58. Starch Convention The impact of the growing bio-energy market on the availability of starch substrates

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1 58. Starch Convention The impact of the growing bio-energy market on the availability of starch substrates Detmold (Germany) April, 25 th, 2007 Andreas Feige, meó Consulting Team 1

2 Burning rainforest, tortilla crisis and raw material markets on roller coaster course - bio-energy as root cause? Corn Source: WWF; Greenpeace, Regenwald Report, god mode trader 2

3 Latest trend research evaluates the annual growth rate for starch crops with 2,4% annually until business as usual? Global starch crop demand Trend research findings: Actual trend research expects starch crop markets to grow by 2,4% p.a. from mill. tons in 2005 up to mill. tons in 2015 Growth is said to be due to: - Rising world income (meat products, starch as raw material for producing sweeteners, fermentation products etc.) - Bio-ethanol programs in North America, Europe and Asia Overall growth rates seem not to be worrying Source: BBC Research, December

4 Analysis of specific regions and crops reveal a slightly different picture: US corn for ethanol now over 20% (>20% p.a. last 5 years) b) Corn price a) Price increase (a) due to Increasing US ethanol demand Severe crop failure in Australia Price decrease (b) due to Announcement that additional 15% of land will be released for corn Sources: USDA, OnVista, CNN 4

5 Current price level are well known and depend highly on supply and demand relations $ct/bu Average corn prices (US yellow) Corn prices 1996 Increasing demand in SE Asia Crop failures in USA, Russia Australia and Europe $ct/bu Corn price development $ct/bu Corn prices 2004 Corn prices decreased from 340 $ct/bu to 197 $ct/bu due to a record harvest of 300 mill. t in

6 but the US President is asking for more: replace 30 percent of current levels of gasoline consumption with bio-fuels by 2030 US President s bio-fuels mandate US fuel consumption estimates The Office of Energy Efficiency and Renewable Energy's Office of the Biomass Program has implemented the Bio-fuels Initiative (BFI), with the goal of reducing U.S. dependence on foreign oil by meeting the following targets: - To replace 30 percent of current levels of gasoline consumption with bio-fuels by 2030 (and 20% by 2017) - To make cellulosic ethanol (or ethanol from non-grain biomass resources) cost competitive with gasoline by Mill. m³ % 3,8% Ethanol consumption Petrol consumption Sources: Action Plan for Energy Efficiency, 2006; nzherald 2007, BP stat. review

7 Given no significant crop failures in 2007 the corn price could come back to 2005 levels due to a 15% increase in land dedicated to corn Mill. t US corn production Corn other use Corn ethanol use * * * * estimates The 2007 corn volume available for other use is above 2005 volume. Therefore the price may even decrease to 2005 level. Prerequisite for reaching 2005 level is the absence of major crop failures globally Source: USDA, ERS,CNN, F.O. Licht, meó Consulting Team 7

8 but to achieve the 2017 target of 20% would require 50 mill. acre of additional land for corn, requiring an annual land growth rate of 3,2% US corn production Assumptions Fuel consumption in the US stagnates on 2006 level Corn for other use remains on 2006 level Corn yields stay constant Mill. t Corn other use Corn ethanol use * * * estimates Impact of 30 x 30 50% of total corn production is used for ethanol Increase in corn production required in the order of more than 55%, which requires 50 mill. acre of additional land, representing an annual growth rate of 3,2% Source: USDA, Toepfer Int., BP stat. review 2006, meó Consulting Team 8

9 Without a consistent program ( food and fuel ) US corn prices will increase tremendously with high impact for starch producers Impact on starch by 30 x 30 The 30x30 program will cause a tremendous price increase for corn (even if cellulosic ethanol technology is commercially ready by 2012, the market share in 2017 will be marginal compared to first generation bio fuels) As in the US starch is mainly derived from corn, price increases will affect starch producers directly Even if US starch demand could be derived from other sources the corn/ethanol demand will increase land competition and decrease the attractivity of other crops Consistent overall program needed Alternative options (import, other crops etc.) have to be considered 9

10 The EU Renewable Energy Roadmap is asking for 20% renewable energy by 2020 and for 10% bio-fuels in particular EU binding targets for 2020 Share of renewable energy in total energy consumption: 20% Only the fuels sector has its own sector-specific target Binding target for bio-fuels in the transport sector: 10% Supporting the market penetration of renewables in the EU energy market An agreement about the national burden-sharing is required Energy consumption EU : 1747 Mtoe 24% 6% 15% Nuclear energy 18% Coal Oil Gas 37% Renewables and waste Sources: Eurostat 2006; EU Renewable Energy Roadmap 10

11 Renewable energy in EU-25 is app. 6 % in 2004, of which the majority (72 Mtoe) is derived from biomass 2000 Renewable energy production Mtoe % Biomass and waste Hydro Geothermal Wind Solar 109 Mtoe renewable energy 72 Mtoe biomass

12 With a target of 20% for EU-25, 349 Mtoe of renewable energy are required within a realistic energy production scenario Mtoe Three scenarios for primary energy production in Primary production % 20% Baseline scenario 2020* Energy Level 2004 reduction in 2020 by 1% p.a Fossile 2004 Energy 2020 RenewableEnergy Three energy scenarios Baseline scenario EU assumes increase in energy consumption Energy intelligent scenario assumes reduction of energy consumption by 1% annually Realistic scenario: energy consumption 2020 is equivalent to 2004 level EU 20% target requires 349 Mtoe of renewable energy by 2020 in a realistic scenario Sources: WWF position paper, EU (2003) European energy and transport trends to 2030, meó Consulting Team 12

