The Energy Situation 2006

1. The Energy Situation2006 Mike Woolverton Kansas State University mikewool@agecon.ksu.edu

2. Light Crude Oil, NYMEX, $ per barrel

3. U.S. Oil Import Suppliers • Canada • Mexico • Saudi Arabia (OPEC) • Venezuela (OPEC) • Nigeria (OPEC) • Iraq • Angola • Algeria (OPEC) • Russia • Ecuador Source: Energy Information Administration

4. Years of Oil Remaining Total Reserves 1,277,702,000,000 50years Usage Rate 25,000,000,000 (Barrels) Source: en.wikipedia.org/wiki/Fossil_fuel

5. Estimated Extraction Cost per Barrel of Oil • U.S. $10 to $12 • Arabian Peninsula $1

6. The United States and Oil • Use 20 million barrels per day • Produce 6 million barrels per day • Oil usage increases 2% per year but the economy has been growing at 3.3% per year • Usage in barrels per dollar of GNP is one-half of the 1947 level • Cost per year to import oil - $175 to $200 billion

7. Energy: Non-petroleum Sources • Wind • Solar • Hydro • Hydrogen cells • Nuclear • Bio-fuels

8. What it will take to replace imports? The U.S. uses 140 billion gallons of gasoline per year and 41 billion gallons of diesel fuel made from oil of which 65% is imported. To replace the imported gasoline with ethanol would require 33.6 billion bushels of corn. This year’s production – 10.7 billion bushels. To replace the diesel with soy-diesel would require 26.9 billion bushels of soybeans. This years production – 3.2 billion bushels.

9. Land Needed to ReplaceImported Fuels Corn 224 mil. A. (79.4 mil. A.) Soybeans 598 mil. A. (74.9 mil. A.) Total Needed 822 mil. A. Total Available 349 mil. A. Plus Idle Land 387.5 mil. A.

10. Renewable Fuels Drivers • High oil price • Instability in oil exporting regions of the world • Flow of dollars out of the United States • Energy Policy Act of 2005 • Mandates and tax credits • Phase out of MTBE • Good Returns on Investment

11. Bio-refining Assumptions • Petroleum will remain relatively expensive • Raw materials will be relatively inexpensive • Raw materials can be replenished each year (sustainable)

12. Net Energy Balance ProductEnergy Out/Energy In Gasoline .81 Ethanol from grain 1.35 Ethanol from cellulose 4.17 Diesel .91 Bio-diesel 3.24 Sources: Argonne National Laboratory and OECD International Energy Agency

13. ETHANOL

14. Industry at a Glance • Number of operating ethanol plants: 108 • Plants under construction and expanding: 62 • Announced plants: 100+* • 2005 production: 3.9 BG • Current production capacity: 5.1 BGPY • Projected production capacity: 7.7 BGPY in 2007 • Size: New plants 100 MGPY • Process: wet or dry • Daily water usage – 1.5 million gallons • Feedstock percentage: Corn 97 Sorghum 2 Other 1

15. Ethanol Plant Economics • Cost to build a 100 MGPY plant - $140 million • Will purchase about 37 million bushels of corn • Natural gas expense - $16.5 million • Payroll expense about $2 million • Distiller’s Dried Grains income about $25 million • CO2 income about $4 million (314,500 tons) • At current ethanol price $2.385 per gallon, the BE corn price is $5.06 per bushel • Goal 30% R.O.I.

16. Ethanol Price, $ per gallon

18. Distiller’s Grain Facts • Each bushel of corn dry grind processed for ethanol yields about 1/3 bushel of distiller’s grain. • Distiller’s grain retains one-third of the nutrient value of corn. • In N. America: 45% dairy 37% beef 13% swine 5% poultry

19. Distiller’s Grain • WDG – wet distiller’s grain • DDG – dried distiller’s grain • WDGS – wet with solubles • DDGS – dried with solubles • DDGS Ave. Nutrients (Percentage): Dry matter 89.3 Crude protein 30.9 Crude fat 10.7 Crude fiber 7.2 Ash 6.0 Lysine .9 Phosphorous .75

20. Distiller’s Grain Production and Use(MMT) ProductionDomesticExport 05/06 8.35 7.4 .94 06/07 10.8 9.2 est. 1.6 est. 11/12 20.0 est. 12.0 est. 8.0 est.

