Fuel Ethanol Market Update

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Fuel Ethanol Market Update
Presented to the Southwest Chemical Association
Hank Williams Vice President, Fuels Jim Jordan
Associates, LLP February 23 , 2006
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Fuel Ethanol Market Update
US FUELS MARKET HISTORY Oil Embargo - crisis
of the 1970s Search for renewable fuels More
domestic production
Air quality - Clean Air Act revisions of
1990 O2 content mandated for RFG Used year
round in about 1/3 of US gasoline 300k b/d of
MTBE MTBE also used in winter for certain areas
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Fuel Ethanol Market Update
Transition from MTBE to Ethanol 1990 - 1995
MTBE dominant as the oxygenate Low RVP,
fungible in pipelines But . . . MTBE price
resentment
1995 - 2005 MTBE in Surface Water MTBE
banned in CA, NY, CT, others Efforts to
mandate Ethanol Ethanol subsidies
2005 onward Energy Act of 2005
Removed O2 requirement for RFG But 2.7
still in place - CO non-attainment
Mandated fuel Ethanol usage Refused
safe harbor for MTBE Ethanol gains
while MTBE falls
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Fuel Ethanol Market Update
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Fuel Ethanol Market Update
US Ethanol Plants Present Status 99 active
- 4.4 billion gal/yr capacity 95 rates
Almost all located in the mid-west
Importing 300 million gal/yr 36 in construction
- 1.8 billion gal/yr
99 more planned - 6.1 billion gal/yr Total 234
plants - 12.1 billion gal/yr
2005 Energy Act mandates 4.0 billion gals in
2007 7.5 billion gals in 2012
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Fuel Ethanol Market Update
SHORT TERM MTBE phase-out 2006 10 mandates
in MN, MT, HI WI and MO considering the same MN
even testing for 20 approval Federal subsidy of
51 cpg Likely Ethanol shortage Domestic
production insufficient
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Fuel Ethanol Market Update
US needs imports near-term Brazil principal
source Ethanol use in gasoline there Vulnerable
to sugar prices, weather Shipping costs
significant Other markets India, China
CBI - up to 7 of total US use Avoids 54 cpg
duty
Europe Increased local demand Importers, not
exporters
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Fuel Ethanol Market Update
LONGER TERM Overcapacity New uses for
ethanol needed E85 - 600 of 165 k
stations Biodiesel Exports New plants larger,
more economical RFS requirements far below
capacity, lack clear direction
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Fuel Ethanol Market Update
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Fuel Ethanol Market Update
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Fuel Ethanol Market Update
SUMMARY Ethanol - here to stay Public
opinion - pros cons President Bush
comments Energy Act volume requirements Other
state mandates as well
Pending clear direction for RFS Enforcement of
target volumes
Tight market near term, then oversupply High
prices overbuilding Rationalization may
occur New uses may be developed
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Fuel Ethanol Market Update