Special Committee on Energy & Environmental Policy Kansas Legislature August 20, 2008 Status of the Kansas Ethanol Industry Production, Transportation.

Special Committee on Energy & Environmental PolicyKansas LegislatureAugust 20, 2008

Status of the Kansas Ethanol IndustryProduction, Transportation & Profits

Daniel O’Brien, Ph.D.

Extension Agricultural Economist

K-State Research and Extension

Kansas Ethanol Production (2005-2008*)

7 8

11 11172

212

332

428

0

4

8

12

16

20

24

28

2005 2006 2007 2008*

Year

Nu

mb

er o

f P

lan

ts

0

100

200

300

400

500

600

Mln

. G

al.

Cap

acit

y

No. Ethanol Plants Total Ethanol Plant Capacity (100% Use)

The Kansas Ethanol IndustryPlants In-Production as of August 1, 2008

Arkalon Energy Hayne/Liberal (SW) 110 MGY

Bonanza Bioenergy, LLC Garden City (SW) 55 MGY

Reeve Agri-Energy Garden City (SW) 15 MGY

Western Plains Agri Energy, LLC Campus/Oakley (WC) 48 MGY

ESE Alcohol, Inc. Leoti (WC) 2 MGY

Prairie Horizon Agri-Energy Phillipsburg (NW) 40 MGY

White Energy Russell (Central) 52 MGY

Kansas Ethanol Lyons (SC) 55 MGY

MGP Atchison (NE) *6 MGY

NESIKA Energy, LLC Atchison (NE) *10 MGY

East Kansas Agri-Energy Garnett (EC) 35 MGY

State Total 11 Plants 428 MGY

The Kansas Ethanol Industry (more)Plants Off-Line or Under Construction as of 8/1/08

Abengoa (off-line) Colwich (SC) 25 MGY

Gateway Ethanol (off-line) Pratt (SC) 55 MGY

Goodland Energy Center (Start pending) Goodland (NW) 20 MGY

State Total 3 Plants 100 MGY

Other Ethanol Plants Under Consideration:• Abengoa, Hugoton (115 MGY: 85 MGY Grain-based + 30 MGY Cellulosic)

• Everton Energy, Concordia (100 MGY) ????

• Others ????

U.S. Ethanol IndustryComparing Years 2006 & 2008

2006 2008

Number of operating ethanol plants: 97 163 Plants under construction or expanding: 35 47 Announced plants: 300 (17%) ??? Current production capacity: (BGPY) 4.8 9.5 Projected production capacity: 12.4 BGPY end of 2008

13.6 BGPY end of 2009 Corn Used for Ethanol Production & % of U.S. Crop:

Bu. (mln.) % of U.S. Crop 2006/07 – 2,100 20% 2007/08 – 3,000 23% 2008/09 – 4,100 33%

Kansas Feedgrain Supply-Use

Grain ethanol production at current plant capacity would use 153 million bushels of feedgrains / year 27% of 2005-2007 avg. corn production (566 mln. bu.)

Livestock feeding estimates averaged 158 million bushels / year over 2005-2007 period

Kansas Imports of Supplemental Feedgrains Predominant inter-state sources: Iowa & Nebraska Projected feedgrain deficits in Nebraska & Iowa in the

near future due to in-state ethanol development

Max. Potential DDG Feed Use & Supply (2005-2008*)

4,674 4,845 4,978 4,978

2,6012,029

1,3371,085

0

2,000

4,000

6,000

2005/06 2006/07 2007/08 2008/09*

Marketing Year

Mil

lion

Pou

nds

Maximum Livestock DDG Feed Use Kansas DDG Supply

52%41%

28%23%

Ethanol Production Capacity In Use by Crop Reporting District (2005-2008*)

6

35

50

50

55

107

180

0 50 100 150 200

Kansas Ethanol Plant Capacity - Million Gallons

Northeast

East Central

North Central

West Central

South Central

Central

Southwest

2008*

2007

2006

2005

Regional Grain Use By Ethanol PlantWestern Kansas Locations

Plant Location: Campus / Oakley

Phillipsburg Garden City (2 plants)

Hayne / Liberal

Plant Capacity (MGY) 48 MGY 40 MGY 70 MGY 110 MGY

Feedgrain Use (mln bu) 17.5 mln. bu. 14.5 mln. bu. 25.5 mln. bu. 40 mln. bu.

Counties Gove

Logan

Sheridan

Thomas

Graham

Norton

Osborne

Phillips

Rooks

Smith

Finney

Gray

Haskell

Hodgeman

Kearny

Lane

Scott

Grant

Haskell

Meade

Seward

Stevens

% Grain Production 41.0% 46.8% 32.3% 53.1%

Regional Grain Use By Ethanol PlantCentral & Eastern Kansas Locations

Plant Location: Lyons Russell Garnett State Total

Plant Capacity (MGY) 55 MGY 52 MGY 35 MGY 428 MGY

Feedgrain Use (mln bu) 19.6 mln. bu. 18.9* mln. bu. 12.7 mln. bu. 153 mln. bu.

