Turning Oil Palm Biomass into Bio-Ethanol

Turning Oil Palm Biomass into Bio-Ethanol Overview about the Prospects and Challenges in deploying 2G ethanol technology in Malaysia using Palm Biomass as the feedstock. Per Dahlen 23 January 2011 Version 1.0

Copyright and disclaimer AUM Business Creations Pte. Ltd. (aumbiz) is happy to let anyone use and redistribute the information in this presentation without any restrictions, as long as you add aumbiz (www.aumbiz.com) as the source of your information. Thank you. The information in this document is for informative purposes only, AUM Business Creations Pte. Ltd. should not be held responsible for the accuracy of the data presented in this document. The purpose of this document is to share our view about the future market potential of Advanced Biofuels and other Bio-renewable products in Southeast Asia and to serve as a platform for discussions with potential clients, partners and other parties interested in this tremendous business opportunity. The information described in this document may be protected by one or more U.S. patents, foreign patents, or pending applications. Aumbiz is a registered trademark of AUM Business Creations Pte. Ltd. Product and brand names used in the document may be trademarks or registered trademarks of their respective owners. Any such trademarks or registered trademarks are the sole property of their respective owners. The information in this document is provided as is without warranty of any kind, either express or implied, including, but not limited to, the implied warranties of merchantability, fitness for a particular purpose, or noninfringement. This document could include technical inaccuracies or typographical errors. All strategic and product statements in this document are subject to change at AUM Business Creations Pte. Ltd. s sole discretion, including the right to alter or cancel features, functionality, or release dates. Changes to this document may be made at any time without notice. Page: 2

Second Generation Ethanol Biomass based The key to cheap ethanol production First generation (1G) ethanol production uses either sugars (sugar cane, sugar beet, etc.) or starch (cassava, corn, etc.) for production of ethanol. Second generation (2G) ethanol technology uses renewable and abundant non-edible biomass as the feedstock. Biomass consist of three major components; cellulose, hemicellulose and lignin. Depending on the type of biomass the distribution is roughly one third of each. Cellulose and Hemi-cellulose are long chain polymer sugars and can be broken down to simple fermentable sugars by using specially developed enzymes. For the enzymes to work efficiently, biomass must first be pretreated to open up the fibres, enabling enzymatic attack. Various pre-treatment methods exist. Once fermentable sugars are obtained, enzymes are used to convert the sugars into ethanol, in a similar way as first generation ethanol production. Lignin Cellulose A biomass fiber Hemi-Cellulose

2G ethanol developed for more then a decade It takes years to become an over-night success 2000-2005 2005-2007 2007-2009 2009-2012 2013- Research Lab Scale Pilot Plant Demo-plant Commercial - COMPLETED - - COMPLETED - - COMPLETED - - COMPLETED - - Expected 2013/14 - Various 2G ethanol technology suppliers are has already built, or is in the process of completing their Demonstration Plants. The first 2G commercial scale ethanol plants in Southeast Asia expected to be operational by 2013/14.

Vinod Khosla: "It's happening much faster than I would've guessed, Wall Street Journal March 2011

2G technologies can convert most feedstock into Ethanol Cheap and abundant feedstock is the key to sustainable production of Bio-Ethanol EFB Palm Trunks Fibre Rice Husks Cane Bagasse Sweet Sorghum Energy Grass Palm Biomass Other Biomass Energy Crops 2G Ethanol Technologies Co-products C5 + C6 Sugars H 2 O CO 2 Ethanol Lignin

First generation ethanol has impacted the price of food The raging Food for Fuel debate is the result of 1G biofuel production using food crops as feedstock. Comparing the worldwide consumption of Food vs. Fuel for food-based feedstock Sugars and Vegetable Oil. (Barrel per day equivalent) 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 Source: FAO, IEA, data elaborated by Aumbiz 47% of all sugar harvested was used for fuel Oil for Fuel Oil for Food Sugar for Fuel Sugar For Food Ethanol and Biodiesel together provided 1.8% of the world s transport fuel by energy value in 2007. Primarily driven by government policies, world ethanol production for transport fuel tripled between 2000 and 2007 from 17 billion to more than 52 billion litres. The equivalent of 47% of all harvested sugars was converted into ethanol, not used for food. 500,000 Biodiesel expanded eleven-fold from less than 1 billion to almost 11 billion litres. - Sugar Vegetable Oil 7% of the harvested vegetable oil was converted into BioDiesel.

