Transcript Ethanol and Its Implications for Fuel Supply Dr. Roger

Ethanol and Its Implications
for Fuel Supply
Dr. Roger Conway
USDA Office of Energy Policy and
New Uses
Presentation Plan
• USDA: corn supply and economic
implications
• Mr. Jack Huggins: Ethanol Industry
Structure and Potential to Expand
• Mr. Roger Legassie: The potential for
biomass ethanol
• Panel of Experts for Q&A
USDA Disclaimer
The MTBE phase-out scenario does
not represent official USDA
position
Phase-Out Scenario
Assumptions
 The 2% RFG oxygen mandate continues
 Ethers and heavy alcohols are phased out
 Ethanol is the only oxygenate
 California is fully phased-out in 2002
 49 States are fully phased-out in 2004
Ethanol/MTBE Equivalents
for RFG Oxygen
5.7% Ethanol RFG contains 2% oxygen
11% MTBE RFG contains 2% oxygen
0.52 Volumes of Ethanol replace 1 Volume
of MTBE
An MTBE Phaseout Scenario
Oxygenate, B GPY
5.0
4.5
4.0
3.5
MTBE
Ethanol
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1996
1998
2000
2002
Year
2004
2006
2008
Annual Ethanol Capacity and Production
4000
Million Gallons/Year
3500
Fuel Capacity
3000
Fuel Production
2500
2000
1500
1000
500
0
1975
1980
1985
1990
1995
Year
2000
2005
2010
1997/1998 Corn Utilization
Ending stocks
13%
Exports
15%
Fuel Ethanol
5%
Food, seed,
& industrial
13%
Feed &
residual
54%
Corn Supply:1997 Versus 2004
10,259 B Bu
Baseline
EtOH
11,714 B Bu
Baseline
New
EtOH
Other
1997
Other
2004
FAPSIM Model
(Food and Agricultural Policy Simulation)
• USDA econometric model
• Estimates intercommodity crop and
livestock effects
• Estimates farm income effects
• Reallocates existing crop land for changes
to USDA Baseline
FAPSIM Results
Annual average change from baseline
1999-2010
•
•
•
•
•
•
Land substitution from beans to corn
Corn nominal price increases 5 %
Net corn cost increases 11% for dry mill
Net corn cost increases 12% for wet mill
Net farm income increases 3 percent
0.1% increase in food prices
Estimated Corn Prices -FAPSIM
$3.10
Dollars per bushel
$2.90
$2.70
$2.50
$2.30
2004 Price Estimates
$2.10
$1.90
baseline
$2.50
Senario I
$2.70
Senario II $3.00
$1.70
$1.50
1999 2000 2201 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
Ethanol Cost of Production
New Dry Mill
1.No change in amortized capital costs
2.No change in operating costs
3.Change in net corn cost (NCC)
Net Corn Cost = Cost of Corn - Value of
Coproducts
COP = 1 + 2 + 3
COP in 2004 = COP in 1998 +  (NCC)
Impact On Net Corn Cost for
Dry Mills, $/gal
Case
Year
NCC
Baseline
Baseline
1999
2004
$0.485
$0.590
 (NCC)
MTBE Phase-out
Base Case
Extreme Event
2004
2004
$0.694
$0.808
$0.104
$0.218
Annual Average Nominal Prices
$4.00
Average price/Unit
$3.50
$3.00
Corn
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
1970
CV Data
Corn = 22.2%
Crude = 35.8%
1975
1980
Crude/10
1985
Year
1990
1995
2000
Other Sources
• Caribbean Basin- No import duty on
1. 7% of US annual production
from non-indigenous feedstocks
2. All from indigenous feedstocks
• Beverage Exports: >100 MM GPY
• Brazil: 4 Billion GPY capacity
• Biomass: > 10 B GPY resource base
Summary and Conclusions
2004
• Ethanol production increases to 3.3 billion
gallons
• Ethanol satisfies U.S. oxygen demand
• Ethanol will remain available for octane
markets
• Corn price rise $0.20 per bushel from $2.50
• Ethanol COP increases by 10 cents per gallon
• NCC effect on RFG cost is 0.6 cents per gallon