Implications for Automotive, Agriculture, and Energy Summary Presentation
The Biofuels Boom Copyright 2007 Global Insight, Inc. 2
Three Major Policy Drivers ARE THEY COMPATIBLE? Energy Energy security Reduce dependency on petroleum-based energy sources Diversify energy sources Environment Reduce criteria emissions at local, urban, metro, and national levels Reduce greenhouse gas emissions Agriculture Create new markets for agricultural crops Reduce subsidies Copyright 2007 Global Insight, Inc. 3
Strategic Questions Addressed in The Biofuels Boom What are the global drivers of biofuels consumption? What role do the major economic powers play in biofuels growth? What is the range of long-term policy objectives? How will they vary from country to country and at the regional and local levels? How will policy influence the creation of a commercially viable biofuels industry? Will these policies remain synchronized in the future? Copyright 2007 Global Insight, Inc. 4
Strategic Questions Addressed in The Biofuels Boom How is the biofuels infrastructure evolving internationally? What is the current state of technology and how will it develop? What is the tipping point, where biofuels will impact the energy, agriculture and automotive markets? What are the expectations and limits to growth in the biofuels industry? Copyright 2007 Global Insight, Inc. 5
Two Global Scenarios Are Evaluated The Industry Must Consider the Alternatives Dramatically Different Implications, Paths, and Consequences Alternative Future Scenarios Based on the Market s Current Views Market Remanaged Reference Case OPEC re-emerges as the market governor OPEC Price Management: Attempts to manage price in the low $60/bbl range Supply Constrained New Oil Market Era: Supply/demand balance on demand, not supply. Prices Spike: Unprecedented price levels of more that $100/bbl Global Climate Change regulations are taken as a predetermined condition in both scenarios Copyright 2007 Global Insight, Inc. 6
Study Covers Multiple Feedstocks & Products FUEL TYPES BIOETHANOL BIO-BASED DIESEL FEEDSTOCKS 2 ND GENERATION BIOFUELS CORN SUGAR BEETS SWITCH GRASS & WOOD CHIPS (NEXT GENERATION FUELS) SUGAR CANE SOYBEANS CROP RESIDUES (NEXT GENERATION FUELS) WHEAT & BARLEY RAPESEED, JATROPHA OIL, PALM OIL (BIO-DIESEL) OTHER NON- CONVENTIONAL SOURCES (E.G.,ALGAE) (Study does not include alternative fuels such as LPG, LNG, CNG, hydrogen, gas-to- liquids, or coal-to-liquids) Copyright 2007 Global Insight, Inc. 7
Multiple Technologies are Examined Biomass Propagation, Growth, Harvesting, and Collection Biomass Pretreatment Biomass Conversion Biochemical (Sugar) Route Biomass Conversion Thermochemical Route Gasification Pyrolysis Bio-based and Renewable Diesel Biobutanol Copyright 2007 Global Insight, Inc. 8
Commercial and Economic Feasibility of Technologies Biomass Growth & Collection Biomass Pretreatment Biomass Biochemical Conversion Biomass Gasification /Conversion Biomass Pyrolysis Bio-based Diesel Green Diesel Biobutanol Breakthroughs Required Politics & Regulatory Facing Challenges Feedstock Supply Inbound Logistics Processing Market Compatibility Product Quality Outbound Logistics GHG/Environmental Overall Economics Commercial or likely to be Success likely but development needed Pilot/or demo; success still to be determined Major hurdle or cost to success Not known/depends on application Copyright 2007 Global Insight, Inc. 9
The Study also Looks at a Variety of Biofuels Crops Feedstock Screening Criteria Corn Ag Wastes Grasses Poplar Pulp & Paper Wastes Vegetable Oils Jatropha Algae Oil MSW Animal Fats & Oils Stage of Development Likely Availability Harvesting & Collection Pretreatment Quality Cost GHG/Environment Food vs. Fuel Commercial or likely to be Success likely but development needed Pilot/or demo; success still to be determined Major hurdle or cost to success Not known/depends on application Copyright 2007 Global Insight, Inc. 10