21. Fermentable Sugar Cost per Gallon of Ethanol • Sugarcane $.30 • Corn .91 • Sugarbeets .95

22. Corn/Ethanol Projections, U.S. 06/07 07/08 Corn Acres 79.4 mil. 86.2 mil. Corn Production 10.7 bil. Bu. 12.0 bil. Bu. Corn Exports 2.2 bil. Bu. 2.0 bil. Bu. Corn for Ethanol 2.15 bil. Bu. 2.85 bil. Bu. Ethanol Production 5.1 bil. Gal. 7.7 bil. Gal. DDG Production 10.5 MMT 14.3 MMT (Thirty to 40 percent will replace corn in rations. Sixty to 70% will replace soybean meal.)

23. Dangers Ahead for Ethanol • Over expansion – On-line capacity will exceed the mandated usage in 2007 • Drop in the price of ethanol that causes production to become unprofitable • Competition from iso-octane and iso-octene oxygenates made in converted MTBE plants • Low cost imports • Food or fuel debate

24. BIO-DIESEL

25. The Bio-diesel Formula 100 gallons of veg. oil or animal fats +10 gallons of methanol = 100 gallons of bio-diesel +10 gallons of glycerol

26. Advantages of Bio-diesel • No sulfur and less carbon emissions • Higher cetane rating – better mileage • Superior lubricity One disadvantage: Bio-diesel requires an additive to prevent jelling at low temperatures

27. Diesel Fuel (Wholesale per gallon) $ 1.762 Soybean oil ($ .289 per pound) $ 2.17 Glycerin credit = Methanol cost 0 Net Margin $ -.41 Bio-diesel Processing Margin per Gallon, Dec. 5th

29. U.S. Soy-diesel Production • Currently 65 plants in U.S. • Total capacity 365 mg – ave. size 7.45 mil. • Output 2005 – 75 mg of biodiesel Why? • Plants under 10 mg batch process using waste fats and oils • Much of output has been going to soap and shampoo rather than biodiesel

30. U.S. Soy-diesel Production • 58 plants expanding or under construction projected capacity 713 mil. gal. • Many of the new plants - 30 mil. gal. (Requires the oil from 400,000 A. soybeans.) • Continuous processing using multiple feedstocks of vegetable oil

31. Vegetable Oil Yields Corn 18 gal./A. Soybeans 66 Sunflowers 102 Rapeseed 127 Castor Beans 151 Oil Palm 635

32. World Production of Fats and Oils, 2003/04, MMT Vegetable Tropical Soy 30.1 Palm 28.7 Rape 14.1 Palm Kernel 3.5 Sun 9.3 Coconut 3.3 Peanut 5.0 Cotton 3.8 Olive 2.8 Source: USDA, Agricultural Statistics, 2005.

33. Soybean/Bio-diesel Projections, U.S. 06/07 07/08 Soybean Acres 75.6 69.0 Soybean Production 3.2 bil. bu. 2.8 bil. bu. Soybean Exports 1.1 bil bu. 900 mil. bu. Soybean Oil for BD 2.35 bil lbs. 4.65 bil. lbs. Bio-diesel Production 400 mil. g. 730 mil. g. (330 from SBO) (600 from SBO) Soybean Meal Exports 7.5 MMT 11 MMT Source: Paul Smolen, AgriNetwork Management and Mike Woolverton, KSU

34. Bio-diesel Conclusions • The industry is ramping up production capacity. • Increased demand for vegetable oil will drive price up. • Bio-diesel production will be constrained by the supply and price of vegetable oil. • Soybean meal will become the by-product and increased supply will cause price to fall. • U.S. soybean meal exports will increase. • Corn and soybeans will continue to be fierce competitors for available acres of land.

35. Alternative Technologies • Cellulosic Ethanol • Bio-diesel from Algae Oil

36. NITROGENFERTILIZER ECONOMICS

37. Farm Price of NH3 Pre-Katrina $175-200 per ton Post-Katrina $500+ per ton

38. Nitrogen Facts • Imports are now about 50% of annual usage • No new U.S. plants; shut down old plants • U.S. high natural gas cost compared to overseas competitors • Production capacity growth 5.7% - all outside U.S. • Major suppliers – Trinidad, Mexico, and Venezuela

39. Natural Gas Price, $ per thousand cubic feet

40. NH3 Farm Price Estimator Approximate Farm Price for ton of NH3 = NG price per kcf X 33.5 + $100 $8.50 X 33.5 + $100 = $384.75

41. Anhydrous and Diesel Price Forecasts www.agmanager.info/farmmgt/machinery At the same website find a paper by Dhuyvetter and Kastens on the impacts of rising fertilizer and fuel prices