Industry Overview and Developments Riverland Community College December 6, 2006 Kasson, MN Ralph Groschen Senior Marketing Specialist Minnesota Department of Agriculture ralph.groschen@state.mn.us www.mda.state.mn.us

The state of Minnesota enjoys the benefits of processing over 20% million of the state’s annual 1.0 billion bushel corn crop. (Corn is the state’s largest agronomic crop) And also over 10% of the state’s nearly 270 million bushel annual soybean crop. There are thousands of farmers who are members of one or more ethanol and/or biodiesel plants making bio-fuels a powerful political issue in state and local politics.

Includes plants under construction as of September 2003

New Projects HAWAII

Production, Producer Payments, and Economic Impacts Minnesota Ethanol: Production, Producer Payments, and Economic Impacts (Fiscal Year: July 1-June 30)

Minnesota’s Ethanol Plants Plant (Start date) Original capacity (millions) 2004 Marshall (1987) 10 40 Morris (1991) 3.5 22 Corn Plus (1994) 15 40 Heartland (1995) 10 37 Al-Corn (1996) 10 34 CVEC (1996) 15 42 MN Energy (1997) 12 18 Ethanol 2000 (1997) 12 30 Pro-Corn (1998) 12 40 Cornerstone (1998) 12 21 CMEC (1999) 20 22 Exol (1999) 13 40 North Star 2005 50 50 Total 210 454 Minnesota’s “Closed Cooperative” ethanol plants have seen such significant additional investment and growth over the years. This suggests that profits enjoyed by producers motivated them to increase their investments, doubling and tripling the size of their plants. Some of these same plants are currently working on additional expansions and/or incorporating new products or technologies that will reduce their use of natural gas.

100% more energy w/ Ethanol Return To Fossil Fuel Energy 100% more energy w/ Ethanol Yields 1.67 Btu of fuel ethanol (USDA) 1 Btu of fossil energy Coal, oil, or gas From an energy efficiency point of view, ethanol yields 1.35 units of energy for every unit of fossil fuel energy invested in the production of corn and the conversion of corn into ethanol. By comparison the energy yield for gasoline is 0.8 units of energy for every unit invested. Therefore, the production of ethanol yields (1.35/0.80 = 1.6) 60% more energy than gasoline for every unit of fossil fuel invested. Ethanol from corn is the most prominent technology today because of the low cost and availability of the crop. Many consider corn a bridge to other forms of biomass like cellulose from crop residue and municipal solid waste. Such technologies are not ready today but promise to dramatically increase the energy yield for ethanol production in the future. Source of information on slide: USDA Agriculture Economic Report Number 814. July, 2002. 0.805 Btu of gasoline

DDGs for 40 million gal. plant energy? Total Process Energy Total Electrical Energy Total Energy Required Total Energy from DDGs 1,440,000,000,000 508,000,000,000 1,948,000,000,000 1,954,000,000,000

Market Development 5 billion gallons used today, mostly in E10. E85 is future possibility for market expansion. (MN is way ahead nationally) May also develop other markets: 1. Aviation Fuel? 2. Diesel Fuel (Sweden) 3. E20 (Gov’s initiative) 4. RFG area O2 caps may be lifted

Where do we go from here? Maintain existing industry through transition “Cellulose” (biomass) to ethanol and other fuels. Minnesota plants are taking the initiative. Pathways 1. Use biomass fuels for process energy. (MN) 2. Enzyme/Fermentation DOE focus. 2. Thermochemical A. Various thermochemical reactions (Pyrolysis- Synthetics) B. Gasification “Syngas” and “biorefinery process” (MN)

70% of today’s gasoline usage? What’s Possible? Year Biomass Yield Tons/acre Acres Planted (millions) Cellulosic Ethanol (billion gals) Corn Total 2012 8.9 5 4.4 12.0 16.5 2017 12.5 19 24.8 14.6 39.4 2027 23.1 49 124.4 139.0 Source - Vinod Khosla 70% of today’s gasoline usage?

Fossil Energy Ratio (FER) = energy in fuel/fossil energy input 10.31 Michael Wang, Center for Transportation Research, Energy Systems Division, Argonne National Laboratory

280% more energy w/ Biodiesel Return To Fossil Fuel Energy 280% more energy w/ Biodiesel Yields 3.2 Btu of Biodiesel (USDA & DOE) 1 Btu of fossil energy Coal, oil, or gas From an energy efficiency point of view, ethanol yields 1.35 units of energy for every unit of fossil fuel energy invested in the production of corn and the conversion of corn into ethanol. By comparison the energy yield for gasoline is 0.8 units of energy for every unit invested. Therefore, the production of ethanol yields (1.35/0.80 = 1.6) 60% more energy than gasoline for every unit of fossil fuel invested. Ethanol from corn is the most prominent technology today because of the low cost and availability of the crop. Many consider corn a bridge to other forms of biomass like cellulose from crop residue and municipal solid waste. Such technologies are not ready today but promise to dramatically increase the energy yield for ethanol production in the future. Source of information on slide: USDA Agriculture Economic Report Number 814. July, 2002. 0.843 Btu of Diesel Fuel

Minnesota Biodiesel 2% required in Minnesota since 9/29/05 3 plants, 63 million gallons production capacity High blends & B100 used in summer by some Filter problems in Winter ‘05 & ’06 blamed on biodiesel Some “off-spec” biodiesel was shipped Everybody used B2, most had no problem Other potential causes of filter problems were not discussed

Diesel Filter Problems Jan. 2006 Cummins Diesel Bulletin Diesel filter life has shortened steadily since Winter of 2004. Major causes of plugging are: “Asphaltine” polymers duel to high fuel temp “Biological organism” growing in fuel “Engine lubricating oil” mixed in fuel Engine design, pipeline additives & used oil. Biodiesel fuel mixed at “high levels” (B20) “Solid Particle contaminants, (Dirt)”

Questions?