Is the Biofuels Tank Half-Full or Half- Empty? National Farm Business Management Conference June 15, 2009 St Louis, MO Ron Plain, Ph.D. D. Howard Doane Professor Dept of Agricultural Economics University of Missouri-Columbia http://web.missouri.edu/~rplain
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Is the Biofuels Tank Half-Full or Half-Empty? National Farm Business Management Conference June 15, 2009St Louis, MO Ron Plain, Ph.D. D. Howard Doane Professor.
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Is the Biofuels Tank Half-Full or Half-Empty?
National Farm Business Management ConferenceJune 15, 2009 St Louis, MO
Ron Plain, Ph.D.D. Howard Doane ProfessorDept of Agricultural EconomicsUniversity of Missouri-Columbiahttp://web.missouri.edu/~rplain
Basics of Ethanol Production
Ethanol is an alcohol made by fermenting grain and other carbohydrates
This is an old process which traditionally has been used to produce ethanol for use as a beverage
97% of U.S. ethanol is made from corn Rest: milo, wheat, brewery waste, whey, etc
A bushel of corn will produce ~2.8 gallons of ethanol, 17 lbs of CO2 and 17 lbs of DDGS
water
Laddonia Ethanol Plant
Ethanol Plants Were Very Profitable
In 2006, U.S. plants produced ethanol for about $1.34 per gallon. The average price of ethanol was about $2.58 per gallon.
Ethanol Capacity Growth
0
2
4
6
8
10
12
14
16
1999 2001 2003 2005 2007 2009
bil
lio
n g
all
on
s
Jan. 1 capacity Under construction
Source: Renewable Fuel Association website http://www.ethanolrfa.org/industry/statistics/#B
Formulation of Alcohols
H
O
H-C-H
H
Methanol
CH3OH
62,800 BTU
H
O
H-C-H
H-C-H
H
Ethanol
C2H5OH
84,400 BTU
H
O
H-C-H
H-C-H
H-C-H
H
Propanol
C3H7OH
100,000 BTU
H
O
H-C-H
H-C-H
H-C-H
H-C-H
H
Butanol
C4H9OH
110,000 BTUGasoline is mostly C8H18
Gasoline has 125,000 BTU/gallon
Biofuels Policy
Spot Crude Oil Prices 1995-2009WTI, Monthly Average Price, Cushing, Oklahoma
0
20
40
60
80
100
120
140
1601995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
$/barr
el
Source: U.S. Energy Information Administration
U.S. Retail Gasoline Prices, All Grades, All Formulations, 1996-2009
0
50
100
150
200
250
300
350
400
4501996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
cents
/gallon
Source: U.S. Energy Information Administration
Energy Sources
Ethanol Production, 1980-08
0.01.02.03.04.05.06.07.08.09.0
10.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Billio
n Gall
ons
Source: Renewable Fuels Association
2007 Renewable Fuels Mandate
05
10152025303540
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Billion G
allons
Corn ethanol Cellulosic Bio-diesel More non-grain
Daily Ethanol Production, 2006-09
250
350
450
550
650
750Ja
n
Feb
Mar Apr
May Jun
Jul
Aug
Sep
Oct
Nov Dec
1000
bar
rels
/day
2006 2007 2008 2009
2009 mandated use: avg 685,000 barrels/day
Ethanol Production, 1990-2016
02468
101214161820
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Billion G
allons
mandated use
actual production
Beginning in 2015, the U.S. will annually use more corn to make ethanol than the U.S. produced in any year before 1971
Source: U.S. Energy Information Administration
1.50
2.00
2.50
3.00
3.50
4.00
4.50$ Per Gallon
Weekly U.S. Gasoline Prices, 2007-09
Ethanol-Gasoline Price Relationship
0.00.51.01.52.02.53.03.54.04.5
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0
Retail Gasoline $/ gal
Eth
anol $/g
al
Source: Ron Plain
Livestock Marketing Information Center
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00$ Per Gallon
Weekly Iowa Ethanol Prices, 2007-09
Source: U.S. Energy Information Administration
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Gas
olin
e
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
Eth
ano
l
Gasoline
Ethanol
Weekly Gasoline & Ethanol Prices, Dollars Per Gallon, 2007-09
In 2002, the farm value of U.S. consumer food expenditures was 18.7%. Corn made up 11.3% of that farm value. Thus, corn, directly and mostly indirectly, accounted for 2.1% of consumer food expenditures.
