Global Market Opportunities for Ethanol –

A Clean, Green, Renewable FuelComments By:

James W. MillerVice President / Chief Economist

Growth Energy

December 4, 2015

Growth Energy Background• Largest U.S. trade association representing ethanol producers

• Established in 2009

• 82 ethanol plant members86 associate member companies and other trade associations

• Represents over 40% of U.S. ethanol production

• 21 Professional Staff

2

Growth Energy: What We Do

• Government & Regulatory Affairs

• Domestic Market Development

• Foreign Market Development

• Public Relations

• Membership & Grassroots Organizing

3

Discussion Topics• U.S. motor fuel standards

• Background - Renewable Fuel Standard (RFS)

• RFS: Goals & Benefits

• U.S. ethanol experience

• Trade challenges

• Colombian ethanol market perspectives

U.S. Motor Fuel Standards• Motor fuels and additives regulated by EPA under the Clean Air Act

oAir and water pollution – strict limits on emissionsoPublic health and welfare – federal ban on leaded gasolineo Extensive testing – EPA & Department of Energy

• States, local governments and industry regulations & standards also applyoMany states and municipalities have banned MTBE as a fuel oxygenateo Specific state requirements – i.e. California has rigorous fuel standards oASTM standards are applied by about 20 states

• Each new fuel (i.e. e15) is reviewed by EPA to determine if “substantially similar” to gasoline

• Alternative fuels with greater than 50% ethanol content not subject to same regulations – EPA reviewing how to best regulate

Renewable Fuel Standard (RFS) • Nearly 60 nations have some form of RFS for motor fuels

• U.S. and global goals and challenges are similar

• U.S. exports fuel and/or industrial ethanol to over 100 countries

• Domestic renewable fuel production coupled with more open trade is a key to future success for all parties

6

RFS GOALS / BENEFITS

• Improve environment - reduce GHGs

• Reduce health hazards associated with engine emissions

• Enhance energy/national security

• Create rural economic growth and consumer fuel price benefits

U.S. Experience• Production efficiency up 4% since 2008

• Water use declining

• Energy input down over 9% since 2008

• Net energy balance up – 1996 = 1.37:1.0 BTUs, 2014 – 2.5:1.0 BTUs

• Commercial cellulosic production – 4 plants in operation

• Moved from net importer to net exporter in 2010

• 3.5 – 4.0 billion liters excess production capacity relative to domestic demand

U.S. Net Ethanol Exports

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

Net Exports

2002 2004 2006 2008 2010 2012 2014

Million Liters

Source: USDA/FAS-GATS, EIA

Improve the Environment and Human Health

• Average GHG reductions (including ILUC) compared to gasoline:

oCorn starch ethanol = 34%o Sugar cane ethanol = 51%oCellulosic ethanol (stover, dedicated crops) = 88 - 108%

• Hazardous additives eliminated (lead, MTBE)

• Toxic emissions reduced 20% at a 10% blend rate

Energy/National Security

• Production of over 54 B liters per year – displacing oil imports by nearly 1 million barrels/day

• Still importing from Mideast and other foreign oil producers

• Fuel industry battle over oil marketshare

U.S. Oil Demand/Imports Declining

12

2005 2007 2009 2011 20130

500

1000

1500

2000

2500

3000

3500

4000Ethanol and Domestic Oil Displacing Imports in U.S. Gasoline Supply

Imports (Crude & Finished) Domestic Crude Ethanol

Mill

ion

Bar

rels

Source: U.S. Energy Information Administration

Stimulate Economic Growth

• Adds over $50 B to GDP each year

• Supports nearly 400,000 American jobs

• Revitalizing rural communities

• Saves U.S. consumers $100B in 2014

• Octane is key element in the fuel blending market

Ethanol Has Consistently Traded Below The Level of

Gasoline & Blend-stock Prices

2008 2010 2012 20140

0.51

1.52

2.53

3.54

Nat'l Ave. Gas PriceChicago RBOBChicago EthanolNat'l RIN Price

$/Gallon

Source: EIA: National Average Gasoline Prices (average of monthly average prices)OPIS: Spot RBOB, Ethanol and RIN Prices (average of monthly average prices)

