The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Biofuels Outlook Dr. Matthew C. Roberts

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Stephen Colbert’s Tips on Being an Expert (Wired Magazine, August 2006) Pick a field that can’t be verified Be sure to use lots of abbreviations and acronyms Don’t be afraid to make things up Don’t limit yourself to current knowledge Get an honorary PhD Make a habit of name-dropping

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension The New International Symbol for ‘Gas Station’

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Some Energy Statistics In 2005, the US –consumed 139.9bn gallons of gasoline. (EIA) –produced 3.9bn gallons of ethanol. (RFA) –consumed 43.2bn gallons of diesel. –produced 75m gallons of biodiesel. –imported 65% of all petroleum.

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Some Biofuels Statistics 1 bushel corn=2.7 gallons ethanol 7.5lbs soybean oil = 1 gallon B100 Ethanol has 1.33 energy ratio B100 has a 3.2 energy ratio

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Outline Ethanol –Drivers RFG Refining Capacity High Gasoline Prices Margins MTBE replacement –Dangers WTO Public Opinion Lower Oil Prices Cellulosic Ethanol DGS Marketing –Outlook Biodiesel –Drivers ULSD Diesel Prices Cost of Construction –Dangers Alternative Feedstocks Lack of Standardization –ASTM 675 –ASTM Higher P.E.D. Feedstock Costs –Outlook

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Ethanol Drivers: Gasoline Prices Source: 14 August Closing Prices, NYMEX, CBOT

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Ethanol Drivers: Margins Rules of thumb: –VC(E100) = C NG – DGS –FC = $1/g capacity –Current VC = * *7 – *80 = 1.47 –Total Margin = Price – Transit + Tax Credit – Cost –Assume: 0.10 Transport 0.52 Tax Credit 25% return Price =.7*NYHHU –Total Margin = 1.40 – =32c

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Ethanol Drivers: Policy In the past 5 years, MTBE displacement has been biggest driver. New Energy Bill ends RFG, now has RFS –Mandates total RF usage of 7.5bn g by –RF is ethanol or biodiesel –Cellulosic/Waste derived ethanol counts 2.5x We will exceed 7.5bn g by ’08! State-level RFS matter more MTBE gave a big boost, but it’s a one-time change!

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Ethanol Risks: Public Opinion Pimental, et altera –Claims ethanol net energy < 1.0 –If its that easy to get pubs in his field, I’m switching…see RFA for very interesting rebuttal. –Carried in NY Times Washington Post Et cetera –Prominent Misconception among public Seems to be fading from public view…

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Ethanol Outlook Biggest Dangers: –Lower oil prices –DGS price collapse Degermination Cofiring DGS –Slowing of RFS momentum Expect market to continue expanding… When was the last time a bubble like this ended happily? Markets adjust… –Relatively long lag on construction –If corn prices increase, and fuel prices decline, construction will slow.

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Pulling: Ethanol From Corn Where does the DGS go? –Degerming prior to distillation. Where do we get all of these acres? Where will get all of this N & P? When does cellulosic matter?

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Biodiesel Drivers: Low Sulphur Diesel In 2006, on- and off-road diesel fuel sulphur limits decrease from 500ppm to 15ppm. B2 (2% blend) will provide all necessary lubricity and (maybe) meets ASTM D 975 (i.e. it is diesel) If all diesel went to B2, it would require 780m gallons of biodiesel. –But there will be competing additives

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Biodiesel Drivers: Diesel Costs In IL, B11 is now cheaper than diesel Rule of thumb: each 1% of blend increases price over diesel by 1c.

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Gasoline vs. Diesel Prices DieselGasolineGas-Diesel

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Biodiesel Drivers: Cost of Plant Construction Plants can be relatively small. Cost about $1/gallon of capacity. Full economies of scale at around 10m. Currently have ~395m gallons of capacity. 700m+ gallons of new capacity under construction

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Biodiesel Dangers Lack of standardization –ASTM 6751: Biodiesel ‘Blendstock’ not fuel. Much less stringent than… –ASTM 975: Diesel fuel This is the diesel fuel standard; and it is very, very strict. B2: 2% ASTM % ASTM 975 –It might still meet ASTM 975, –It might not.

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Pulling: Biodiesel SBO has much more competition Unlikely to exceed 2.5-3bn lbs of virgin SBO for a long time. Major substitutes: –Corn Oil (reduces DGS volume.) –White/Yellow Grease Future of relative value of SM vs. SO?

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Biodiesel: Dangers Alternative Feedstocks –Yellow Grease –Rapeseed/Canola –Poultry Fats –Animal Fats –Corn oil Higher Price Elasticity of Demand? Trailback: only rack-blended.

The Ohio State UniversityAgricultural, Environmental and Development Economics Ohio State University Extension Biodiesel Outlook Much better energy balance than ethanol. Smaller, more dispersed plants. Higher feedstock costs as %age of input. Less fuel spec certainty & research than ethanol. Probably 1-3 yrs behind ethanol in consumer acceptance.