Impact on Food Prices
Since corn only accounted for 2.1% of consumer food expenditures, doubling corn prices should raise the cost of food by 2.1%; tripling the price of corn should raise the cost of food by 4.2%.
Over time, the price of a commodity will equal the cost of production
U.S. Average Corn Price, 1908-2008
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
1908
1912
1916
1920
1924
1928
1932
1936
1940
1944
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
$ Per Bushel
Source: USDA/NASS
U.S. Average Corn Price, 1908-2008
0.00
0.50
1.00
1.50
2.002.50
3.00
3.50
4.00
4.50
5.00
1908
1912
1916
1920
1924
1928
1932
1936
1940
1944
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
$ Per Bushel
Source: USDA/NASS
1908-1942
35 years
Avg $0.78
1942-1972
30 years
Avg $1.26
1973-200634 years Avg $2.37
U.S. Average Corn Price, 1908-2008
0.000.501.001.502.002.503.003.504.004.505.00
1908
1912
1916
1920
1924
1928
1932
1936
1940
1944
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
$ Per Bushel
1908-1942
35 years
Avg $0.78
1942-1972
30 years
Avg $1.26
1973-2006
34 years
Avg $2.37
The 1940s step raised corn price 62%; the 70s step 88%. A 75% step will take corn to $4.15/bu
What’s the next level?
U.S. Average Corn & Broiler Price, 1960-1985
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
Co
rn $
20
30
40
50
60
70
80
90
Bro
iler
$
Corn Broilers
Source: USDA/NASS
U.S. Average Corn & Pork Price, 1960-1985
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
Co
rn $
0
20
40
60
80
100
120
140
160
180
200
Po
rk $
Corn Pork
Source: USDA/NASS
U.S. Average Corn & Beef Price, 1960-1985
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
Co
rn $
0
0.5
1
1.5
2
2.5
3
Be
ef
$
Corn Beef
Source: USDA/NASS
U.S. Average Corn & Milk Price, 1960-1985
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
Co
rn $
0
2
4
6
8
10
12
14
16
Milk
$
Corn Milk
Source: USDA/NASS
Meat Consumption
U.S. Per Capita Meat ConsumptionRetail Weight, 1960-2008
150
160
170
180
190
200
210
220
230
24060 65 70 75 80 85 90 95 00 05
Pounds
In 2007, the average American consumed 60 pounds (34%) more meat than in 1960
Cellulosic ethanol is ethanol made from cellulose. It is the same as grain ethanol: C2H5OH. The only difference is the source material.
The interest in cellulosic ethanol comes from the huge supply of low-value source material: Wood – trees, limbs, paper, cardboard Grass - switchgrass, corn stalks, straw, fescue Distillers Grains
Cellulosic Ethanol
Producing ethanol from cellulose is something we’ve known how to do for over 100 years
Doing it in a cost-competitive manner is something we have yet to learn
However, there are many people seeking research grants who claim to be close to solving the cost problem
Cellulosic Ethanol
Challenges of cellulosic ethanol Feedstock Purity and consistency Production process By products
Feedstock for Cellulosic Ethanol
Cost competitive cellulosic ethanol plants are not likely to be small or operate part time
Other than wood, most feedstock is bulky, i.e. costly to haul and store
Harvesting is not cheap Opportunity cost, i.e. impact on soil
Nutrients Ground cover
Cellulosic Ethanol
Challenges of cellulosic ethanol Feedstock Purity and consistency Production process By products
Purity and Consistency of Feedstock
The feedstock for a cellulosic ethanol plant will not be pure cellulose collect and move a lot of non-cellulose? corn is consistently ~70% starch
Cellulosic ethanol plant not likely to work well on all potential feedstocks Is there any plentiful, uniform, year-round source
material other than wood (and distillers grain)?
