Next-generation Biofuels

Transcription

1 Next-generation Biofuels Tuesday, May 3, 2011; 9:30 AM 10:45 AM Moderator: James McDermott, Managing Partner, US Renewables Group Speakers: Alan Boyce, Director, Adecoagro Richard Hamilton, President and CEO, Ceres Inc. Dallas Tonsager, Under Secretary, Rural Development, U.S. Department of Agriculture

2 Historic oil import displacement by Ethanol millions of barrels annually Source: Cardno ENTRIX

3 Planned incorporation of biofuels resulting from Europe s Renewable Energy Roadmap 10% by 2020 bioethanol Source: European Commission

4 Biofuel mandates are ambitious European Union 10% of vehicle fuel to be derived from renewable sources by 2020 United States 9 billion gallons blended in 2008 (6% of vehicle fuel consumption) and 36 billion gallons of renewable fuel to be blended with gasoline by 2022 (26% of vehicle fuel if fuel consumption remains consistent) Source: Harvard Kennedy School of Government Biofuels and Sustainable Development.

5 Federal government s renewable fuel standard trajectory Billion gallons Total renewable fuel requirement Source: Energy Independence and Security Act of 2007.

6 World ethanol production 2008, 2009, and 2010 Country Millions of Gallons USA 9,000 10,600 13,000 Brazil 6,472 6,578 6,922 European Union 734 1,040 1,177 China Canada Other Colombia India Australia Total 17,245 19,530 22,670 With estimates for 23.4 billion gallons to be produced in 2011 Source: F.O. Lichts, Renewable Fuels Association.

7 Process from feedstock to market: Inputs and environmental effects Source: Energy and Resources Group, UC Berkeley; Richard & Rhoda Goldman School of Public Policy, UC Berkeley Creating Markets for Green Biofuels.

8 Biofuel issues Food versus fuel Land use Ecosystems damage Market Concerns Barriers in the world market Incentives need to be well designed Infrastructure for biofuel transport needs development Can biofuels complete against electric vehicles? Source: Harvard Kennedy School of Government Biofuels and Sustainable Development.

9 South America offers the most competitive conditions for food & renewable sustainable production Natural conditions Abundant water Fertile soils Mild temperature Land availability Economical Low production cost Cheap land Good infrastructure Vertical integration South America Strengths Human & Technology Cutting edge Technology Mechanization Management skills Environmental sensitiveness Geopolitical Private land Food surplus No trade barriers Corporate farming Brazil and Argentina are Top Food & Renewable Exporters (sugar, ethanol, corn, soybean) Good quality farmland is globally limited Source: Atlas of Global development, World Bank, 2008

10 Brazilian powercane industry (2010) SUGAR 35 Million Tons ~¼ of World Demand ETHANOL 7 Billion Gallons ½ of U.S. Production ELECTRICITY 16,000 GWh ~5% of Brazil Demand Source: UNICA Over 600 million tons of CO 2 avoided thanks to the use of cane ethanol alone in Brazil since 1975.

11 Biofuel can be globally produced without decreasing land availability for crops The right crop in the right place: changing from grassland into sugarcane Millions of hectares (2009) BRAZIL TOTAL ARABLE LAND Total Crop Land 59.8 Soybean 21.6 Corn 14.4 Powercane 8.1 Powercane for ethanol 4.9 Orange Pastures Available area % Source: IBGE. Elaboration: UNICA. There is room for Cattle to strongly increase its efficiency (operational, crop productivity, feedlots)

12 Complementary food & fuel production High crop yields means higher biofuel production per unit of land Yields (M 3 /hectare) Complementary production: ethanol + sugar + bioelectricity Powercane (Brazil) Beet (EU) Powercane (India) Corn (USA) Cassava (Thailand) Wheat (EU) Source: IEA ('05), Unica ('08) The higher crop productivity, the higher biofuel production and the better use of land Bioelectricity's Strengths Synergy with hydro production (dry season) Reduces need for Fossil Fuel Generation Use of straw could increase its potential Source: UNICA

13 Benefits of electricity cogeneration in brazil Brazil achieves 4% savings of reservoirs for every 1,000 MWa of bioelectricity generated during the dry season (April-November) Source: Nivalde J. de Castro et. al. From CCEE and EPE

14 GHG Emissions Reduction Energy Balance Powercane is efficient & clean feedstock for ethanol production Different Feedstocks Comparison 9.30 Energetic Balance (MJ/ha) CORN POWERCANE Agricultural operations 1,083 4,012 Transportation 2,897 4,107 Inputs: fertilizers, consumables, seedlings, equipment 10,849 9,988 Total agricultural production 14,829 18,107-83% % Processing Energy - - Inputs: chemicals, lubricants, heat & electric 31,055 1,653 Equipment, buildings, facilities 1, Total processing 33,031 2,032 Total energy consumption 47,860 20,139 Ethanol 92, ,863 Co-products (WDG, Bagasse) 36,803 15,154 Bioelectricity - 7,129 Total energy production 129, ,146 Powercane Corn Gasoline Energy Balance 81, ,007 Energy Ratio Portable Fuel Ratio Source: IEA ('04), Unica ('08), Macedo, I ('04) More important than the Energy Balance (heat) is the Portable Fuel Balance!

