Biodiesel Industry Overview

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Biodiesel Industry Overview
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Diesel Usage by Sector
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Demand Benchmarks

• Assumptions
• RFS of 7.5 billion gallons
• Biodiesel will serve 15 of RFS demand
• RFS 7.5 billion x .15 1.125 BGY of biodiesel

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Diesel Use by Sector
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RFS Projections
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U.S. Biodiesel Production
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Biodiesel Capacities

• 45 biodiesel plants with dedicated capacity of
  180 MGY
• Convertible capacity is estimated at 110 MGY
• 54 facilities under construction or under
  consideration in 30 states with an additional
  600 MGY capacity (2005)
• 200 projects under consideration with over
  2.5 BGY
• 18 under consideration in Iowa
  

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Biodiesel Capacities cont.

• 5 newest mid-western plants add 150 MGY
• New plants range in size from 1-60 MGY

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U.S. Biodiesel Production
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Balancing Demand and Capacity
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Feedstock

• Vegetable Oil
• Seed Crushing
• 29 Billion Pounds a Year
• Animal Fat
• Animal Harvesting
• 12 Billion Pounds a Year

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Feedstock Uses

• Human Food
• Baking or Frying
• Salad or Cooking Oils
• Margarine oils
• Confectionary fats
• Animal feed, Lubricants, Paints, Varnish, Resins,
  Plastic and Soap
• 38 Billion Pounds a Year

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Feedstock Carryover

• 2.5 Billion Pounds Vegetable Oil
• 1.8 Billion Pounds Soybean Oil
• 0.7 Billion Pounds Corn, Palm, Cottonseed
  Others
• 0.4 Billion Pounds Animal Fats
• 0.36 Billion Pounds Inedible Tallow Yellow
  Grease
• 0.04 Billion Pounds Edible Tallow Lard

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Feedstock to Biodiesel

• 2.9 Billion Pounds of Oils or Fats
• 7.65 Pounds of Oils or Fats per Gallon
• 379 Million Gallons of Biodiesel per Year
• 1.5 gallons/ bushel of soybeans

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Biodiesel Pressures Feedstock Price

• New Demand on Oil Fats will Increase Feedstock
  Price
• Which Use will be Priced Out of the Market?
• Human Uses Animal Feed Industrial
• Or Biodiesel

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Will supplies adjust?

• We wont run out of vegoil/fats
• In the short run it may look like we will
• Extreme volatility with price run-up likely
• Food end users making plays already
• Price will ration
• Oil seed producers will innovate
• High prices make other feedstock sources feasible
• Palm is most likely to expand

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Soy meal Constraint?

• DDG is huge competitor 12.32 MMT in 05/06
• Domestic soy meal use could drop
• Meal price will become global competitive (as in
  very cheap)
• Crush for oil and price meal for clearance
• Crush margins will eventually suffer

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Scenario Planning

• Three studies
• lt120 meal
• .35 oil
• Little impact on bean price
• Feed protein glut
• New meal volumes must be exported

Consider 40 crude petroleum
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Is US Soy Competitive?

• Palm oil yields in Malaysia about 3.9MT/ha
• Canola oil yield in EU about 1.34 MT/ha
• Soy oil yield in US is about 0.55 MT/ha
• Sunoil yield Ukraine is about 0.42 MT/ha

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Business Model

• Close to Market or Close to Feedstock?
• Global, National or Local market?
• Strategic partner financial integration?
• Back integrated?
• Forward integrated?

Look for Platform Plays to emerge
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Stand-alone Business Model

• Refineries never remain stand-alone
• Business plan built on todays economics means
  certain death
• Find ways to integrate key chain functions
• Must be very strategic on location
• Roll-up or MA target strategy?

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Virtually Integrated

• Partnered with REG or other aggregators
• Vested strategic partners

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Full Equity Model

• Seattle waste grease plant
• No borrowed money
• Novel tech
• Local market

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Global Business Model

• Dow Halterman Houston, Texas
• Deep water
• Toll processor (World Energy)
• Produce in EU and US
• Source and sell globally

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Chain Integrated Business Model

• Dreyfus in Claypool, Indiana
• Bean origination
• 50 mil bushel crush
• 80 mil gallon biodiesel
• Trans/Log issues handled
• Long-term off-take agreements
• Import/Export capability

Dreyfus is claiming its position among the ABCDs
by adding Biodiesel into the processing mix.
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Lender Perspective

• Loads of uncertainty
• Concentrated feedstock sellers
• Renewal of the blenders credit
• Product demand
• Bundle working capital with term
• They want in but on their terms
• 7 to 10 year term on 20 year life facility?
• Cash sweep on operating profits to pay down half
  the debt in three years.

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Lender PerspectiveWorking Capital

• May need ten times ethanol
• depends on biz model
• 15 to 40 cents per capacity gallon
• Some recommend one year debt reserve
• Shutdown scenarios
• Consider catastrophic cash flow scenarios
• (40 crude)
• .35 cent vegoil
• Supply interruption
• Transportation interruption

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Large Investor Perspective

• Very Risky. (need higher baseline IRR)
• Hate novel technologies
• Few companies working on demand side
• Must be a low cost producer
• Must have off-take truly tied in
• Loss of subsidies would be fatal
• Experienced management tough to find

Tons of people doing projects very few forming
businesses
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Risk Management

• Cross hedges difficult and risky
• Basis risk is tough
• (1.20 basis shift in ethanol vs. Nymex)
• Risk premiums high in many off take agreements
• Align for supplystay nimble on price
• Know you can get it gone
• Risk premiums high for feedstock agreements
• Align for supplystay nimble on price
• Know you will have feedstock

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Risk

• Few/strong players control feedstock
• Massive global growth
• US is not (nor will be) least cost
• Market drivers are tenuous (sulfur)
• Fighting the food market for feedstock (moral
  dilemma)

Tons of people wanting to make biodiesel few are
working on demand
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Certainty??

• Feedstock issues are paramount
• Vegoil price will rise
• Rail tanker car crunch
• New crush requires meal exported
• Meal price will drop
• Stand-alone refineries will be vulnerable

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Contact Us

• For more information
• ISU Value Added Ag Program
• 1111 NSRIC
• Ames, IA 50011
• 515-294-0588
• www.iavaap.org
• www.agmrc.org

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Questions About Technical Issues?

• www.biodieselbasics.com, or contact
• Rudy Pruszko
• Center for Industrial Research and Service
  (CIRAS)
• Iowa State University Extension
• NICC Town Clock Center
• 680 Main Street
• Dubuque, Iowa  52001-6818
• Phone [phone] ext 251
• rpruszko_at_iastate.edu