Cellulosic Ethanol
Challenges of cellulosic ethanol Feedstock Purity and consistency Production process By products
Cellulosic Ethanol Production
Two production methods
Hydrolysis – breaks the cellulose chain into sugar molecules that are then fermented to produce ethanol, then distilled
Gasification – ligno-cellulose is transformed into carbon monoxide and hydrogen which are then fed to a special fermenter or a catalyst bed to produce ethanol
Cellulosic Ethanol Production
Two types hydrolysis processes Chemical Enzymatic
Cellulosic Ethanol Production
Chemical hydrolysis – Cellulose is mixed with a mild acid under a lot of
heat and pressure, or a strong acid with less heat and pressure.
Water is then added to form simple sugars. The acid is then neutralized. Sugar is separated from the residual materials. Yeast is added to ferment ethanol which is then
distilled. Acid + heat + pressure = $
Cellulosic Ethanol Production
Enzymatic hydrolysis – Following a pre-treatment process, various
enzymes are used sequentially to break cellulose into glucose molecules, a la rumen bacteria.
The sugar is separated. Yeast is added to ferment ethanol which is then
distilled. Availability and cost of the enzymes are the
primary obstacles to enzymatic hydrolysis
Cellulosic Ethanol Production
Gasification – The cellulose is partially combusted to yield
carbon monoxide, carbon dioxide and hydrogen. The microorganism, Clostridium ljungdahlii,
converts the CO, CO2 and H into ethanol and water.
The ethanol is distilled from the water. An alternative is to use a catalytic reactor to
convert the synthesis gas into alcohol.
Cellulosic Ethanol
Challenges of cellulosic ethanol Feedstock Purity and consistency Production process Byproduct
Byproduct
Corn ethanol plants produce a byproduct, DDGS, that is as valuable as the feedstock
For what price will we be able to sell the byproduct from cellulosic ethanol plants?
Biodiesel
Biodiesel Production
Typically, a fat or oil is reacted with alcohol that contains a catalyst (usually sodium or potassium hydroxide) to produce glycerine and methyl esters or biodiesel.
Biodiesel Production
Methanol + Catalyst
Biodiesel
Reactor
Glycerine
Vegetable Oil
SettlerWashing Neutralization
Purification
Alcohol recovery
Alcohol recovery
Settler Evaporation
Fatty acids
Soydiesel
Although soybean oil is a liquid, you should not blend it with diesel fuel.
The glycerine in soy oil will ruin a diesel engine.
Soy oil must be transesterified before blending with diesel fuel.
Economics of Soydiesel
Soy oil is worth 36¢ per pound Diesel is worth 22¢ per pound Cost of conversion is 8¢ per pound There is a federal government subsidy of
13¢ for each pound of soy oil converted to diesel fuel
Soybean Oil Futures
Biodiesel
The U.S. produces about 3 billion bushels of soybeans per year.
At 11.3 pounds of oil per bushel, this is potentially 33.9 billion pounds of soy oil
At 7.4 pounds per gallon, this is 4.6 billion gallons of soy oil
Feedstock Costs per Gallon of Biofuel Reduced by Federal Tax Credit
Corn priceCost/gallon of ethanol*
$4.00/bu. $1.44
$5.00/bu. $1.80
$6.00/bu. $2.16
Veg. oil price
Cost/gallon of biodiesel**
$0.40/lb. $3.00
$0.50/lb. $3.75
$0.60/lb. $4.50
*Assumes 2.77 gal./bu. of corn **Assumes 7.5 lbs. veg. oil/gallon
Biofuel Conversion Factors, 2012
Crop yield per acre
Vegetable oil yield
Biofuel yield per unit
Biofuel yield per acre
Ethanol from corn 158.6 bu. 2.77 gal/bu 439 gal/ac
Ethanol from sugarbeets 23 tons 24 gal/ton 552 gal/ac