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Biodiesel Industry Overview

Biodiesel Industry Overview. Diesel Usage by Sector. Demand Benchmarks. Assumptions RFS of 7.5 billion gallons Biodiesel will serve 15% of RFS demand RFS 7.5 billion x .15% = 1.125 BGY of biodiesel. Diesel Use by Sector. RFS Projections. U.S. Biodiesel Production. Biodiesel Capacities.

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Biodiesel Industry Overview

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  1. Biodiesel Industry Overview

  2. Diesel Usage by Sector

  3. Demand Benchmarks • Assumptions • RFS of 7.5 billion gallons • Biodiesel will serve 15% of RFS demand • RFS 7.5 billion x .15% = 1.125 BGY of biodiesel

  4. Diesel Use by Sector

  5. RFS Projections

  6. U.S. Biodiesel Production

  7. Biodiesel Capacities • 45 biodiesel plants with dedicated capacity of 180 MGY • Convertible capacity is estimated at 110+ MGY • 54 facilities under construction or under consideration in 30 states with an additional 600+ MGY capacity (2005) • 200 projects under consideration with over 2.5 BGY • 18 under consideration in Iowa

  8. Biodiesel Capacitiescont. • 5 newest mid-western plants add 150 MGY • New plants range in size from 1-60 MGY

  9. U.S. Biodiesel Production

  10. Balancing Demand and Capacity

  11. Feedstock • Vegetable Oil • Seed Crushing • 29 Billion Pounds a Year • Animal Fat • Animal Harvesting • 12 Billion Pounds a Year

  12. Feedstock Uses • Human Food • Baking or Frying • Salad or Cooking Oils • Margarine oils • Confectionary fats • Animal feed, Lubricants, Paints, Varnish, Resins, Plastic and Soap • 38 Billion Pounds a Year

  13. Feedstock Carryover • 2.5 Billion Pounds Vegetable Oil • 1.8 Billion Pounds Soybean Oil • 0.7 Billion Pounds Corn, Palm, Cottonseed & Others • 0.4 Billion Pounds Animal Fats • 0.36 Billion Pounds Inedible Tallow & Yellow Grease • 0.04 Billion Pounds Edible Tallow & Lard

  14. Feedstock to Biodiesel • 2.9 Billion Pounds of Oils or Fats • 7.65 Pounds of Oils or Fats per Gallon • 379 Million Gallons of Biodiesel per Year • 1.5 gallons/ bushel of soybeans

  15. Biodiesel Pressures Feedstock Price • New Demand on Oil & Fats will Increase Feedstock Price • Which Use will be Priced Out of the Market? • Human Uses – Animal Feed – Industrial • Or Biodiesel

  16. Will supplies adjust? • We won’t run out of vegoil/fats • In the short run it may look like we will • Extreme volatility with price run-up likely • Food end users making plays already • Price will ration • Oil seed producers will innovate • High prices make other feedstock sources feasible • Palm is most likely to expand

  17. Soy meal Constraint? • DDG is huge competitor 12.32 MMT in ’05/’06 • Domestic soy meal use could drop • Meal price will become global competitive (as in very cheap) • Crush for oil and price meal for clearance • Crush margins will eventually suffer

  18. Scenario Planning • Three studies • <$120 meal • $.35 oil • Little impact on bean price • Feed protein glut • New meal volumes must be exported Consider $40 crude petroleum

  19. Is US Soy Competitive? • Palm oil yields in Malaysia about 3.9MT/ha • Canola oil yield in EU about 1.34 MT/ha • Soy oil yield in US is about 0.55 MT/ha • Sunoil yield Ukraine is about 0.42 MT/ha

  20. Business Model • Close to Market or Close to Feedstock? • Global, National or Local market? • Strategic partner financial integration? • Back integrated? • Forward integrated? Look for “Platform Plays” to emerge

  21. Stand-alone Business Model • Refineries never remain stand-alone • Business plan built on today’s economics means certain death • Find ways to integrate key chain functions • Must be very strategic on location • Roll-up or M&A target strategy?

  22. Virtually Integrated • Partnered with REG or other aggregators • Vested strategic partners

  23. Full Equity Model • Seattle waste grease plant • No borrowed money • Novel tech • Local market

  24. Global Business Model • Dow Halterman Houston, Texas • Deep water • Toll processor (World Energy) • Produce in EU and US • Source and sell globally

  25. Chain Integrated Business Model • Dreyfus in Claypool, Indiana • Bean origination • 50 mil bushel crush • 80 mil gallon biodiesel • Trans/Log issues handled • Long-term off-take agreements • Import/Export capability Dreyfus is claiming its position among the ABCD’s by adding Biodiesel into the processing mix.

  26. Lender Perspective • Loads of uncertainty • Concentrated feedstock sellers • Renewal of the blender’s credit • Product demand • Bundle working capital with term • They want in but on their terms • 7 to 10 year term on 20 year life facility? • Cash sweep on operating profits to pay down half the debt in three years.

  27. Lender PerspectiveWorking Capital • May need ten times ethanol • depends on biz model • 15 to 40 cents per capacity gallon • Some recommend one year debt reserve • Shutdown scenarios • Consider catastrophic cash flow scenarios • ($40 crude) • $.35 cent vegoil • Supply interruption • Transportation interruption

  28. Large Investor Perspective • Very Risky. (need higher baseline IRR) • Hate novel technologies • Few companies working on demand side • Must be a low cost producer • Must have off-take truly tied in • Loss of subsidies would be fatal • Experienced management tough to find Tons of people doing projects; very few forming businesses

  29. Risk Management • Cross hedges difficult and risky • Basis risk is tough • ($1.20 basis shift in ethanol vs. Nymex) • Risk premiums high in many off take agreements • Align for supply…stay nimble on price • Know you can get it gone • Risk premiums high for feedstock agreements • Align for supply…stay nimble on price • Know you will have feedstock

  30. Risk • Few/strong players control feedstock • Massive global growth • US is not (nor will be) least cost • Market drivers are tenuous (sulfur) • Fighting the food market for feedstock (moral dilemma) Tons of people wanting to make biodiesel; few are working on demand

  31. Certainty?? • Feedstock issues are paramount • Vegoil price will rise • Rail tanker car crunch • New crush requires meal exported • Meal price will drop • Stand-alone refineries will be vulnerable

  32. Contact Us For more information: ISU Value Added Ag Program 1111 NSRIC Ames, IA 50011 515-294-0588 www.iavaap.org www.agmrc.org

  33. Questions About Technical Issues? • www.biodieselbasics.com, or contact • Rudy Pruszko Center for Industrial Research and Service (CIRAS) Iowa State University Extension NICC Town Clock Center 680 Main Street Dubuque, Iowa  52001-6818 Phone: 563-557-8271 ext 251 rpruszko@iastate.edu

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