BIOFUELS REVIEW
one of the better solutions for supporting rural incomes that has emerged in a long time.
Food & Fuel in Brazil Markets manage the allocation of resources
via price and, when food commodity prices are stronger than energy prices, it makes sense for production to be allocated towards food rather than fuel. This is exactly what has happened in Brazil since 2009. Cane has been reallocated away from the energy markets, with its much greater range of substitutes, towards the food sweetener market, where the alternatives are much more limited. The reallocation of cane initially led to a decline in discretionary use as prices rose in 2009 and 2010. However, the dynamics became more disruptive
Figure 1: Global Ethanol Consumption Has Stalled 100
20 40 60 80
Source: Czarnikow Energy 0
in Q1 2011, as a shortage of anhydrous ethanol (due to the smaller than expected cane crop) ultimately resulted in a spike in the price of mandated anhydrous. In response, the Brazilian government has relaxed restrictions on ethanol imports. But it has yet to consider its policy of capping Brazilian energy prices, which is what has placed its approach out of step with global trends affecting commodity prices in less restricted environments.
Brazilian sugarcane is no longer the cheapest feedstock for bioethanol
Cane vs. Corn Perhaps the biggest shift in the market since 2010 has been
the change in the trade relationship between the US and Brazil. Brazilian sugarcane is no longer the cheapest feedstock for bioethanol as production costs and exchange rates have shifted. Corn is now the cheaper feedstock and with the upcoming US corn harvest expected to reach record levels and Brazilian cane production almost 100m tonnes less than processing capacity the market environment has changed significantly. Brazil continues to import corn ethanol from the US, and with the size of this season’s cane crop already being questioned, the supply side of the Brazilian ethanol balance sheet again looks fragile and could see stronger demand for US ethanol. The rate of growth in bioethanol usage has
been impressive. But it is clear as we have tracked the progress of the market that each new step has seemed a huge hurdle to overcome. This time is no different. Though corn ethanol is now cost competitive with cane ethanol and, more importantly gasoline, 1st
generation biofuels
continue to face challenges to growth. Corn ethanol is today the cheapest bioethanol on the market and priced at a discount to gasoline (on a volume basis), which has led to strong blending margins. However, US renewable energy policy continues
to look forward and incentivises the adoption of 2nd
generation biofuels that will both reduce 2.0 1.5 1.0 0.5 0 Apr 05 Apr 06 Source: Czarnikow Energy June 2012 72 Apr 07 Apr 08 Apr 09 Apr 10 Apr 11 Apr 12 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
carbon emissions and push feedstock demand towards non-food sources. In addition, the California Air Resources Board (CARB – with its stringent guidelines on grading emissions levels) could incentivise the import of cane based ethanol if the Low Carbon Fuel Standard (LCFS) is able to overcome legal challenges.
Cellulosic Ethanol When the RFS 2 was introduced
in 2008, policy makers intended cellulosic ethanol to be contributing 1.9bn litres of supply by 2012. However, though several pilot plants in the US have demonstrated the viability of cellulosic technologies, no one has managed to introduce supply on a commercial level and scale. Despite the progress that has been made, Environmental
Figure 2: Brazil Hydrous Demand Has Fallen as Consumers Have Turned to Gasohol
Billion Litres
Billion Litres
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