economic benefits of fuel ethanol blend (octane economy) · station truck fuel distribution...
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Economic Benefits of Fuel Ethanol Blend (Octane Economy) 2019 Seoul Fuel Ethanol Conference April 30, 2019 Mr. Jody Hall, Director for Global Ethanol Trading / Flint Hills Resources.
Committed to Creating Long-Term Value in Refining, Chemicals and Biofuels
Koch Industries, Inc.
• The second largest private company in the U.S.
• About $100 Billion in annual revenues
• Roots in refining industry
• 120,000 employees in nearly 60 countries. 70,000 of those employees are in the U.S.
• Unique entrepreneurial management philosophy: Market-Based Management®
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Diverse Independent Companies
Includes: • Koch Ag & Energy Solutions • Koch Supply & Trading • Koch Minerals • Matador Cattle Company • Koch Chemical Technologies
Group (Formed in 1925 as Winkler-Koch Engineering)
Renamed 2003
Acquired 2013
Acquired 2005 Acquired 2004
Acquired 2017 3
Flint Hills Resources
• ~5,000 employees
• Main Business Segments: – Refining & Lubes: Three refineries (Pine Bend, MN; Corpus Christi, TX East and
West). More than 600,000 barrels per day combined crude oil processing capacity. Produce and distribute gasoline, diesel, jet fuel, lubricant base oil, and asphalt. A JV base oil lubricant plant (Westlake, LA) and a JV LNG facility (TX).
– Chemicals & Polymers: Five plants (Peru, IL; Corpus Christi, TX; Houston, TX; Longview, TX; Port Arthur, TX). 10.5 billion pounds combined annual capacity in Aromatics, Intermediates, Olefins, and Polymers
– Biofuels and Ingredients: Seven ethanol plants with 850 million gallons combined annual capacity (5 in IA, 1 in NE, 1 in GA); A JV biodiesel plant in NE, and equity investments in bioenergy companies focused on innovation
• Industry leader in safety and environmental performance and active member of
the communities in which we operate.
• More than $13 billion in capital projects/acquisitions since 2002 4
Refining & Lubes
Corpus Christi, TX Refinery 304 kbd
• Large size; economies of scale
• Complex, light crude refinery integrated into aromatic chemicals
• Advantaged domestic crude supply (Eagle Ford Shale)
Pine Bend, MN Refinery 339 kbd
• Large size; economies of scale
• Complex, deep conversion heavy, sour, coking refinery
• Advantaged Canadian crude supply
Excel Paralubes Westlake, LA Base Oil Production Facility
• 22 kbd of Base Oil and 13 kbd of Co-Products
• State of the art facility with feedstock and product quality (Group II) advantages
10th Largest US Refiner / 24th in World by Capacity
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Chemicals & Polymers
Peru, IL
• Expandable Polystyrene Facility
Port Arthur, TX
• 1.4B lb/yr Ethylene & 0.7B lb/yr Propylene Facility
• World scale steam cracking plant (propylene and ethylene)
• Light feedstock (ethane) capability
Longview, TX
• Polypropylene Facility
• Relatively new, expandable and efficient facility
Corpus Christi, TX
• Refinery integrated aromatic chemicals production
• Large US capacity share of Paraxylene, Orthoxylene, Metaxylene, and Cumene
Houston, TX
• 1.5B lb/yr Propylene Facility
• Large on-purpose propane dehydrogenation plant located near advantaged propane feedstock supply and half US demand for propylene product
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Biofuels & Ingredients
Shell Rock, IA Ethanol Production Facility
Menlo, IA Ethanol Production Facility
Fairbank, IA Ethanol Production Facility
Iowa Falls, IA Ethanol Production Facility
Beatrice, NE Biodiesel Facility
Fairmont, NE Ethanol Production Facility
Arthur, IA Ethanol Production Facility
Camilla, GA Ethanol Production Facility
• 5th largest ethanol and DDGS producer in the US by capacity • 7,400 kt corn, 2,500 kt ethanol, 2,100 kt distillers grains
• Biodiesel – feedstock advantage (inedible, high free fatty acid oil) • Entered business believing economic without mandates or subsidies
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US Renewable Fuel Standard Basics
• Renewable Fuel Standard (RFS) created in 2005
• Fuel Pathways – Cellulosic biofuel
– Biomass-based diesel
– Advanced biofuel
– Renewable Fuel
• Renewable Volume Obligation (RVO) – Obligated parties are refiners or importers of gasoline or diesel fuel
– EPA establishes RVOs annually
– Compliance achieved by blending renewable fuels or by obtaining credits (RINs)
• RINS – RINs are generated when a producer makes a gallon of renewable fuel
– Obligated parties use RINs to demonstrate compliance
– RINs can be traded between parties
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USGC Ethanol Blend Incentive
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• Blend Incentive = (Gasoline – Ethanol) + RIN
• On average ethanol has provided an incentive of $.07/gallon over last 2 years
• If ethanol price is greater than gasoline then RIN value appreciates to incentives blending
U.S. Ethanol Distribution System
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Production Distribution Retail
Petroleum
gasoline 90%
Ethanol
10%ethanol
Undenatured or Denatured,Low moisture ethanol
Refinery
Corn Ethanol Dry Mill
Ethanol Tanktruck, rail, or barge
pipeline, barge, or ship Petroleum Tank
Ethanol Export Terminal
rail or barge
Retail Gasoline Station
truck
Fuel Distribution Terminal
• Ethanol is added to petroleum close to the end consumer. – Ethanol’s affinity for water will make the blend fail specifications if it comes in contact with water during
distribution.