Annual U.S. Ethanol Production

15

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

0

10000

20000

30000

40000

50000

Mill

ion

Lite

rs

Source: U.S. Energy Information Agency

STIMULATE RURAL ECONOMIC GROWTH

U.S. Net Farm Income

16

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

$ Billion

Source: USDA Economic Research Service

Global Grain Production

17

2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15P0

500

1000

1500

2000

2500

U.S. Corn Used for Ethanol A Small Percentage of Global Grain Production

Global Grain Production U.S. Corn Used for Ethanol

Mill

ion

Met

ric T

ons

Source: USDA/WASDE

TRADE CHALLENGES• Balancing the RFS Goals / Benefits

o Rural economy v. environment, health, national & energy security, general economyo Policy can discourage investment and innovationo Limit growth potential of domestic industry and trade

• Enforcement of RFS Requirements o Low blend-rates & enforcement

• Border Measureso Tariffs - under FTA, Colombian duties on ethanol fall to zero in 2016o Non-tariff barriers to trade

Import restrictions Fuel standards - Colombia’s Ministry of Environment and Sustainable Development and Ministry of Mining

and Energy have promulgated new standards for ethanol

• Exchange Rates

U.S. Ethanol Exports To Colombia: 2010 – 2015

Quarterly Volumes

1st 2nd 3rd 4th Yr. Total0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2010 2011 2012 2013 2014 2015Source: USDA/FAS

Barrels

Colombian Ethanol Market Perspectives

• Inconsistent, uncertain blending requirementsoBlend mandate of 10% announced October 2013 to stimulate domestic productionoResult: increased imports and rollback of mandate to 8% in January 2014oActual blend-rate likely less than 6%oMME removed blend mandate April 2015 due to lack of domestic supply

• Colombia has an ethanol production shortfallo Even with new distillery, domestic production might support an 8% blend-rate (510 mL)o Ethanol production shortfall in 2016 could be 100 million litersoProtectionist policies – administered prices and import restrictions - undermining RFS

• WTO notification of proposed standards for ethanol qualityoWhen will the final regulations be implemented?oDoes this annul the 2014 restrictions on ethanol imports?

Value Of Octane• Gasoline grades based on octane or ability to reduce engine knocking

o Higher octane - less engine knocko U.S. typically offers 87 octane regular, 89 octane mid-grade, 93 octane premium

• Differing octane measurementso U.S. --- [Research Octane Number (RON) + Motor Octane Number (MON)] / 2o Many countries utilize an octane measurement based on RONo RON is 4-6 octane points higher than [RON + MON] /2

e.g. U.S. 87 octane gasoline comparable to European 91 octane gasoline

• Globally, ethanol remains a competitive source of gasoline octaneo Denatured ethanol has an octane value of about 110o Compare per unit cost of ethanol octane to per unit cost of conventional gasoline octane (E-0)

• With adequate ethanol availability, gasoline blend-stock can have a lower octane value (i.e. 84 octane regular blend-stock)o Reduces gasoline blend-stock costo Reduces the requirement for other toxic octane boosters – Benzene, Tuolene, Xylene, etc.

U.S. Grain Production Increasing

With Little Change in Acreage

2003 2005 2007 2009 2011 20130

50100150200250300350400450500

Harvested AcresProduction (metric tons)

Source: USDA/NASS7 Major Grains: Wheat, Rice, Rye, Corn, Barley, Oats, Sorghum

Million

Global Grain Stocks Rising

2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/150.00

75.00150.00225.00300.00375.00450.00525.00600.00675.00

U.S. World

Source: December, WASDE multiple years, 2012/13-2014/15 – March, 2015 WASDE

Grains: Wheat, Milled Rice, Corn, Sorghum, Barley, Oats, Rye, Millet, Mixed Grains

MMT