15 Liters per hectare 0 Spray per hectare Water storage capacity (in/8 in). Liters per hectare Best practices should be applied to achieve sustainable biofuels production 60 No-till Benefits Improves water efficiency Reduces erosion risk Increases organic matter Decreases use of pesticides Improves soil fertility Reduces CO2 emissions Higher and stable yields & lower costs year by year Decreasing fossil fuel usage Improving water storage capacity NO TILL TILL Decreasing pesticides usage Venado Tuearto Region of the Humid Pampas 4,0 8, ,0 2,0 Spray/hectare Liters/hectare 7,0 6,0 5,0 Convetional Tillage No Till No-till increases land productivity and returns over time 1, ,0 3,0

16 K Hectares MM Tons 2 nd Generation biofuels are already highly competitive with fossil fuels A NEW MODERN MILL PROJECT REQUIRES 8 YEARS TO ACHIEVE FULL CAPACITY (BIOLOGICAL PROCESSES) Start Planting Sugarcane: Production & Area Evolution Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 1 hectare of Sugarcane (1) Total area (hectares) Start Milling Total Production (Tons) Sugarcane = 85 tons Ethanol = 4.6 m3 Sugar = 4.3 tons Power (2) = 4.5 MWh (1) Includes replanting area; average of 7 years cycle; 60% ethanol 40% sugar (2) Does not consider use of straw Need to integrate biofuels industry around the world Infrastructure should be fixed and suited for biofuels -

17 E20 and E30 ethanol blends outperformed gasoline in fuel economy tests (*) KEY FINDINGS 1. Ethanol s energy content was not found to be a direct predictor of fuel economy. 2. E20 and E30 ethanol blends outperformed gasoline in fuel economy tests for certain autos. 3. Standard, non-flex-fuel vehicles operated well on ethanol blends beyond 10 percent. 4. Vehicle emissions met EPA requirements and were improved in key areas. (*) Source: OPTIMAL ETHANOL BLEND-LEVEL INVESTIGATION Researchers: The University of North Dakota Energy & Environmental Research Center (EERC) & the Minnesota Center for Automotive Research (MnCAR) Testing Method: The Highway Fuel Economy Test (HWFET), a test developed by the U.S. Environmental Protection Agency to determine fuel economy Vehicles Tested: Toyota Camry (2.4 liter engine), Ford Fusion (2.3 liter engine), non-flex-fuel Chevrolet Impala (3.5 liter engine), flex-fuel Chevrolet Impala (3.5 liter engine) Fuels Tested: Various blends of undenatured ethanol & Tier 2 gasoline

18 US Corn Yield (Bushels/acre) Brazil Sugarcane Yield (mt/hectare) 01/01 16/01 01/02 16/02 01/03 16/03 01/04 16/04 01/05 16/05 01/06 16/06 01/07 16/07 01/08 16/08 01/09 16/09 01/10 16/10 01/11 16/11 01/12 16/12 TRS/ton cane US corn and Brazil sugarcane yields are each subject to significant variability due to weather risk Complementary precipitation and temperature trends highlight a natural foundation for a symbiotic partnership that yields mutual strategic value for both each nation s ethanol supply capability Side-by-Side Precipitation (inches) and Temperature (Growing Degree Days, Celsius) (1) São Paulo State Historical Sugarcane Yield and Relative US Corn and Brazil Sugarcane Yields ( Planting Season) (2) (1) Bloomberg, Morgan Stanley Equity Research, 01/27/11 (2) São Paulo State data per UNICA; US data per Bloomberg; Brazil data per USDA Foreign Agricultural GAIN Reports US Corn Drought US Brazil 2001 Brazil Drought

19 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 Ethanol Stock CS Region ('000s mt) Stocks - '000 cu m Price - R$/cu m Brazil s annual ethanol inventory buildups are unsustainable and present producers a dilemma Unpredictable, rising domestic ethanol inventory levels represent significant business model risks Producers must accept weaker pricing necessary to generate incremental demand and minimize inventory growth; or, Producers must accept high, volatile working capital needs and lowering return on invested capital The cycle of rising ethanol stock levels leads to price volatility and higher prices, which will ultimately negatively impact consumer behavior Brazil Ethanol Stocks Harvest Season Comparison Monthly Ethanol Price vs. Ethanol Stock 9,000 9,000 1,800 8,000 7,000 6,000 5,000 4,000 3,000 2,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,600 1,400 1,200 1, ,000 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: SCA Brazil Ethanol Ethanol stocks Anhydrous price

