Biofuel Market Factors Michael Cooper Ultra Green Energy Corporation, Executive Vice President Biofuel Brokers, LLC, President/Director 866-E-MY-FUEL (369-3835) info@ultragreenenergy.com emyfuel@biofuelbrokers.com P.O. Box 6763 Jefferson City, MO 65102-6763
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Biofuel Markets Factors To Ignore if You Want Your Project to Fail
#10 The smaller they are the harder they fall. there isn't a supply of ethanol to satisfy a large market of E85 requirements. Ratable Supply On spec, on time, on volume TOP TEN every time. infrastructure Biofuel Market would Factors have to be built to distribute and sell that ethanol. Don t blow it. Do it right. Shell Oil Company, President John Make Hofmeister, it big enough. October 25, 2006Fuel Refineries National Press Club Driven by economics To get E85 to market two things have to happen. One of those is the fleet of automobiles in this country has to be large enough to create a market. Today, about 2 to 3 percent of America's cars can use E85. Quality Now we know the automobile makers are trying to build flex Procuring fuel automobiles it as fast is as very they can. difficult But then we because run into the second the problem, supplies that is of there ethanol isn't a supply are of ethanol so tight. to satisfy a large market of E85 requirements. So while we can talk about E85, Financing the reality is there's no market and there's no supply. That can change, of course, over the next 10 or 20 years, but it's not an Management instant turn on the ethanol switch and all of the sudden it's at your local station. Because in addition to that an infrastructure would have to be built to distribute and sell that ethanol. We cannot put E85 ethanol into a regular gas station gas tank, storage tank, because the alcohol will eat right through the fiberglass storage tank. Or it will corrode the pipes which we currently have in the gas stations because they were never designed for ethanol. So we need a whole new infrastructure if we're going to sell E85 ethanol. Shell is piloting E85 ethanol in Chicago. We hope to test the market to see if people like it. Procuring it is very difficult because the supplies of ethanol are so tight. And then building the infrastructure is really just a matter of paying for it. But before we go invest millions or hundreds of millions in an infrastructure, we need to find out if the market will accept it. One of the reasons the market may or may not accept ethanol is that it gets 75 percent of the mileage that gasoline gets. In other words, it has 25 percent less miles per gallon than we see with gasoline. Will customers pay the same price to get 25 percent less if ethanol is priced at the price of gasoline?
#9 Red, White, Blue, and Green Too! TOP TEN Biofuel Market Factors Small Producers Tax Credit Excise Tax Credit VEETC Biodiesel Blender s Credit State biofuel production incentives
TOP TEN Biofuel Market Factors 8. Risk Management #8 We are the Hedge! Monthly Average Ethanol and Gasoline Prices 8. Risk Management Gasoline, NY reg. Spot Ethanol, US rack Major 4 buyers use biofuels as 3.5 financial hedge against petrol 7/06: ethanol premium is $1.12 3 Most petroleum buyers can t 2.5 2 get refinery contracts. 1.5 Biofuel contracts are risk 1 management tool (hedge) for spot petroleum 0.5 0 Petroleum contracts as risk management for biofuels production Contracts vs. Spot market To producer a contract is bankable, spot is risky. 1999 1/99-5/06: ethanol averaged a $0.50 premium U.S. Avg. Ethanol NY Spot Gasoline = $0.50 NY Spot Ethanol NYMEX Unleaded futures = $0.63 Petroleum buyer nets $0.13/gallon with Ethanol contract 2000 2001 2002 2003 2004 2005 2006
#7 It s a small world after all. TOP TEN Biofuel Market Factors 7. Global Market 8. Risk Management 7. Global Market Refined liquid fuels are global commodities Global demand U.S. importer or net exporter? Buy Globally, produce locally, sell globally
#6 Go with the flow. TOP TEN Biofuel Market Factors 6. Distribution Logistics 7. Global Market 8. Risk Management 6. Distribution Logistics Transportation- Rail, Barge, Vessel Follow existing petroleum routes Not destination plants- Demand plants! Pipelines
#5 Double your fun TOP TEN Biofuel Market Factors 5. Increased Blending Ratios 6. Distribution Logistics 7. Global Market 8. Risk Management 5. Increased Blending Ratios Low blend markets- E10 B2-B5 Indiana B2, Michigan B20 Double or Triple the blend, double or triple the market. E20-E30 B10-B20 MN: E85 or E30?
