The Energy Situation 2006 Mike Woolverton Kansas State University

Light Crude Oil, NYMEX, $ per barrel

U.S. Oil Import Suppliers 1. Canada 2. Mexico 3. Saudi Arabia (OPEC) 4. Venezuela (OPEC) 5. Nigeria (OPEC) 6. Iraq 7. Angola 8. Algeria (OPEC) 9. Russia 10. Ecuador Source: Energy Information Administration

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

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

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

Energy: Non-petroleum Sources WindSolarHydro Hydrogen cells NuclearBio-fuels

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 years 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.

Land Needed to Replace Imported Fuels Corn 224 mil. A. (79.4 mil. A.) Soybeans598 mil. A. (74.9 mil. A.) Total Needed822 mil. A. Total Available349 mil. A. Plus Idle Land387.5 mil. A.

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

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

Net Energy Balance ProductEnergy Out/Energy In Gasoline.81 Ethanol from grain1.35 Ethanol from cellulose4.17 Diesel.91 Bio-diesel3.24 Sources: Argonne National Laboratory and OECD International Energy Agency

ETHANOL

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

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 Distillers Dried Grains income about $25 million CO 2 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.

Ethanol Price, $ per gallon

Distillers 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 5% poultry

Distillers 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 protein30.9 Crude fat10.7 Crude fiber 7.2 Ash 6.0 Lysine.9 Phosphorous.75

Distillers Grain Production and Use ( MMT) Production Domestic Export 05/ / est. 1.6 est. 11/ est est. 8.0 est.

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

Corn/Ethanol Projections, U.S. 06/0707/08 Corn Acres79.4 mil.86.2 mil. Corn Production10.7 bil. Bu.12.0 bil. Bu. Corn Exports2.2 bil. Bu. 2.0 bil. Bu. Corn for Ethanol2.15 bil. Bu.2.85 bil. Bu. Ethanol Production5.1 bil. Gal.7.7 bil. Gal. DDG Production10.5 MMT14.3 MMT (Thirty to 40 percent will replace corn in rations. Sixty to 70% will replace soybean meal.)

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

BIO-DIESEL

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

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

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

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

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

Vegetable Oil Yields Corn18 gal./A. Soybeans66 Sunflowers102 Rapeseed127 Castor Beans151 Oil Palm635

World Production of Fats and Oils, 2003/04, MMT Vegetable Tropical Soy30.1Palm28.7 Rape14.1Palm Kernel 3.5 Sun 9.3Coconut 3.3 Peanut 5.0 Cotton 3.8 Olive 2.8 Source: USDA, Agricultural Statistics, 2005.

Soybean/Bio-diesel Projections, U.S. 06/07 07/08 Soybean Acres Soybean Production3.2 bil. bu. 2.8 bil. bu. Soybean Exports1.1 bil bu. 900 mil. bu. Soybean Oil for BD2.35 bil lbs bil. lbs. Bio-diesel Production400 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

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.

Alternative Technologies Cellulosic Ethanol Bio-diesel from Algae Oil

NITROGEN FERTILIZER ECONOMICS

Farm Price of NH3 Pre-Katrina$ per ton Post-Katrina$500+ per ton

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

Natural Gas Price, $ per thousand cubic feet

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

Anhydrous and Diesel Price Forecasts At the same website find a paper by Dhuyvetter and Kastens on the impacts of rising fertilizer and fuel prices