Everything EthanolEverything EthanolGreg, Greg, Devin, DerekGreg, Greg, Devin, Derek

Ethanol is a renewable fuel produced by fermenting and distilling crops or other vegetation into a high grade alcohol

Ethanol is blended into almost 50% of the U.S. fuel supply, mostly as E10 and E85

E-10 refers to the blend that is 10 percent ethanol

E20 contains 20% ethanol and 80% gasoline

E85 is a blend of 85 percent ethanol and 15 percent gasoline.

A flexible-fuel vehicle (FFV) is an alternative fuel automobile with a internal combustion engine designed to run on more than one fuel, usually gasoline blended with either ethanol or methanol fuel, and both fuels are stored in the same common tank. http://www.epa.gov/SmartwayLogistics/growandgo/documents/factsheet-

e85.htm

E-85 reduces MPG (20-30%)

E-85 Filling Stations

E-85 Vehicles

• World (14 million)

U it d St t (7 3 illi )• United States(7.3 million)

• Brazil (6.2 million)

• Canada(600,000)

Total Number of Vehicles

World (850 million)

1 65% E-85 vehicles1.65% E-85 vehicles

United States (251 million) ~16 million new vehicles/year

2.91% E-85 vehicles

http://www.grinzo.com/energy/index.php/2008/04/09/mandating-flex-fuel-vehicles/

http://en.wikipedia.org/wiki/Flexible-fuel_vehicle

Ethanol InvestorsEthanol Investors

• Bill Gates- $84 Million

Ri h d B Pl i t i t $300 $400 Milli• Richard Branson- Planning to invest $300-$400 Million

• Vinod Khosla (Silcon Valley guru-Ethanol’s most vocal advocate ) Millions??

• Walmart- considering offering ethonal at 383 of its gas stations

• Big Oil

– Chevron

– Exxon

– Shell

– BP

CompetitionCompetition

Electric cars“City car" concept. These cars only go about 120 miles on a charge, but are

made for city drivingmade for city driving.

-Wind Energy

1.2% of U.S. power

Imported Ethanol from Brazil54 cent per gallon tariff

Cellulosic ethanol is not competitive under current policy incentives

Gasoline 67 billion gallons of pure gasoline.

67 billion gallons ethanol blended gas < E85

7.8 billion gallons of E85 or 5.6%

http://www.eia.doe.gov/emeu/steo/pub/special/2008_sp_02.pdf

Production/ Consumption by StateProduction/ Consumption by State

Water Usage Water Usage

96% f d f th l d ti i t i i t d• 96% of corn used for ethanol production is not irrigated

• 3-4 gallons water per gallon ethanol (dry grind production)» 80% of corn ethanol production

• 1.9-6 gallons water per gallon ethanol (conceptual cellulosic production)

• 2-2.5 gallons water per gallon gasoline (petroleum refining)

• 0.6 gallons water per kilowatt-hour (coal-fired power plant)

Future Ethanol Production Andy Aden – National Renewable Energy Laboratory

Water Usage-New Technologies Water Usage-New Technologies

• Reduce Energy Consumption

-Producing broths with higher ethanol concentrations –reduce energyProducing broths with higher ethanol concentrations reduce energy need for distillation.

-Alternative technologies to distillation- Prevaporation

-Use a different heat transfer medium, using forced-air fans for cooling instead of using water

Future Ethanol Production Andy Aden – National Renewable Energy Laboratory

Minnesota Incentives and Laws Minnesota Incentives and Laws

• Ethanol Blend Mandate

• All gasoline sold or offered for sale in the state must contain at least 10% ethanol by volume (E10). Effective August 30, 2013, all gasoline sold or offered for sale in the state must contain at least 20% ethanol by volume (E20), unless ethanol has already replaced 20% of all motor vehicle fuel sold in the state by December 31 2010 or federal approval has not been granted for the use of E20 Certainstate by December 31, 2010, or federal approval has not been granted for the use of E20. Certain exemptions apply. (Reference Minnesota Statutes 239.791)

• E85 Fueling Infrastructure Grants

• Grants administered by the Minnesota E85 Team are available to service stations installing equipment or converting existing equipment for dispensing E85 fuel to flexible fuel vehicles. Cost eligibility and grant amounts vary according to grant sponsorship.