Supply/Demand Forecasts: Bioethanol Regions Covered: World United States European Union Brazil China India Africa 80 70 U.S. Bioethanol Supply/Demand Market Remanaged 4 EU Bioethanol Supply/Demand Market Remanaged 60 3 Billions of gallons 50 40 30 20 Demand Forecast Supply Billions of gallons 2 1 Demand Forecast Supply 10 0 2005 2010 2015 2020 2025 2030 Potential Production U.S. growth in bioethanol projected to reach 15 billion gallons by 2015 (about 1 mmb/d) Copyright 2007 Global Insight, Inc. 11 0 2005 2010 2015 2020 2025 2030 Potential Production EU growth to be limited by local supply and must rely on imports from Africa and South America
Supply/Demand Forecasts: Bio-based Diesel U.S. Bio-based Diesel Supply Remanaged 10 U.S. Biodiesel EU Bio-based Diesel Supply Remanaged 8 EU Biodiesel 8 6 Billions of gallons 6 4 2 Demand Forecast Supply Billions of gallons 4 2 Demand Forecast Supply 0 2005 2010 2015 2020 2025 2030 Potential Production Bio-based diesel demand and potential supply can be based on non-edible oils such as jatropha, algae, wood waste, and other non-food products 0 2005 2010 2015 2020 2025 2030 Potential Production New technologies employing biomass conversion into liquids look promising such as NExBTL by Neste Copyright 2007 Global Insight, Inc. 12
Implications On-Road Petroleum Demand Biofuels (e.g., ethanol and diesel) will increase significantly possibly reaching 15% of motor fuel pool world-wide Under different scenarios, the United States could reach 35% of on-road petroleum demand in same range as Brazil Rest of the World Middle East Africa Other Latin America Biofuel Shares of On-Road Petroleum Demand in 2030 Market Remanaged Supply Constrained Biomass producers will be in advantageous position to produce renewable fuel feedstocks The move will affect oil and gas producers in the United States and Canada by shifting from petroleum-based fuels Brazil Asia-Pacific Europe United States World 0% 5% 10% 15% 20% 25% 30% 35% 40% Percent by Volume Copyright 2007 Global Insight, Inc. 13
Profitability of Alternative Products, Technologies, and Shipping Routes Market Remanaged Scenario (With current U.S. subsidies of $.53/gallon for bioethanol & $1.00/gallon for bio-based diesel) Biofuel Products & Alternatives Bioethanol U.S. Corn U.S. Cellulosic (thermo chemical process at paper mill) Brazil shipped to Rotterdam (sugar cane) Brazil shipped to US (with $.54 tariff) Bio-based Diesel U.S. (Biomass to liquids - BTL) Germany (Palm Oil) Germany (Biomass to liquids - BTL) India (Jatropha) Profitable X X Too Early Too Early X Not Profitable X X X Copyright 2007 Global Insight, Inc. 14
Implications for the Automotive Industry Based of survey of automotive manufacturers and analyses by GIobal Insight s Automotive Group: High volumes of biofuels in the United States will almost certainly require flex-fuel vehicles (FFVs) capable of running on blends up to 85% ethanol (E85) In Europe, ethanol content is held for most countries to 10% (E10), which is technically compatible in current vehicles Bio-based diesel levels of 5% (B5) are possible in virtually all vehicles, and new vehicles can be developed to accept blends up to 30% (B30) Technical fixes to meet higher biofuels levels are known but will add some costs to vehicles Copyright 2007 Global Insight, Inc. 15
Aggressive Increases in Vehicle Efficiency Standards in U.S. Market Remanaged Supply Constrained 2018: New vehicle fleet fuel economy reaches 32 mpg (193 g/km CO 2 ) 2030: New vehicle fleet fuel economy reaches 48 mpg (128 g/km CO 2 ) 2020: New vehicle fleet fuel economy reaches 45 mpg (137 g/km CO 2 ) Requires 60% hybridization in the U.S. 2030: New vehicle fleet fuel economy reaches 53 mpg (117 g/km CO 2 ) Copyright 2007 Global Insight, Inc. 16
EU also Needs to Tighten Fuel Efficiency Standards Market Remanaged Supply Constrained 2012: EU standard of 130 g/km CO 2 emissions (without biofuels benefit) could be met 2018: EU new vehicle CO 2 emissions reach 120 g/km (without renewable fuel credit) and holds at this level to the end of the period 2012: EU standard of 130 g/km CO 2 emissions (without biofuels benefit) could be met 2018: EU new vehicle CO 2 emissions reach 120 g/km 2025: EU new car efficiency is 90 g/km CO 2 Copyright 2007 Global Insight, Inc. 17
