Ethanol – Challenges & Opportunities

1. Ethanol – Challenges & Opportunities byJai Uppal, ConsultantB.Sc. Chem. Engg., M.S.E. (Michigan, USA)F.I.E.. L.M.I.I.Ch.E., L.M.I.M.A. jaiuppal @ yahoo.com (M)+919811171121 Sr. Advisor, Center for Alternate Energy Research& Gen Sec., Samyak Vikas Sanstha at Energy Think Tank New Delhi, July 18, 2008

2. Introduction • King Hubbert’s peak oil theory - USA • Campbell’s Projections – peak oil in next 10 to 15 years • Energy Watch Group’s 2007 Projections – peak oil begins now • Price rise began !

3. Oil Production Projections –Source: Energy Watch Group (Oct 2007) Conclusion: “Peak oil is now” !

4. IEA Crude Price Projections - WEO

7. Future Oil Scenario • Each price increase by $10/bbl might result in a drop of GDP by about 0.5% (IEA) • “It appears that world oil prices are on a path that more closely resembles the projection in the high price case ($186/bbl by 2030)than in the reference case. • With higher world oil prices slowing the growth of demand in the long term, world liquids consumption in the high price case totals only 99.3 million barrels per day in 2030, 13 million barrels per day lower than in the reference case.” (EIA – Energy Outlook 2008) 

8. Challenges for Ethanol Macro Challenges: • Feedstock – cyclic nature • Food Vs Fuel – only 5 mill ha • Energy Balance • Government Policy Micro Challenges: • Logistics • Tendering System Indian EBP program in brief

9. Sugarcane & Sugar Production Sugarcane Area Kharif: • 2008: 43.19 Lakh Ha • 2007: 52.82 Lakh Ha • 2006: 48.32 Lakh Ha Sugar Production: • 2008 - 09: 20/23 mill T • 2007 – 08: 26 mill T • 2006 – 07: 28.5 mill T

10. Cyclic Production Typical cycle: • Shortage of sugar - prices rise. Sugar mills give incentives to farmers. • Over the next 2 to 4 years production rises of both sugar cane and sugar • As the supply exceeds the demand; prices of sugar fall dramatically and the mills run into heavy losses – there is bust. • They are not able to pay the farmers for upto a year and the farmer reduces his plantation of sugar cane area drastically • Leading to a shortage of sugar and the prices rising dramatically.

11. Cyclic Production • The Industry makes good profit and starts paying the farmer promptly and starts giving him incentives so he starts increasing his area of sugar cane plantation. The cycle repeats • Draughts either assist in improving the situation or aggravating it

12. Ethanol Role in Stabilization Ethanol and Cogen’s Role in breaking cycle: • Sugar companies with Ethanol & Cogen make profit during the bust cycle. • Flexible EB Program and Cogen can assist the industry becoming more stable and managing the cycles of boom and bust Increasing Ethanol Availability to meet need for E10, E25 or FFVs • Diversification of feedstocks – SS,TSB,BM • Increasing Productivity/yield of feedstocks • Increasing yield from feedstocks – increase efficiency thru technology

13. Sugar & Molasses Production Trends

14. Potential Alcohol Production

15. Brazilian Example • About 50% of sugarcane in sugar and +50% goes to making Ethanol • Ethanol blending is flexible from 20 to 25% and decided each year based on all factors such as: • Internal Requirement of Sugar, World market and price of Sugar & Ethanol, and Country’s Projected harvest of Sugar

16. Energy Balance

17. Policy Issues • Brazilpersevered with Ethanol when Crude oil was at $10/bbl and cost of producing Ethanol was at $80/bbl • Today Ethanol is $140/bbl while cost producing Ethanol is less than $30/bbl – they are not dependent on imported oil and it is one of the most robust economy • USEnergy Security & Independence Act of Dec 2007 – Production of Biofuels to be 31 bill gal by 2020 out of which 16 bill gal by Cellulosic – Today CAGR of 25 to 30% (25 bill L in 2007) • EU– 5.75% by 2010 and 20% by 2020 • India no policy, Roadmap & incentives !

18. Tender System • Tender system is flawed: • Select L1 • Then pressurizeall producers to accept the same price • The L1 tenderer may have: • Small capacity • Poor credentials – low actual production and supplies • Not enough molasses/feedstock for production or storage for produce adequate quantity of Ethanol

19. Tender System • Oil companies tried to be ‘over smart’ – 3 year supply tender at a fixed price • Ridiculous to have tender to supply Ethanol at same price for 3 years when the price of Crude oil can change from day to day. • Molasses price changes because of harvest of sugarcane/sugar production • Successful Business policy/model to create a WIN-Win Solution for Seller and Buyer.

20. Indian EBP • Present installed Capacity estimated to be 1.3 bill L with 105 plants • Maharashtra 50% of capacity and UP 25% of capacity • The other states include AP, Gujarat, Karnataka, TN & Bihar. • This is more than double the requirement of Ethanol (600 mill L) with E5. However this capacity is not distributed according to demand. • E5 - Mandatory with conditions without any punitive clause

21. Indian Ethanol Scenario • E10 requires of 1.2 billion L of Ethanol • Present Installed capacity of Ethanol is 1.3 billion L • The tender price of Ethanol is between Rs. 20 - 21.50/L and is bought by Public Sector Oil Companies • E10 BIS Standards approved • But great opposition from Auto Industry • The demand for Ethanol by 2010-11 for E10 & E25 likely to be around 1.5 BL and 4 BL respectively.

22. Indian Ethanol Scenario • In addition, there is a potential to export3 to 4 BL to oil importing countries such as Japan and EU. • Thus a Potential demand 8 to 10 BL by 2012 - 15 in an optimistic scenario • Provided the policies followed by the Center and States are conducive.

23. Ethanol Requirement

24. Thank You !