Ethanol Production and Gasoline Prices: A Spurious Correlation
Ethanol Industry Update · $2 00 $2.50 $3.00 $3.50 O N RBOB GASOLINE vs. ETHANOL RBOB Spot Price...
Transcript of Ethanol Industry Update · $2 00 $2.50 $3.00 $3.50 O N RBOB GASOLINE vs. ETHANOL RBOB Spot Price...
Ethanol Industry yUpdatep
Bob DinneenPresident & CEOPresident & CEO
Renewable Fuels Association
Historical Ethanol ProductionHistorical Ethanol ProductionU.S. ETHANOL PRODUCTION
10,000
11,000
12,000
13,000
6 000
7,000
8,000
9,000
,
on Gallons
3,000
4,000
5,000
6,000
Millio
0
1,000
2,000
Current Ethanol Industry CapacityCurrent Ethanol Industry Capacity
Capacity p y(MGY)
201 Operable Facilities 13,519
13 idle facilities 947
188 operating facilities 12,572
12 Facilities Under Construction 1,196
3 E i t E i ti F iliti 763 Expansions at Existing Facilities 76
TOTAL CAPACITY 14,791
Ethanol as a Fuel & Fuel AdditiveEthanol as a Fuel & Fuel Additive1. E10 (10% ethanol by volume)
Approved for use in all vehicles and engines– Approved for use in all vehicles and engines– ~98% of ethanol consumed as E10– 80‐85% of U.S. gasoline blended with ethanol
2. E85 (70‐85% ethanol by volume)– For use in flex‐fuel vehicles (FFVs) only– 7+ million FFVs; ~2,200 retail outlets– <2% of ethanol consumed as E85
3. Mid‐level blends (20, 30, 40% ethanol by volume)– For use in FFVs only– Dispensed by “blender pumps” (<250 stations)Dispensed by blender pumps (<250 stations)– Specifications, BMPs, etc. under development
Renewable Fuels Standard (RFS2)Renewable Fuels Standard (RFS2)
35.0
40.0
25.0
30.0
LLO
NS
10 0
15.0
20.0
LLIO
N G
AL
0.0
5.0
10.0
BIL
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Conventional Biofuels (20% GHG reduction)
Cellulosic(60% GHG Reduction)
Other Advanced Biofuels(50% GHG Reduction)
Biomass‐based Diesel(50% GHG Reduction)(20% GHG reduction) (60% GHG Reduction) (50% GHG Reduction) (50% GHG Reduction)
Note: 20% reduction for conventional biofuels applies only to new construction
30%
40%
RFS2 Final Rule: Corn Ethanol GHG Reductions
Used for threshold
‐10%
0%
10%
20%Used for threshold determination
‐50%
‐40%
‐30%
‐20%
‐60%
% dry DGS/37
% …
Plant (dry DGS)
/ CH
P (dry DGS)
ation (dry DGS)
ation (dry DGS)
Separatio
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ane Separatio
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n, and
Raw
…Separatio
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CHP (w
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NG
with
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with
Biomass
w/Fractionatio
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Base
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AVERAGE "NEW" PLANT
Dry Mill NG Dry Mill Coal Dry Mill Biomass Wet Mill
Meeting the RFS will require approval of g q pp“mid‐level blends” (i.e. >E10)ETHANOL BLENDWALL AND RFS2 REQUIREMENTS
17,500
20,000
22,500
ETHANOL BLEND WALL AND RFS2 REQUIREMENTS
10 000
12,500
15,000
17,500
ON GALLONS
2 500
5,000
7,500
10,000
MILLIO
0
2,500
RFS C ti l RFS C ll l iRFS‐Conventional RFS‐Cellulosic
RFS‐Advanced (excl. biodiesel) E10 Blend Wall
E15 Blend Wall
Current Ethanol Economics
$2 00
$2.50
$3.00
$3.50
ON
RBOB GASOLINE vs. ETHANOLRBOB Spot Price (NYH)
Ethanol Spot Price (Iowa)
• Gasoline‐ethanol spread has widened in recent months
$
$0.50
$1.00
$1.50
$2.00
$/GALLO
• Widest since 9/2008
• Returns over operating costs hit 2‐year high in
$0 80ESTIMATED RETURNS OVER OPERATING COSTS ($/gallon), IOWA DRY MILL
$‐ costs hit 2 year high in Q4, but have fallen sharply since
$0 30
$0.40
$0.50
$0.60
$0.70
$0.80
LLON
$(0 20)
$(0.10)
$‐
$0.10
$0.20
$0.30
$/GAL
$(0.20)
Source: RFA based on EIA weekly gasoline prices, EIA weekly natural gas updates, and USDA‐AMS weekly Iowa ethanol reports
E15 Fuel WaiverE15 Fuel Waiver• Waiver submitted to EPA March 6, 2009EPA d d D 1 2009 l d i i d l d• EPA responded Dec. 1, 2009; approval decision delayed– Acknowledged no “show‐stoppers” in testing to date– Still waiting for completion of key tests (e.g., catalysts)Still waiting for completion of key tests (e.g., catalysts)– Announced pump labeling effort