Food vs. Fuel Using Sugar for Fuel has clearly impacted the price of Sugar Correlating the price of Sugar to the annual production of Ethanol. Since 2005 a clear trend to more expensive food. 80,000,000 Source: Indexmundi, AgMRC, data elaborated by Aumbiz $700.00 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 - $600.00 $500.00 $400.00 $300.00 $200.00 $100.00 $- Ethanol has been produced for decades, but it is not until year 2005 when volumes drastically increases. Since 2005 the production volumes has increased 23% per year on average going from an annual volume of less than 20 million ton per year to more then 70 million ton in 2011. The price of Sugar has been strongly correlated with the increased production of ethanol. In 2005 only 29% of the world s harvested Sugar was used for Fuel Ethanol production, by 2012 we will use more sugar for Fuel then what we use for Food. Ethanol Production tpy Average Annual Price Of Sugar USD/ton

Food crops will not be the solution for replacing oil We must find other alternatives Total Sugars, Vegetable Oil and Biofuels production, compared to Crude Oil demand. (Barrel per day equivalent) 90,000,000 Source: FAO, IEA, data elaborated by Aumbiz 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 Less then 3.8% of the current crude oil demand could be derived from using all sugars and all vegetable oil Crude Oil for Other Crude Oil for Transportation Oil for Fuel Oil for Food Sugar for Fuel Sugar For Food If all sugars currently harvested for food consumption were to be converted into Ethanol this would be equivalent to 1.1% of current crude oil consumption. If all Vegetable Oils currently used for food consumption were to be converted into BioDiesel this would be equivalent to 2.7% of current crude oil consumption. With a 5% yield increase per year (additional hectares + yield per Ha) food crops would be able to supply current demand by 2099. - Sugar Vegetable Oil Crude Oil

Available waste biomass is more than sufficient 11-12% of annual waste biomass is enough to replace all crude oil consumption!!! Sugar, Vegetable Oil and Biofuels, compared to Crude Oil and the carbohydrate content of Biomass. (Barrel per day equivalent) 800,000,000 Source: FAO, IEA, data elaborated by Aumbiz 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 - Sugar 11.5% of annual biomass would be enough to replace crude oil Vegetable Oil Crude Oil Biomass C6+C5 Biomass C6+C5 Crude Oil for Other Crude Oil for Transportation Oil for Fuel Oil for Food Sugar for Fuel Sugar For Food Globally the annual biomass production is estimated to 170bn tons per year of which 75% is carbohydrates which can be used to produce bio-fuels and other biorenewable products. Currently 3.7bn (2.2%) is used for human food use, 2.0bn (1.2%) for wood-energy, paper and construction, and 300M (0.2%) is used for clothing, detergents and chemicals. The potential for bio-fuels derived from the remaining biomass is estimated at 700 million barrels per day more then 8 times the current consumption.

Expected Biofuel mandates by 2020 - Implications Tremendous potential in second generation biofuels Sugar to Ethanol, Vegetable Oils to BioDiesel compared to Biofuel mandates 2020 and Advanced Biofuels capacity. (Mtpy - Millions of tons per year) Millions 200 180 160 140 120 100 80 60 40 20 - Source: FAO, IEA, Biofuels Digest, Natixis, data elaborated by Aumbiz Sugar to Ethanol Vegetable Oil to BioDiesel WW Mandates 2020 Advanced Biofuels 2015 2nd gen. 2020 2nd gen. 2015 2020 EU (RED) 2020 US (RFS2) 2020 Asia Vegetable Oil BioDiesel Sugar Ethanol 160Mtpy of world-wide Sugar harvest would produce 32Mtpy of Ethanol (E100). 130Mtpy of world-wide Vegetable Oil harvest would produce 117Mtpy of BioDiesel (B100). Legislated and target renewable transportation fuels mandates world-wide by 2020 requires 175Mtpy of Biofuels. Current announced capacity by 2015 of 2 nd generation advanced biofuels equal to 22.5Mpty. An additional 190M kiloliters capacity is required to meet mandates and targets between 2015 and 2020. Estimated total CapEx required USD 185-200 billion and 6 to 7 million hectares of energy crops with a yield in the tropics of ~100 ton per Ha per year.

Access to cheap Biomass = 2G production economics Deployment in low cost regions equals un-paralleled investment opportunity Second generation ethanol production comparing production in Europe to Southeast Asia (USD/ton ethanol in Rotterdam) $900.00 $800.00 $700.00 $600.00 $500.00 $400.00 $300.00 $200.00 $100.00 $- Source: SEKAB, Accenture, McKinsey, MPOB, Novozymes, Poyry, data elaborated by Aumbiz EU Challenge 1: Price of Biomass? SEA Profit before tax Shipment to EU CapEx OpEx Enzymes Feedstock For 2G ethanol, with an average feedstock price of EUR105 per ton (or USD136/t), translates into a total feedstock cost of USD470 per ton ethanol or 60% of an estimated competitive sales price of USD782 per ton ethanol. Given the high investments in processing plants and higher operating costs required for 2G ethanol production (enzymes), any large-scale deployment may not be feasible without some subsidies. The UK is proposing a EUR0.30 per litre subsidy which would make the business an interesting investment opportunity, but only with subsidies. Deploying 2G ethanol production in Asia fundamentally alters production economics huge savings in feedstock costs, almost 4 times lower in Asia.