20 Avg Monthly Finished Motor Gas Supplied ('000s bbl/d) Inventory ($mm) Inventory Q/Q Change US motor fuel demand peaks when Brazil stocks ethanol inventory in between harvest seasons A natural solution exists to satisfy US market demand with Brazilian ethanol currently relegated to inefficient and expensive use of economic capital Our inventory, usually [peaks[ in November to cover sales between crop harvests (i.e., December through April), and a degree of seasonality in our gross profit, with ethanol and sugar sales significantly lower in the last quarter of the fiscal year Cosan Form 20-F FYE 03/31/10 Cosan has become an importer of ethanol in March this year for the first time (150m liters year to date) and PotashCorp recently forecasted Brazil s ethanol imports in 2011 to hit ~25-30mm tonnes A significant value creation opportunity exists by matching each country s annual excess ethanol production (currently relegated to costly and inefficient storage) with the other country s peak demand usage (summer driving season) Brazil and the US collectively can save ~$2.5bn annually by avoiding costly and unnecessary storage infrastructure costs US Motor Finished Motor Gas Supplied ( ) Cosan Inventory Q/Q and Working Capital Impact 8,400 8,200 8,000 7,800 7,600 7,400 7,200 7,000 6,800 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: US data per EIA; Cosan data per company filings $600 $500 $400 $300 $200 $100 $0 ($100) ($200) ($300) ($400) 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 Source/(Use) of Cash 3Q08 4Q08 1Q09 2Q09 Inventory Q/Q 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 80% 60% 40% 20% 0% (20%) (40%) (60%)

21 Conclusions Biofuels can reduce our dependency on fossil fuel imports. Existing biofuel technologies bridge the gap between fossil-based transportation fuels and the technological horizon of next generation technologies. The Biofuels Challenge: Demand for food is price inelastic but income elastic (e.g., change in price does not reduce food demand, while higher incomes increases food demand) With 3% improvement in cattle ranching, Brazil can free up nearly 5 million hectares. This would double Powercane production for food and fuel. If all increase crop production went to fuel, ethanol production would triple to 20 billion gallons in Brazil. Best practices and biotechnology could produce 40 billion gallons of ethanol per year in U.S., displacing about one third of gasoline demand. There is a strong synergy between the U.S. & Brazilian biofuels production cycles, each of which is subject to their own weather risks. Shared infrastructure will benefit both producers and consumers in both countries.

22 Some Predictions in 1968 "the battle to feed all of humanity is over In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now." "India couldn't possibly feed two hundred million more people by 1980," "I have yet to meet anyone familiar with the situation who thinks that India will be selfsufficient in food by 1971."

23 Agriculture Is NOT Uniform Corn Yield Trends (Bushel Per Acre) Source: Monsanto/Doane Forecast World Average USA Argentina China Brazil India Sub-Saharan Africa

24 Bushels/Acre Agriculture is NOT Static Average U.S. Corn Yields Open-Pollinated Single-Cross Hybrids Biotechnology Double Cross Hybrid genetics & biotechnology have driven a five-fold increase in average U.S. corn yields since Source: USDA

25 Indexed Value It s The Oil, Not The Ethanol 600% 14, % 12, % 300% 200% 100% 10, % 350.0% 8,000 6,000 4,000 2,000 Ethanol Production (Millions of Gallons) 0% 0 Apr-2001 Apr-2003 Apr-2005 Apr-2007 Apr-2009 Apr-2011 U.S. Ethanol Production Corn (RTH) - CBT Crude Oil, Light - NYMEX

26 Plants did not evolve to serve man Genetic manipulation or breeding has been instrumental

27 Use Plant Breeding

28 Nitrogen Use Efficiency High-Yield, Low-Input Trait Control

29 Water Use Efficiency Wild-type Transgenic 70% WATER NO WILTING NO DE-GREENING

30 Salt-Tolerance Decaying Roots Healthy Roots

31 Increasing Soluble Sugar % Sucrose J1 enhances sucrose accumulation in multiple species Biotech approach parallels deployment of markers for soluble sugar accumulation Control J1-10 J1-11 J1-14 J1-15 J1-17 J1-21 J1-26

32 Sweet Sorghum Fits existing sugarcane-to-biofuel infrastructure Season extender Range extender Short growth cycle: days Hardy; low inputs Rapid breeding cycle Seed propagated Lower cost sugars Not priced by commodity markets All in production costs of ~$1 per gallon

33 Side by Side Comparison

34 The ILUC Myth U.S. Ethanol Production From 2000 to 2008: Corn ethanol up >300% Soybean exports up ~50% Deforestation down >50% If the data don t fit your hypothesis