2008 Industry Perspective

  • Production 9.2 bg

  • Jan 2008 to Jan 2009

    • Added 4.6 bil. gal. capacity

    • Added 53 plants

  • Ethanol Industry Utilized

    • 23% ’07/08 corn crop

    • 31% ’08/09 corn crop

  • Ethanol about 7.0% gasoline market (volume basis)


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Current Environment: 2008 - today

  • Historic rise and collapse commodity prices – including energy prices

  • Food and Fuel Issues

  • Texas Waiver Request of RFS

  • RFS2 Rulemaking (EISA)

    • Greenhouse Gas Emissions

    • Indirect Land Use


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Current Environment: 2008 - today

  • Financial Market Collapse & Tight Credit (decline in wealth)

  • CONTRACTING ECONOMIES

  • Dec ’08 annualized running rate ethanol production, 10 mmg


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Market Factor: Energy Prices

Gasoline

Conventional Corn Starch

WTI

RFS1

Source: EIA


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Profitability of Ethanol Sector: Ethanol Prices Lower than past 3 years


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Profitability of Ethanol Sector: Corn Prices Lower than last year


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Market Factor:Corn – Ethanol Prices

Ethanol – Corn Price Spread Profitability Indicator


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Profitability of Ethanol Sector: Profits down


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Ethanol Plants and Capacity

Existing and Under Construction

113

6244

95

5583

MARCH 2007

77

4336

31

1778

Source: Renewable Fuels Association


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Today

Source: Renewable Fuels Association


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Source: Renewable Fuels Association


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  • Ethanol Capacity

    • 12.4 bg capacity

    • 2.1 bg capacity under construction/expansion

    • 14.2 bg total capacity

    • 2.0 bg capacity / 23 plants idled

  • RFS 2009

    • 10.5 bg ethanol

    • 0.6 bg advanced biofuel (0.5 biodiesel)

    • 11.1 bg renewable fuels

Source: Renewable Fuels Association, March 5, 2009


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FUTURE

LOOKING FORWARD


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Relevant Policy

  • Energy Independence Act of 2007 (EISA)

    • RFS2 36 bgpy by 2022

    • Caps corn starch ethanol at 15 bgpy

    • Focus on advanced biofuels – cellulosic

    • GHG Thresholds

    • Research and Development

  • Food, Conservation, and Energy Act of 2008 (FCEA)

    • Biofuel Production Incentives

    • Rural Development Programs

    • Research, Development & Commercialization


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EISA – EPACT Renewable Fuels Standard

Other Biofuels

Biobased Diesel

Cellulosic Biofuels

Conventional Corn Starch

RFS1

Years


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Second Generation Biofuels Cellulosic Feedstocks


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Cellulosic Ethanol Projects Under Development and Construction

Conventional Corn Starch

26 Projects

400 million gallons capacity

RFS1

Source: Renewable Fuels Association


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Non-fossil energy use grows rapidly, but fossil fuels still provide 79 percent of total energy use in 2030

quadrillion Btu

History

Projection

Coal

Natural Gas

Liquid Fuels

Liquid Biofuels

Renewables (excl liquid biofuels)

Nuclear

Source: EIA, AEO 2009, early release


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Petroleum-based liquids consumption is projected to be flat as biofuels use grows

million barrels per day

History

Projections

Biofuels

Transportation

Industrial

Electric Power

Residential and Commercial

Source: EIA, AEO 2009, early release


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  • Issues and Concerns

    • Climate Change

    • Sustainability

    • Environment (Land, Water, Air)

    • Supply and Consistency of feedstock quality

    • LOW CARBON FUEL STANDARD

  • Policy Objectives

    • ECONOMY

    • Energy security

    • Food security

    • Climate Change

    • Implementation EISA

    • Implementation FCEA

Bioenergy Complicated and Interdisciplinary


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Energy Independence and Security Act of 2007

Fuel categories must meet greenhouse gas life cycle performance threshold

  • 20% life cycle reduction threshold – Conventional Biofuels (ethanol derived from corn starch from new facilities)

  • 50% life cycle reduction threshold – Advanced Biofuels

  • 50% life cycle reduction threshold – Biomass-based Biofuels

  • 60% life cycle reduction threshold – Cellulosic Biofuels

    Life Cycle Analysis must include

  • direct and indirect land use change due to biofuel feedstock production

  • Baseline fuel comparison to gasoline and diesel fuel in 2005


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Moving Forward – Which Way to Go?

  • Economy must improve – demand for gasoline dropped in 2008 and is expected to fall further in 2009

  • New Administration’s team is being put in place – seems clear of support for bio or renewable energy – commitment to alternative energy (beyond transportation fuels)

  • Recognition that bioenergy is not independent of climate change, environment, and sustainability

  • Alternatives to fossil based energy is a global concern


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Moving Forward – What will it take?

  • Recognize the complexity of developing, deploying, and using alternative bioenergy - Systems approach to solutions

  • Interdisciplinary cooperation and collaboration – research teams

  • Commitment to Research and Development

  • Continue to be a role for STABLE public policy especially in the short-term


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Moving Forward - What we need to know

  • Overcoming Infrastructure Constraints

    • Blend Wall

      • Vehicles

      • E-85 availability

    • Transport of “ethanol”

    • Production, harvest, transport, & storage biomass

      • Concentrate or improve energy density of biomass

    • Other uses

      • Marine, motorcycles, small engines


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Moving Forward - What we need to know

  • Biomass Production

    • Alternative Feedstocks

      • Switchgrass, miscanthus, algae, …

    • Supply, Use & Price

    • Feedstocks for energy (not exclusively transportation fuels)

    • Land Use and availability

      • Direct & Indirect effects

    • Life Cycle Analysis


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What We Need To Know

  • Technology Development

    • Crop productivity – across potential feedstocks

      • Implications for other input use (fertilizer, water, chemicals,…)

    • Conversion


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THANK YOU!

Contact Information: Harry S. Baumes

hbaumes@oce.usda.gov

202-401-0497


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