• Ethanol Production Incentive

• Through June 30, 2010, an ethanol production incentive of $0.20 per gallon of ethanol produced is available to qualified facilities that began production before June 30, 2000. Annual payments are limited to $3 million to any one producer

• Alternative Fuel Tax

• An excise tax is imposed on the first licensed distributor who receives E85 fuel products in the state and on distributors, special fuel dealers, or bulk purchasers of other alternative fuels. E85 is taxed at a rate of $0.142 per gallon, liquefied petroleum gas is taxed at $0.15 per gallon, liquefied natural gas is taxed at $0.12 per gallon, and compressed natural gas is taxed at the rate of $1.739 per thousand cubic feet or $0.20 per gasoline gallon equivalent. Gasoline is taxed at the rate of $0.20 per gallon.

http://www.afdc.energy.gov/afdc/incentives_laws.html

• There are nearly 1200 Gas Stations in the United States where you can fill up on E85 y pethanol fuel. The number of stations offering E85 is expected to double in a little over a year as service stations are being offered incentives from Government and Ethanol I d t t t $30 000 t i t ll E85Industry grants up to $30,000 to install E85 Fuel pumps

• http://www.e85prices.com/

Federal Incentives and Laws Federal Incentives and Laws

• Small Ethanol Producer Tax Credit

• An income tax credit of $0.10 per gallon of ethanol is available to qualified small ethanol producers. A small producer is one that produces up to 60 million gallons of ethanol per year The credit applies only to the first 15 million gallons of ethanolethanol per year. The credit applies only to the first 15 million gallons of ethanol produced in a tax year and expires December 31, 2008.

• Import Duty for Fuel Ethanol

• The U.S. Customs and Border Protection imposes a 2.5% ad valorem tariff on the import of ethanol for use in fuel which is based on the percent volume of the fuel at the time of transaction. The 2008 Normal Trade Relations duty rate (formerly known as the Most Favored Nation duty) of $0.54 per gallon of ethanol also applies to imports from most countries to offset the Volumetric Ethanol Excise Tax Credit (VEETC) given by the U.S. Internal Revenue Service. Ethanol imports from countries that are part of the North Atlantic Free Trade Agreement, Caribbean Basin Initiative, and Andean Trade Preference Act may not be subject to the secondary duty provided the ethanol is fully produced with feedstocks from those nations. Importers of ethanol must follow the same regulations as domestic producers, including registering with the IRS

. http://www.afdc.energy.gov/afdc/incentives_laws.html

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08

Regional Ethanol Production (Thousand Barrels)

U.S.U.S. 15,818 15,025 17,387 16,868 18,543 17,544

East CoastEast Coast 101 96 91 113 117 115

Mid WestMid West 15 092 14 367 16 488 15 858 17 261 16 342Mid WestMid West 15,092 14,367 16,488 15,858 17,261 16,342

Gulf CoastGulf Coast 49 46 254 271 511 338

Rocky MountainRocky Mountain 333 282 318 312 304 306

West CoastWest Coast 243 234 236 314 350 443

Production Estimates

Corn Usage for Future Ethanol Production

Corn Prices and Corn ExportsCorn Prices and Corn Exports

Future OutlookFuture Outlook

Future OutlookFuture Outlook

• Technological Breakthroughs – Higher yields– Advanced enzymey– Energy inputs for plants

• Current Economic Condition

• Global Climate Change

• National Security

• Revenue and Jobs– Boosts total employment by 192,000 jobs– Results in net federal budget savings of over $3.5 billion

Ethanol Market by StateEthanol Market by State

Most countries are phasing in either ethanol or biodiesel to meet 5% of fuel consumption by 2010.

World ProducersWorld Producers

1 hectare = 2.47 acres

http://www.distill.com/World-Fuel-Ethanol-A&O-2004.html

EfficiencyEfficiency

http://www.distill.com/World-Fuel-Ethanol-A&O-2004.html

CostCost

http://www.distill.com/World-Fuel-Ethanol-A&O-2004.html

Market ShareMarket Share

http://www.distill.com/World-Fuel-Ethanol-A&O-2004.html

World Ethanol ProductionWorld Ethanol Production

1997 World Ethanol Production

Saudi Arabia’s prime minister of petroleum and mineral resources denounced ethanol as an alternative to petroleum-based motor fuelsbased motor fuels.

This trend is growing largely in places with a massive source of oil.