– Ethanol plants are located near grain source.
– Refiners are located near crude oil source.
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Ethanol Blend Rates
• Ethanol blended with gasoline at 10% rate domestically and between 5% and 8% on average globally.
• Octane improver / oxygenate demand of 112 MMT world wide – Ethanol – 71%
– MTBE 19%
– Methanol 6%
– ETBE – 3%
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Economic Benefits of Blending Ethanol
Ethanol is a high octane, low sulfur, high oxygen blend component for gasoline. – Blending ethanol at 10% into gasoline: — 4 RON points octane uplift
— 3.5% oxygen
— 0% incremental sulfur
Refineries constrained on octane, can create more salable gasoline by creating a blend stock for ethanol blending.
– Reformer severity can be reduced, increasing liquid volume yield.
– Lower octane components, like light straight run, can be included into blend pool.
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Ethanol is a low cost source of octane
– Since 2010, ethanol has been cheaper than either alkylate or reformate by over 0.7 cents per octane liter.
Source: Derived from Platts, Argus, and OPIS data
Ethanol vs. MTBE Blending Economics
• Since 2010, MTBE has been more expensive than ethanol by ~16.6 cents per liter.
• Since 2010, a 10% ethanol blend of finished gasoline (3.5% oxygen) is cheaper by ~1.5 cents per liter relative to a 15% MTBE blend (2.7% oxygen).
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Source: Derived from Platts, Argus, and OPIS Data
-0.010
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0.040
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0.060
2/1/
2010
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2010
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2010
11/1
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115/
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118/
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1111
/1/2
011
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2012
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2012
11/1
/201
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135/
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138/
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1311
/1/2
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/201
42/
1/20
155/
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/1/2
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11/1
/201
62/
1/20
175/
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017
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2018
5/1/
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8/1/
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11/1
/201
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MTBE Blended Gasoline Less Ethanol Blended Gasoline(in USD per liter)
Feedstock Fundamentals
• US corn yield per acre is increasing, without increasing total cultivated land.
• Allows growth in biofuel production in addition to increased grain supply for other uses.
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0
50
100
150
200
250
2018201720162015201420132012201120102009200820072006200520042003200220012000
Mill
ions
US Major Crop Acreage Planted
Corn Soybeans WheatSource: USDA
0
20
40
60
80
100
120
140
160
180
200
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18
20
15
20
12
20
09
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06
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03
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00
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97
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94
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91
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88
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85
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82
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79
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76
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73
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70
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67
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64
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46
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40
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37
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31
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US Corn Yield in Bushels per Acre
Source: USDA
Ethanol Supply and Demand
• US ethanol production continues to increase.
• Domestic demand has currently plateaued.
• Net exports have continued to increase, making US ethanol available for the international markets.
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Source: US Energy Information Agency
0
2
4
6
8
10
12
14
16
18
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2010 2011 2012 2013 2014 2015 2016 2017 2018 Prod
uctio
n an
d Bl
endi
ng in
Bill
ions
of G
allo
ns
Net
Ex[p
rts i
n Bi
llion
s Gal
lons
US Ethanol Production, Demand, and Net Exports
Total Production Ethanol Blended Net Exports
Summary
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• US produces approx. 16 billion gallons of ethanol annually, which is 58% of world production.
• US ethanol will be available to help countries move toward their own biofuel mandates and to stem shortfalls in local production.
Source: USDA
Ethanol Coproducts
• Dried Distillers Grains (DDGS)
• Wet or Modified
Distillers Grains (MDGS)
• Distillers Corn Oil
• Corn Syrup
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Innovative Technologies
• Maximized Stillage Coproducts™ (MSC) – Technology installed at Fairmont ethanol plant – MSC technology produces a high protein feed ingredient called
NexPro™ protein ingredient – MSC opened new markets including aquaculture and pet food as well as
swine and poultry
• ENSEL™ technology – Installed at Duonix Beatrice – Combines esterification and transesterification into one step – Feedstock flexible and more efficient process
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Flint Hills Resources Priorities
• Focused on improving overall efficiency of operations and optimizing plants
• Investing in feedstock development and innovative technologies
that improve the cost-competitiveness of biofuels – Efficiency – Increasing output by converting a higher percentage of every
corn kernel to sugars needed to make ethanol – Optimization – Deploying innovative technologies to produce higher-value
products – Innovation – Focusing on innovative technology and feedstock development
that can lead to further advancements in biofuels production 21
Flint Hills Resources Capabilities
• Major US producer of biofuels, refined products and chemicals. • International marketing capability on ethanol and DDGS
– Brazil in-country presence – Global shipping capability – Asia DDGS marketing
• Significant logistics capability in US rail, truck and international freight.
• Strong market analysis and public sector capability to understand market drivers and critical policy issues.
• Ability to deploy capital on strategic projects (key parameters are return on capital, payback period, capability fit, new growth platform).
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Strategic partnership advantages
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FHR is interested in developing strategic partnerships in Korea
• Trading Opportunities for ethanol and DDGS – Long term contracts
– In country profit sharing
– Strategic tank leases
– Pricing/ hedging options
• Market knowledge sharing
• Discuss operational / technology opportunities – Supply chain management
– Risk management
• Equity investment
• Utilize US / Brazil capability for Korean market
Source: USDA
Operations Excellence
• Our top priority is safe and responsible operations.
• Focused on compliance and maintaining the highest industry standards.
• Industry-recognized leader in efficient, safe and responsible operations.
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