Value of one ton of Biomass for various uses Each BioRenewable project needs to carefully evaluate the usage of the Biomass Potential value which can be generated from one ton of dry biomass waste. Liquid fuels clearly offers the highest potential (USD/ton dry mass) $400.00 Source: Various, data elaborated by Aumbiz $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 Logistics Profit Margin CapEx (10yrs) Processing Drying In-bound Logistics Fresh Biomass in Southeast Asia sells in the open market for up to USD10-40 per ton wet biomass. Using the biomass for energy generation, either in a boiler or in a biogas digester can generate extra value of USD10 to 22 per ton. Substituting expensive industrial grid-electricity supply with selfgenerated biogas electricity would generate savings of up to USD125 per ton dry biomass. $50.00 $- Pellet/DM Ethanol/DM Intermediary/DM Biomass Cost (USD 35/ton_wet) Converting biomass into cellulosic ethanol can generate USD182 per ton, USD162 more than for direct biomass sale (810 % increase).

2G Ethanol Yields World s best yields are 285-320 Liter per ton dry biomass. Second generation ethanol production depends to a large amount on the type of feedstock used. (Litre/ton DM) 400.00 Source: ESI, USDE, USDA, Novozymes, Danisco, DSM Ethanol Yields - Lite er per ton feedstock 350.00 300.00 250.00 200.00 150.00 100.00 50.00 World-class Ethanol yields The actual yields are determined by the cellulose and hemi-cellulose content in the biomass. The over-all efficiency of the 2G technologies results in 80-85% compared to theoretical yields. Depending on the choice of feedstock the world s best yields are 285-320 Liter per ton dry biomass. -

Primary Feedstock Target Agricultural Waste Southeast Asia alone has more the 450 million tons agri-waste per year Agriculture in Southeast Asia is dominated by three Primary Crops Oil Palm, Rice Paddy and Sugarcane together representing 69% of the total yields. (ton/yr) Other Primary Crops, 221,914,259, 31% Sugar cane, 139,505,682, 20% Top-3 Primary Crops in Southeast Asia Total: 705,390,483 tons Source: Aumbiz analysis based upon data from FAO Rice, paddy, 180,242,944, 26% Oil palm fruit, 163,727,598, 23% The Primary Crop production in Southeast Asia is dominated by three major crops: Oil Palm, Sugarcane and Rice 69% of total agricultural production. Oil Palm industry s primary waste EFB (Empty Fruit Bunch) and Fibers are both suitable feedstock. Trunks from replanting is another major source of feedstock. Sugarcane industry s primary waste is bagasse ideal feedstock. Rice Industry the main crop residue is rice husks at the mill and rice straws from the fields. Total available agri-waste biomass estimates to 450 million ton per year, sufficient for the production of 75 million tons of ethanol!

2G ethanol yields from Palm Biomass Large potential but can it be realized? EFB Fibre Shell Trunks Fronds C6-sugar Kg/ton DM 430 230 70 650 470 C5-sugar Kg/ton DM 260 180 400 120 240 Theoretic Ethanol Kg/ton DM 306 178 175 367 319 Theoretic Ethanol L/ton DM 388 226 222 465 404 Availability DM (ton/year) 4.0M 7.0M 7.0M 14.0M 46.0M MY Palm Ethanol Potential (KL/year) 1.55 1.58 1.54 6.51 18.58 Theoretic Ethanol production for Palm Biomass in Malaysia: 30M KL/year equal to USD 24bn/year Challenge 2: What is easily available? Challenge 3: Can it be collected? Source: Aumbiz, Malaysian - Danish Environmental Cooperation Programme

2G Ethanol potential location in Malaysia 25M ton of Biomass (DM) can be mobilized at competitive cost Source: National Biomass Strategy 2020 Page: 18

Aumbiz Project Development Framework All parts of a project must be considered and contracted before the project starts PROJECT DEVELOPMENT FRAMEWORK Local Project Developer Feedstock Planet Investment Project Management Technology Logistics SPV Profit Utilities Project Financing Investor Off-take People Specifically developed for demanding, highly complex projects which uses biomass as feedstock. Holistic approach, which includes both the core elements of feedstock supply and off-take agreements and finance and technology, and the project impact on the People, Planet and Profit. The Aumbiz Project Development Framework is used through out our project development process, but also used in the design of support systems and software development.

About aumbiz Your trusted partner in Southeast Asia Since 2007 aumbiz has actively been advising SMEs and multinationals from Europe as well as from the US in their internationalization efforts in Southeast Asia. We have an unparalleled experience, knowledge and network combined with an indepth domain expertise and experience of Advanced Biofuel and Biobased Chemical technologies and processing solutions. We do offer our Market Introduction Services to established technology companies with unique and protected technologies and with a proven track record from their home markets. Through our office in Singapore, our objective is to provide world-class internationalization service for the Southeast Asia region. Your trusted partner in Southeast Asia: Market/Business Intelligence Competitive Analysis Partner Development Business Development Project Development Distribution Strategies Due Diligence of Technologies Establishment of Foreign Operations Interim/Project Management We focus on the full value chain from the plantation to the distribution of the final product. We are engaging in establishing local R&D offices as well as supporting in project development and partnership creations. Contact us today to explore how we together can grow your business in Southeast Asia, call: +65-8223.5356 and talk to Mr. Per Dahlen Page: 20

AUM Business Creations Pte. Ltd 27 Changi Village Road Unit: #01-23 Singapore 509925 Singapore Tel: +65-68223.5356 Email: opporunities@aumbiz.com Web: www.aumbiz.com Contact: Mr. Per Dahlen 21