BIOFUELS REVIEW
Figure 3: US Ethanol Blending Margins Strong, Helped by Rising Crude Prices
US$/Gallon
-1.0 -0.5 0.0 0.5 1.0 1.5 2.0
Jan 07 Jan 08 Source: Czarnikow Energy
Protection Agency (EPA) data shows that no cellulosic biofuel has yet to be produced to generate D3 RINS (Renewable Identification Number) for the RFS. Cellulosic ethanol production
in 2012 is expected to be 2% of the initial RFS 2 target, and even this could be a stretch. This has created space for renewed imports of cane based ethanol from Brazil, which is classified as an un-differentiated biofuel. Trade-offs between short term market dynamics and longer run policy objectives have added to the complexity of the market in the short term. However, perhaps the greatest ambiguity today comes from bioethanol’s relationship with conventional fuel prices.
Figure 4: Declining US Gasoline Demand
2% 4% 6% 8% 10% 12%
US Gasoline Consumption (Bn Litres, RHS) US Ethanol Blend in Gasoline (LHS)
Jan 09 Jan 10 Jan 11 Jan 12
The Crude Price Conundrum There is little question that one of the main
factors that has helped the growth of interest in alternative energy has been the rise in the cost of conventional energy – in particular the rise in value of crude oil. The non-OPEC/non- OECD balance has been driving the revaluation of the market reflecting the growth in energy consumption in emerging markets and of course the sharp rise in Chinese energy demand. While higher long run prices have a positive long term impact on the economic viability of biofuels, short-term dynamics are very different. This is because price signals are working and high crude oil prices are acting to reduce overall fuel usage in the US. As US bioethanol usage is already at the E10 blend wall there is no additional scope of bioethanol to increase market share and
consequently even the mandated growth path is now being challenged by the market environment. With high crude oil prices forcing a contraction in US gasoline demand, the outlook for domestic demand growth in the bioethanol sector is being constrained as Figure 4 illustrates. Despite the price incentive there is very little discretionary demand at the consumer level as the vast majority of US ethanol
Despite the scale of the US bioethanol industry just 1% of filling stations in the US offer E85
is consumed within conventional gasoline. Though there are approximately 8 million flex fuel vehicles within the US private car fleet very few of these use anything other than conventional gasoline. Despite the scale of the US bioethanol industry just 1% of filling stations in the US offer E85. The majority of these are naturally located within the Midwest and hence there is little potential at this stage for a rise in discretionary demand despite the price incentive. What could make a big difference to the industry is a change in the blend ratio. The industry has been lobbying to introduce an E15 blend. The EPA has sanctioned the use of E15 in vehicles built since 2002, which would represent around 60% of the total private car fleet. However, there is still the issue of whether E15 would invalidate manufacturer warranties as well as the practical issue of installing new fuel pumps – as E10 would have to be available for drivers with older vehicles. As a consequence, the short term is once again
15 12 9 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Source: Czarnikow Energy
proving frustrating and US ethanol prices have fallen to break even cost levels. The fall in earnings has already seen a number of plants shut off capacity and without the prospect of an increase in sales the outlook for industry earnings does not look good. However, the medium to long term outlook is much more positive. While commercial decisions
74 June 2012
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96