Implications for Hybrid Vehicles Hybrid vehicles will play a significant role in the United States to meet stringent efficiency targets Hybrid vehicles are introduced across all major (high volume) model lines Hybrid diesels are introduced As cost of hybrid components decreases, the diesel-hybrid combination becomes attractive as a market differentiator Copyright 2007 Global Insight, Inc. 18
Diesels will Continue to Play a Significant Role in EU 2008: Diesel cars trend at 50 60% of the new car fleet 2009: Diesel hybrids enter the market as mechanism for meeting fuel efficiency CO 2 emissions targets 2015: Diesel vehicles are 65% of the new light duty vehicle fleet 2030: Diesels are 35% of light duty vehicle fleet and at least 25% of the on-road fleet Copyright 2007 Global Insight, Inc. 19
Who Should Participate? Investors Agri-Business Automotive Energy Policy & Government Biofuels Industry Transportation Equipment Manufacturer Copyright 2007 Global Insight, Inc. 20
Final Report: Abridged Table of Contents EXECUTIVE SUMMARY OIL PRICES & SCENARIOS Possible Future Oil Price Paths Scenario Assumptions GOVERNMENT POLICY: MAJOR BIOFUELS DRIVER Policy Goals Are Evolving Review of Existing Biofuels Policies Assumptions about Future Policy Development AGRICULTURE SECTOR RESPONSE First-Generation Ethanol Boosted by Gains in Yields Food vs. Fuel: Some Limitations, Especially for bio-based diesels Agriculture Industry's Future Role in Biofuels BIOFUELS TECHNOLOGY SCREENING & STATUS Feedstock Screening Summary Technology Screening Summary Biomass Propagation, Growth, Harvesting, and Collection Biomass Pretreatment Biomass Conversion: Biochemical (Sugar) Route, Thermochemical Route Gasification and Thermochemical Route - Pyolysis Bio-based and Renewable Diesel Biobutanol LIFE-CYCLE GREENHOUSE GAS EMISSIONS: AN EMERGING DRIVING FORCE FOR BIOFUELS BIOFUELS ECONOMICS Biofuels Prices Relative to Petroleum Cost Analysis/Cost Escalators Experience Curves Biofuels Costs: Results Biofuels Margins: Profitability Comparisons Feedstock Prices and Break-Even Values BIOFUELS PRODUCTION BY TYPE & REGION Supply Evolution Projected Production Potential: Summary Implications for Industry Structure: Agriculture or Refining? BIOFUELS DEMAND: OVERVIEW & ANALYSIS Biofuels Requirements Are Increased Around World Total Motor Fuel Demand Growth Will Be Limited Deviations in Supply Constrained Scenario REGIONAL DEMAND & SUPPLY OUTLOOK Regional Ethanol Demand and Potential Production Regional Bio-based Diesel Demand and Potential Production REFINING IMPLICATIONS Refining Industry Impacts: Ethanol Blending and Biobutanol Refiners: Some Synergies AUTOMOTIVE INDUSTRY RESPONSE Flex-Fuel Vehicles Ethanol Blends Bio-based Diesel Blends OEMs: Biofuel Conclusions Fuel Efficiency Improvements Copyright 2007 Global Insight, Inc. 21
Project Team Kevin Lindemer Refining Sector Agricultural Economics Phil Gott Automotive Technology Stewart Ramsey Agricultural Economics Juliette Kerr Latin American Biofuels Industry Policy & Analysis Joseph Audette Automotive Sector Sarah Kingsbury Automotive Sector Dennis Banasiak Technology Development Economics Mary Novak Energy Policy & Modeling Margaret Rhodes Energy Policy & Modeling Copyright 2007 2007 Global Global Insight, Insight, Inc. Inc. 22
Previous Studies in Biofuels by Global Insight Study of the Global Biofuels Market to Identify Business Opportunities 2006 U.S Federal Highway Administration: Forecasting Revenues from Highway Trust Fund Global: Biofuels The Next Step Towards Environmentally Neutral Transportation? National Railroad Prospects for U.S. Ethanol Production White Paper: The Potential for Increased Market Share for Alternative Fuels Study: Winners and Losers of Ethanol Mandates Identification and Assessment of Alternative Fuels Market Drivers Copyright 2007 Global Insight, Inc. 23
WWW.GLOBALINSIGHT.COM/ENERGY For additional information, please contact: Gil Rodgers Global Energy Group Tel: +1.781.301.9142 E-mail: gil.rodgers@globalinsight.com