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ETHANOL OUTLOOK

This overview discusses the current environment and future prospects of the ethanol industry, including policy developments, market factors, profitability, capacity, and relevant policies. It also highlights the challenges and concerns associated with climate change, sustainability, and feedstock supply, and explores the potential for alternative energy sources.

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ETHANOL OUTLOOK

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  1. ETHANOL OUTLOOK National Agricultural Credit Committee Harry S. Baumes Associate Director Office of Energy Policy and New Uses Washington, DC March 19, 2009

  2. BIOFRENZY

  3. Overview • REVIEW • CURRENT ENVIRONMENT • FUTURE

  4. Source: Renewable Fuels Association

  5. 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

  6. 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

  7. 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)

  8. 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

  9. Current Environment: 2008 - today • Financial Market Collapse & Tight Credit (decline in wealth) • CONTRACTING ECONOMIES • Dec ’08 annualized running rate ethanol production, 10 mmg

  10. Market Factor: Energy Prices Gasoline Conventional Corn Starch WTI RFS1 Source: EIA

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

  12. Profitability of Ethanol Sector: Corn Prices Lower than last year

  13. Market Factor:Corn – Ethanol Prices Ethanol – Corn Price Spread Profitability Indicator

  14. Profitability of Ethanol Sector: Profits down

  15. Ethanol Plants and Capacity Existing and Under Construction 113 6244 95 5583 MARCH 2007 77 4336 31 1778 Source: Renewable Fuels Association

  16. Today Source: Renewable Fuels Association

  17. Source: Renewable Fuels Association

  18. 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

  19. FUTURE LOOKING FORWARD

  20. 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

  21. EISA – EPACT Renewable Fuels Standard Other Biofuels Biobased Diesel Cellulosic Biofuels Conventional Corn Starch RFS1 Years

  22. Second Generation Biofuels Cellulosic Feedstocks

  23. Cellulosic Ethanol Projects Under Development and Construction Conventional Corn Starch 26 Projects 400 million gallons capacity RFS1 Source: Renewable Fuels Association

  24. 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

  25. 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

  26. 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

  27. 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

  28. 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

  29. 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

  30. 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

  31. 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

  32. What We Need To Know • Technology Development • Crop productivity – across potential feedstocks • Implications for other input use (fertilizer, water, chemicals,…) • Conversion

  33. THANK YOU! Contact Information: Harry S. Baumes hbaumes@oce.usda.gov 202-401-0497

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