Counties Barton

McPherson

Rice

Reno

Stafford

Barton

Ellis

Ellsworth

Lincoln

Mitchell

Osborne

Rooks

Allen, Anderson

Bourbon

Coffey

Franklin

Linn

Miami

Osage

Woodson

All Counties

% Grain Production 51.0% 44.3%* 62.4% 25.7%

Comparative Transportation Advantages of Kansas Ethanol Plants WDGS Sold to Local Cattle Feeders

Lower drying / natural gas costs

Selling 50% of Denatured Ethanol via Truck to Blenders within 150 miles of Plants Reduced cost vs plants relying on rail transportation

Reduced Rail Transportation Cost of Denatured Ethanol to Western U.S. Geographic cost advantage for the Western Corn Belt

Trucking Needs of Kansas Ethanol Plants Assumptions

100% of feedgrains transported by truck to plants 50% of ethanol transported by truck (50% by rail) 90% of Distiller’s Grains sold in “Wet Cake” form

(i.e., Wet Distillers Grains)

Quantities per Truckload 1 truckload of feedgrains = 950 bushels 1 truckload of Ethanol = 9,000 gallons 1 truckload of WDGs = 25 tons

Daily Trucking Use by Ethanol Plants Kansas estimates as of August 1, 2008*

456 31

491

71

336

0

200

400

600

Feedgrain Inputs Ethanol Product WDG Co-Product

Tru

cklo

ads

/ Day

Avg. / Day / Ethanol Plant Total / Day for All Ethanol Plants

Annual Trucking Use by Ethanol Plants Kansas estimates as of August 1, 2008*

179,329

26,02611,1532,366

16,303

122,680

0

120,000

240,000

Feedgrain Inputs Ethanol Product WDG Co-Product

Tru

cklo

ads

/ Yea

r

Annual Avg. / Ethanol Plant Annual Total for All Ethanol Plants

Ethanol-Related Costs for the Kansas Trucking Industry / Year (July 2008 estimates)

Truck Loads

Time / Load

No. Trucks

Cost / Truck

Total Cost

Grain 177,033 2.5 hrs 217 $105,329 $22.9 mln

DGS 120,772 3.0 hrs 181 $103,071 $18.7 mln

Ethanol 25,694 6.5 hrs 77 $131,439 $10.1 mln

Total 328,035 475 $51.6 mln

Corn Ethanol & WDG $Value vs Corn $Nebraska / Kansas #s, February 2007 - August 15, 2008

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

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$8.00

$9.00

$10.00

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007

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008

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008

Weekly Friday Closes

$ p

er

bu

sh

el

Corn_Ethanol Value WDG Value Corn Price

Ethanol Profit Margin Est. ($ / gallon)

Prices July 07 Aug 08 ChangeCorn ($/bu.) $3.27 $5.09 1 +58%Ethanol $/gal $1.91 $2.10 +13%RBOB Gas $/gal $1.98 $2.84 +51%

Profit Margin +0.26 +0.01 2

1 Prices Aug 12, 2008. Breakeven corn price - $5.152 Ethanol profit for a 100 million gallon plant = $1 million Distiller’s Grain revenue would be about $54.6 million.

To compete with gasoline as substitute, ethanol price would need to fall to $1.88 per gallon.

NE-KS Ethanol ProfitabilityCalculated Returns per Gallon: February 2007 - August 15, 2008

($0.50)

($0.25)

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

$2.50

$2.75

$3.00

2/2

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007

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007

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007

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007

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3/2

008

Weekly Friday Closes

$ p

er

gallo

n

Ethanol Price Ethanol Cost Estimated Ethanol Profitability

Special Committee on Energy & Environmental PolicyKansas LegislatureAugust 20, 2008

Questions or Comments?K-State Agricultural Economics

Extension Website:

www.AgManager.info

Special Committee on Energy & Environmental PolicyKansas LegislatureAugust 20, 2008

Supplemental Reference Information

Ethanol’s Impact on Irrigation Increased water use due primarily to increased

corn acreage, secondarily to more intensive irrigation / acre Effect of Ethanol Demand

Greater Irrigated Corn Acreage Higher profitability of corn vs alternative crops

More Intensive Irrigation per Acre Impact of corn$ on irrigation cost-benefit decisions Greater water use for corn vs alternative crops

Other Analysis: Jeff Peterson @ KSU

Water Use by Ethanol Plants For Grain Dry Milling Processes

Process Water 33% of Plant Use Water in contact with grain

Mixing, slurry, fermentation, saccharification processes

Non-Process Water 67% of Plant Use Water not coming in contact with grain

90% of non-process water used in heating-cooling

Plant Water Use: 4.23 gal. / gal. ethanol Water use for a 40 mln gal. capacity Ethanol Plant

water use by 2 ¾ pivot irrig. systems / yr (18-20 a.i.)

Net Energy Balance Alternative Energy Sources

Product Energy Out / Energy In

Gasoline 0.81

Ethanol from grain 1.67

Ethanol from cellulose 2.00

Diesel 0.83

Bio-diesel 3.20

Source: Congressional Research Service, RL32712, May 18, 2006

Input-Output Values of Oil vs Corn

$100 worth of: Will produce: Oil @ $120/barrel 16.6 gal. of gasoline

11.6 gal. of diesel

Corn @ $5/barrel 56 gal. of ethanol

40 gal. of gasoline

Comparing Corn & Cellulosic Ethanol Corn

CellulosicCapital cost per gallon $2.00 $5-6.00 est.Raw mat. cost per ton $200 $100Enzyme cost per ton $3.15 $33.00Ethanol yield per dry ton 100-110 gal. 75-90 gal.Conversion process simple complexWater use per gallon 3-5 6-10Processing time, days 2 7Cost of prod. per gallon $2.00 $3.50 est.

Sources: Testimony of Keith Collins, USDA Chief Economist, 26 Aug. 2006; Popp and Hogan presentation at Farm Foundation Conference 12-13 April 2007; and M. Woolverton calculations.

Ethanol Plant Economics Cost to build a 100 MGPY plant: $160 million Purchases: 37-39 million bushels of corn

240,000 acres of Irrigated Corn @ 163 bu. /acre in Western Kansas

Daily water use: 1.5 million gallons Natural gas expense: $15 to $25 million Payroll expense: $2 million / year Distiller’s Dried Grains income: $25 million / year CO2 income: $4 million /year (?????) Goal: 30% R.O.I.