With increased ethanol use comes a decrease of 90,000 barrels of oil per day.

• According to the RFA (renewable fuel association), most ethanol is sold under

Ethanol PricesEthanol Prices

)long-term contract. Roughly 90 to 95 % of ethanol is sold under these long-term contracts (6 to 12 months)

• The remaining small amount of ethanol is sold on the "spot " market. Prices fluctuate daily according to market conditions.

http://www.agmrc.org/agmrc/renewables/prctrdsmkts.htm

• Corn prices per bushel in the Midwestern states of Iowa, Nebraska, South D k t d Illi i b $2 i O t b 2006 t d b t $3 d

Pricing Trends in Ethanol, Corn, and Dry Distiller Grain

Dakota, and Illinois began near $2 in October 2006, stayed between $3 and $4 until October 2007, and climbed to about $7 in July 2008 and leveled off for the time being at about $5.50

- The change in prices can be contributed to weather conditions, demand, and investments made

• Dried Distillers Grain has risen near $100/ton from 2006 to 2008. - When corn prices rise, this grain will rise as well because it is a byproduct that is sold offbyproduct that is sold off

• Ethanol prices in $/gallon started at under $2/gal in October 2006, sunk as low as $1.50/gal in October 2007, rose up to about $2.80 in July 2008, and has currently stayed around $2.25

- Ethanol has shown to rise when corn rises in price, but ethanol proves to be not as volatile as corn. It is a commodity product that needs to stay in competition with gas. Also, the price of DDSG is increased as well to help offset the high price in corn.

• Around February 2005 gas prices in terms of $/gal were above corn prices in terms of

Fuel and Grain Price Historic Comparisons

g p$/bu until September 2006. Then the price trend of corn passed gas prices and has stayed above to the present. – Some key points :

• This chart shows the volatility of corn which is the main component in the production of ethanol. Ethanol pricescomponent in the production of ethanol. Ethanol prices may stay relatively low for the time being because it is a commodity product, but losses will be incurred by the ethanol producers

• Corn prices go hand in hand with gas prices. To transport corn, you need fuel, for example

• When gas prices rise, it allows corn to sell for a higher price for use in ethanol

• Cropland is the eventual limiting resource in the supply chain.

Permanent Beneficiary – Land OwnersPermanent Beneficiary – Land Owners

• The amount of corn produced is limited by the number of acres of farmland available for corn production.

• Excess profits then are bid into rental rates and land values.

• The other segments of the supply chain give up g pp y g ptheir profits because they expand through competition until they earn only normal profits.

Supply Chain – Shifting PiplinesSupply Chain – Shifting Piplines

• Existing oil pipelines were built to supply the region's refineries with imported oil from Canada or the Gulf Coast ports.

• That means that most of pipeline capacity between the• That means that most of pipeline capacity between the Midwest, where ethanol is produced, and the Gulf Coast, where a third of America's gasoline is made, is going the wrong direction to help ethanol producers.

• Creates big incentive to produce pipeline for ethanol transportation

• Ignoring transshipment costs and tank car rental fees, shipping ethanol from St Louis to Houston by rail costs about 12ethanol from St. Louis to Houston by rail costs about 12 cents/gallon. Shipping gasoline from Houston to St. Louis on the Explore Pipeline costs 3.5 cents.

• According to the Energy Outlook , it is perceived that 8.5 cents per gallon would pay for a lot of pipe.

An Example of New Supply Chain Strategy An Example of New Supply Chain Strategy

Matching Corn Buyers, Sellers Electronically• Six-month trial with approximately 300 farmers and 13 grain pp y g

buyers in south-central Nebraska, a new online corn marketing system will be made available throughout Nebraska and Iowa this fall– Buyers include a mix of ethanol plants, livestock producers and

elevators• Corn buyers such as ethanol plants can use maps that show

h i f l E h i t i di t i dwhere corn is for sale. Each green point indicates a zip code, and the size of the point’s shadow shows the relative quantity available at that location. Through MarketPoint, the corn buyer can also locate high-starch varieties to help maximize efficiency.

- This whole idea is to simplify the bidding process for corn, in our case, and create better efficiency by using a Web platform

Supply Chain Supply Chain

http://www.afdc.energy.gov/afdc/ethanol/distribution.html

Source: USDA Agricultural Marketing Service Ethanol Transportation Backgrounder