#4 If you blend it, they will come. TOP TEN Biofuels Market Factors 4. Storage and Terminal Infrastructure 5. Increased Blending Ratios 6. Distribution Logistics 7. Global Market 8. Risk Management 4. Storage and Blending Infrastructure Investments in Terminal, Storage, and Blending Facilities Biofuels need to be blended Biofuel producers can control the capital for blending- risk management, reduce cost Generate revenue. The one with biofuel at the refinery first wins!
450 TOP TEN Biofuel 400 Market Factors 3. Mandated 350 Markets 4. Storage and 300Terminal Infrastructure 250 5. Increased 200 Blending Ratios 6. Distribution 150 Logistics 7. Global Market 100 8. Risk Management 50 0 and Mandates Thousand Barrels Per Day Jan-99 #3 Hit me with that carrot stick 3. Mandated Markets MTBE and Ethanol Consumption Jan-00 Jan-01 Ethanol MTBE RFS MN and WA EPACT Fleets Federal State Municipal Waste Haulers Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
4 3.5 Gasoline, NY reg. Spot TOP TEN Biofuel Market Factors 2. Price 3 3. Mandated Markets 4. Storage 2.5 and Terminal Infrastructure 2 5. Increased 1.5 Blending Ratios 6. Distribution 1 Logistics 7. Global 0.5Market 8. Risk Management 0 1999 #2 What goes down, Monthly Average 2005-2006 Ethanol must go and up. Average east coast refinery margins Gasoline 2. Prices 2000 $0.10-$0.38 cents per gallon 2001 2002 Ethanol Biodiesel Ethanol, PricingUS rack 2000-2004- Historic Premium Product= Diesel + premium charge Niche Market 1/99-5/06: ethanol averaged a $0.50 premium 7/06: ethanol premium is $1.12 2003 Increase in demand for feedstocks 2005-2009- Historic/Projected Excise tax credit=diesel + $1 High pressure on domestic feedstocks High commodity risks- sbo vs. diesel Crude oil follows natural cycles Regional Heating Oil or Diesel + Historic Refinery Margins + Tax Credit-Logistics= Price Katrina/Rita Effect 2010-2015- Speculative Feedstocks follow petrol pricing Dramatic super spikes in petrol pricing Increase in imported and novel feedstocks Technology drives profitability 2004 2005 2006
Billion gallons per Year TOP TEN Biofuel Market Factors 1. Demand 2. Price 3. Mandated Markets 4. Storage 6 and Terminal Infrastructure 2000 18 16 14 12 10 8 4 5. Increased Blending Ratios 2 2003 6. Distribution Logistics 7. Global 0 Market 8. Risk Management #1 In ten years, if you have something that goes in a fuel tank, someone will buy it. Distillate Demand Forecast for the Northeast Region, 2000-2025 US Distillate Fuel Demand Forecast, Transportation Sector, by Vehicle Type, 2000-2025 2006 2009 Year 2012 2015 2018 2021 1. Demand Addicted to a scarce commodity. Refinery capacity decreasing Demand increasing Gasoline Demand = Ethanol Demand 30 Diesel Demand = Biodiesel 20 2024 Transit Bus (diesel) Intercity Rail (diesel) Freight Trucks Domestic Shipping 2000 2003 2006 2009 2012 2015 2018 2021 Vehicle 2024 Type Freight Trucks Light-Duty Vehicle YearFreight Rail Domestic Shipping International Shipping Residential Military Commercial Use Industrial Transit Transportation Bus (diesel) Electricity Intercity Gen. Bus (diesel) School Bus (diesel) Intercity Rail (diesel) Commuter Rail (diesel) 60 50 40 10 0 Billion GPY
Biofuel Markets Factors To Ignore if You Want Your Project to Fail
Thank you. Michael Cooper Ultra Green Energy Corporation, Executive Vice President Biofuel Brokers, LLC, President/Director 866-E-MY-FUEL (369-3835) info@ultragreenenergy.com emyfuel@biofuelbrokers.com P.O. Box 6763 Jefferson City, MO 65102-6763