• Assuming no major issues, EPA could approve E15 for MY2001 and newer as soon as this summer
• A partial waiver on E15 likely does very little to boost ethanol demand—must have a full waiverethanol demand—must have a full waiver
• A waiver for E15 allows (but does not require) E15 usage. Economics (and RFS requirements) will drive adoption( q ) p
Increased Brazil ethanol output has come primarily through area expansion
BRAZIL SUGAR CANE, AREA PLANTED AND TOTAL REDUCING Between 1999‐2009:
• Yield per acre of total reducing sugars increased4 0
4.5
5.0
20 000
25,000 SUGARS (TRS) YIELD
reducing sugars increased 9.5% (0.8% CAGR)
• TRS yield peaked in 07/083.0
3.5
4.0
15,000
20,000
r acre (m
t)
and Acres
• Planted area virtuallydoubled (increase of 92%, or 6.1% CAGR)1.5
2.0
2.5
10,000
YIELD: TRS
per
ARE
A: Tho
usa
• Increased ethanol output came mostly through sugarcane area expansion0.0
0.5
1.0
‐
5,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Area Planted to Sugarcane TRS/Acre (MT)Sources:1.) IBGE (sugarcane area planted & cane yield); 2.) USDA/FAS/ATO (TRS yield)
Increased U.S. ethanol output has come primarily through higher corn yields
170U.S. CORN, AREA AND YIELD
160
165
170
80,000
90,000
Between 1999‐2009:
145
150
155
50,000
60,000
70,000
hels per Acre
usan
d Acres
• Yield per acre increased 23% (1.9% CAGR)
• Record yield in 2009
135
140
145
30,000
40,000
YIELD: B
ush
ARE
A: Tho
u Record yield in 2009
• Planted area increased 11% (1% CAGR)
120
125
130
‐
10,000
20,000 • 2009 planted area similar to late ‘70s/early ‘80s levels
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Area Planted to Corn Average Corn YieldSources:1.) USDA (corn area planted & corn yield)
Ethanol Tax PolicyEthanol Tax Policy• Volumetric Ethanol Excise Tax Credit (VEETC) expires Dec 31 2010Dec. 31, 2010
• $0.45/gallon tax credit paid to gasoline blenders
• Reps Pomeroy (D ND) and Shimkus (R IL) introduced• Reps. Pomeroy (D‐ND) and Shimkus (R‐IL) introduced H.R. 4940 (Renewable Fuels Reinvestment Act) in March
• RFRA provides:RFRA provides:5‐year extension of VEETC
5‐year extension of secondary tariff on imported ethanoly y p
5‐year extension of small ethanol producer tax credit
3‐year extension of cellulosic ethanol producer tax credit
Ethanol tax credits paid for themselves in 2009Ethanol tax credits paid for themselves in 2009
• Industry generated $8.4 billion in Federal tax revenue• VEETC cost $4.8 billion• Small ethanol producer tax credit cost ~$200 million
$• Ethanol provides a $3.4 billion surplus for the Federal Treasury
• Plus other economic benefits:Plus other economic benefits: – State and local tax revenues– Reductions in farm subsidies (LDPs virtually eliminated since 2006)
l– Decreased spending on oil imports– Lower gasoline prices
RFS2 and VEETC programs are interdependent and complementary
• Critics argue that an excise tax credit for ethanol is unnecessary when a mandate requiring refiners to bl d th l l d i tblend ethanol already exists
• RFS mandates the use of ethanol, not the productionRFS mandates the use of ethanol, not the production
• VEETC encourages domestic production and ensures that the RFS volume requirements will be filled primarily with homegrown supply
Potential Impacts of Failing to Extend VEETCPotential Impacts of Failing to Extend VEETC• Loss of more than 112,000 jobs in all sectors of the economy
• Reduction of domestic ethanol production by 38%• Reduction of domestic ethanol production by 38%
• Increased reliance on imported motor fuels (Trading imported oil for imported ethanol from nations like Brazil)imported oil for imported ethanol from nations like Brazil)
• Decrease in corn prices of 8 percent (or ~$0.30/bushel)
• Loss of investment in/support for second‐generation biofuelsLoss of investment in/support for second generation biofuels
• Elimination of $2.7 billion in state/local tax revenues and $2.4 billion in federal tax revenues$
• Reduction of aggregate GDP by $16.9 billion
• Reduction of household income by $4.2 billiony $
Source: IMPORTANCE OF THE VEETC TO THE U.S. ECONOMY AND THE ETHANOL INDUSTRYBy John M. Urbanchuk for RFA
QuestionsQuestions