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Ethanol and Its Implications for Fuel Supply

Ethanol and Its Implications for Fuel Supply. Dr. Roger Conway USDA Office of Energy Policy and New Uses. Presentation Plan. USDA: corn supply and economic implications Mr. Jack Huggins: Ethanol Industry Structure and Potential to Expand Mr. Roger Legassie: The potential for biomass ethanol

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Ethanol and Its Implications for Fuel Supply

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  1. Ethanol and Its Implications for Fuel Supply Dr. Roger Conway USDA Office of Energy Policy and New Uses

  2. Presentation Plan • USDA: corn supply and economic implications • Mr. Jack Huggins: Ethanol Industry Structure and Potential to Expand • Mr. Roger Legassie: The potential for biomass ethanol • Panel of Experts for Q&A

  3. USDA Disclaimer The MTBE phase-out scenario does not represent official USDA position

  4. Phase-Out ScenarioAssumptions • The 2% RFG oxygen mandate continues • Ethers and heavy alcohols are phased out • Ethanol is the only oxygenate • California is fully phased-out in 2002 • 49 States are fully phased-out in 2004

  5. Ethanol/MTBE Equivalentsfor RFG Oxygen 5.7% Ethanol RFG contains 2% oxygen 11% MTBE RFG contains 2% oxygen 0.52 Volumes of Ethanol replace 1 Volume of MTBE

  6. 1997/1998 Corn Utilization Ending stocks 13% Exports 15% Feed & residual Fuel Ethanol 54% 5% Food, seed, & industrial 13%

  7. Corn Supply:1997 Versus 200410,259 B Bu 11,714 B Bu

  8. FAPSIM Model(Food and Agricultural Policy Simulation) • USDA econometric model • Estimates intercommodity crop and livestock effects • Estimates farm income effects • Reallocates existing crop land for changes to USDA Baseline

  9. FAPSIM ResultsAnnual average change from baseline1999-2010 • Land substitution from beans to corn • Corn nominal price increases 5 % • Net corn cost increases 11% for dry mill • Net corn cost increases 12% for wet mill • Net farm income increases 3 percent • 0.1% increase in food prices

  10. Estimated Corn Prices -FAPSIM

  11. Ethanol Cost of Production New Dry Mill 1.No change in amortized capital costs 2.No change in operating costs 3.Change in net corn cost (NCC) Net Corn Cost = Cost of Corn - Value of Coproducts COP = 1 + 2 + 3 COP in 2004 = COP in 1998 +  (NCC)

  12. Impact On Net Corn Cost for Dry Mills, $/gal Case Year NCC  (NCC) Baseline 1999 $0.485 Baseline 2004 $0.590 MTBE Phase-out Base Case 2004 $0.694 $0.104 Extreme Event 2004 $0.808 $0.218

  13. Annual Average Nominal Prices $4.00 $3.50 $3.00 Corn $2.50 Average price/Unit $2.00 $1.50 CV Data $1.00 Corn = 22.2% Crude/10 $0.50 Crude = 35.8% $0.00 1970 1975 1980 1985 1990 1995 2000 Year

  14. Other Sources • Caribbean Basin- No import duty on 1. 7% of US annual production from non-indigenous feedstocks 2. All from indigenous feedstocks • Beverage Exports: >100 MM GPY • Brazil: 4 Billion GPY capacity • Biomass: > 10 B GPY resource base

  15. Summary and Conclusions2004 • Ethanol production increases to 3.3 billion gallons • Ethanol satisfies U.S. oxygen demand • Ethanol will remain available for octane markets • Corn price rise $0.20 per bushel from $2.50 • Ethanol COP increases by 10 cents per gallon • NCC effect on RFG cost is 0.6 cents per gallon

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