13 The biomass demand in 2020 represents more than 60% of the renewable energy which is in line with EU estimates Total renewable energy 2020 EU biomass potential % Mtoe Hydro, wind, solar, other 2020 Biomass Sources: WWF position paper, Eurostat (2003) projections for 2010, 2020, 2030 from European Environmental Agency, meó Consulting Team 13

14 The biomass related renewable energy coming from starch containing crops is less than 27% Renewable energy from biomass 2020 Mtoe * 27,2% * 1. Generation Biogas Biofuels Wood, residues Bio-fuels Assuming that 2020 fuel consumption in EU- 25 is on 2004 level (345 mill. m³), the energy equivalent is PJ or app. 290 Mtoe, i.e. the EU target of 10% yields 29 Mtoe for bio-fuels This represents an annual growth of 36% (2004 to 2005: 66% from 0,21 to 0,34 Mtoe) Bio-gas The primary energy production of agricultural based bio-gas was 0,54 Mtoe in 2004 and 0,86 Mtoe in Due to the high potential for energy and fuel bio-gas use is projected with 30 Mtoe, representing a maximum annual growth rate of 29% (2004 to 2005: 58%) Wood, residues Wood and residues are calculated to be 90% of the technical potential in the EU in 2020 Sources: EBB 2006, EBIO, UEPA, sustainable strategies for biomass use in the European context, IE Leipzig 2006, meó Consulting Team 14

15 Additional land for starch containing crops in the order of 18 mill. ha is required to meet the bio-gas and bio-ethanol demand in 2020 Bio-fuels 29 Mtoe Bio-gas 30 Mtoe Bio-fuels In a bio-diesel restricted scenario (land availability and technology) the fuel consumption is projected with 18 mill. m3 bio-diesel and 28 mill. m³ bio-ethanol. This represents an energetic share of 8,5% for bio-diesel and 12,2 % for bio-ethanol. More than 90% of the bio-fuel will come from first generation bio-fuels, as a significant amount of second generation bio-fuels will not be in the market before 2015; i.e. fuels will be derived from rape blends (biodiesel) or starch containing plants (bio-ethanol), mostly wheat or rye The production of 28 mill. m³ bio-ethanol from wheat/rye requires land in Europe in the order of 11 mill. ha, which is app. 20% of the land cultivated for grain production in Europe Bio-gas Most of bio-gas growth will come from energy crops (2004: only one third of the total bio-gas energy produced). Synthetic Natural Gas (SNG) technology based on cellulosic material is not commercially ready yet Assuming that 70% of the bio-gas in 2020 is made from grain/corn silage, this will require land in the order of 7 mill. ha 15

16 Although additional 18 mill. ha for energy crops represents 35% of today s land, an annual land growth rate of 2,2% should be manageable Grain dedicated land in EU-25 Total land for grain production in the EU 2006 was 51,2 mill. ha (< 2mill ha. required for EU grain based starch production) Additional 18 mill. ha for energy/fuel crops would ask for nearly 70 mill. ha in 2020, which represents an annual growth rate for arable land of 2,2% The technical potential of agricultural areas in the EU is between 30 and 60 mill. ha (Top 5: E, F, D, PL, HU) Additional 18 mill. ha for energy/fuel crops could severely increase land competition and raw material prices If managed carefully, an annual land growth rate von 2,2% could be achieved without market turbulences Sources: Eurostat 2006, Transgen 2007, FAOstat, EU 2006, NEPG, BPC, IE Leipzig

17 The rising demand for starch containing crops will be a driving force for increasing area competition and raw material prices Implications for starch Examples from US and EU point out that a significant amount of additional land is needed for the production of starch containing energy/fuel crops (EU: 18 mill. ha, US: 20 mill. ha) Above figures indicate maximum values as beyond 2015 the 2 nd generation biofuel/sng bio-gas technology using wood and residues should be available from large scale operations and substitute 1 st generation technologies (using starch containing crops) The technical potential of EU agricultural areas (generated by yield increase, fallow land conversion, surplus reduction, redesignation of arable land etc.) is sufficient to meet the entire demand for starch containing crops (i.e. 18 mill. ha demand versus mill. ha potential) Nevertheless increasing demand for starch substrates will be a driving force for rising prices during the next ten years. Due to increasing area competition this will also affect starch substrates with high hectare yields like potatoes 17

18 In order to reduce supply/demand imbalances a better coordination of the agricultural, technological and political framework is required Need for action There are numerous possibilities in meeting bio-energy targets by using biomass. The biomass options cover wood, residuals as well as energy crops from oil seeds to starch containing plants. Conversion technologies are manifold and at different maturity states, some of them have not left the laboratory state yet, some will never do EU targets as well as national regulation and subsidies have been established without a profound understanding of implications and interdependencies and are subject to frequent changes Coordination of the agricultural, technological and political framework in order to harmonise bio-energy targets with suitable technologies and energy crops and develop actions for the utilisation of additional land: i.e. agree on a bio-energy master plan and closely monitor supply/demand imbalances 18