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8/2/2019 Trends in Brazil's Ethanol Industry - Ethanol Trading BF2008
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October, 2008
Roberto Giannetti da Fonseca
The ideas and suggestions contained in this presentation are our intellectual property and,
therefore, subject to the prevailing laws concerning authorship. Total or partial publication ordistribution to third parties is not permitted.
Prepared by:
8/2/2019 Trends in Brazil's Ethanol Industry - Ethanol Trading BF2008
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Agenda: Trends Agenda: Trends
Sustainability
Trends in Production
Consumption – domestic market
Consumption – foreign markets
What lies ahead!
Trends in Brazil’s Ethanol Industry
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Economical
Should not compete with food. Biofuels should not createinflationary pressure
Sugarcane
Should be competitive without subsidies.
Product mix to increase revenue: cogeneration represents20% of revenue stream – investment increase capacity;
Technology improvements on agriculture efficiency andyields (feedstock is 70% of cost), and on industrial process;
Cellulose from sugarcane bagasse and gasefication of vinasse.
Sustainability: 3 Pillars
Social
Rural development
Mechanical harvesting – more than 50% in São Paulo State, andmust be 100% by 2014. Pace must be controled no to create asocial problem, once this is the most labour intensive activity of
the industry; Technical training
Ethanol Production must be sustainable:
Economical, Social and Environmental!
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Environmental
Ethanol production should lower the Carbon Footprint
GHG life-cycle will be a criteria for US and EU markets
Zoning for development of Sugarcane: São Paulo first and now Brazilalready mapped and defined areas that production will be authorised.
37 milion hectares mapped and identified on zoning criteria
Production should grow in degrated pasture land.
Sugarcane and other crops will grow only based in higherproductivity in cattle farming.
Sustainability: 3 Pillars
Brazil is now aware that sustainability is mandatory for the
development of the ethanol marketsSource: ICONE, Valor Economico, MAPA, - Elaboreted by Ethanol Trading, * Projections by ICONE
2006 2018*
Pasture 172 162
Other Crops 70.8 81.4
Sugarcane 6.2 11.8
Sugar 3.1 4.1
Ethanol 3.1 7.7
Land Allocation (Mi. ha)
3% of allocated land
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Source: UNICA , F.O. Licht, USP *Elaboreted by Ethanol Trading
Ethanol Production: Brazil and World
USA, the largest producer of ethanol,forecasted to produce 15.3 Bi gallons by
2015 – corn based
Brazil, based on sugarcane, as thesecond largest producer of ethanol isforecasted to produce 12.4 Bi gallons of
ethanol by 2015/16.
BRAZIL Unit 2007/8 2015/16 2020/21Sugarcane Production Mi tonns 430 829 1,038
Harvest Area Mi. hectares 6.3 11.4 13.9
Sugar Production 30.2 41.3 45.0
domestic 12.2 11.4 12.1
exports 18.6 29.9 32.9
Ethanol Production 5.9 12.4 17.3
domestic 5.0 9.1 13.1
exports 1.0 3.2 4.1
BioElectricity - Cogeneration MW 1,800 11,500 14,400
Mi. tonns
Bi. gallons 75%
25%
15% of Brazil’s Energy MixWorld
DomesticMarket
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Source: UNICAMP, Dedini and UNICA *Team analysis and forecast
Over the next 5 years it isestimated that US$ 33 billionswill be invested in this industry:
80 new projects
INVESTMENTS
Trends:
Industry
Consolidation
M&A
Marketing
Alliances
Marketing Alliances: Copersucar S.A. & Allicom (São Martinho), CrystalSev
M&A & Greenfields
Traditional Brazilian groups: Cosan, Santaelisa/Vale,
New Groups: Brenco, ETH, Infinity
Foreign Companies: partnering & greenfield
Major trading houses: Bunge & Itochu, Cargill, Dreyfus, ADM
Energy Companies: BP, Abengoa
Financial Investors: domestic and International (Gavea , CSFB, Khosla )
Ethanol Production – Supply base Brazil
EXAMPLE OF PLAYERS
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Ethanol Production: Smaller Scale Units
Source: Alcompac
Sugarcane based – 3 plant sizes!
Require less area in the proximity of plant
Much lower investment requirement
Producing ethanol and bio-electricity atcompetitive cost.
Pilot project in operation
Pilot project in Jaiba – North of Minas Gerais
DAEG – Destilaria Aviador Edward Gomes, owned byIBÁ Bioenergia S.A.
Production capacity of 10,000 liters/day
10,000/d 30,000/d 60,000/dHarvest area hectares 394 1,181 2,363
Crushing capacity / season tons 31,500 94,500 189,000
Production/day liters 10,000 30,000 60,000
Production/day gallons 2,642 7,925 15,850
Production/season gallons 554,761 1,664,284 3,328,568
Alcompac UnitsPlant Size
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Consumption: Domestic Market – main market
Hydrous
Anhydrous
Gasolina AGasoline C(E20 – E25)
E100 - FFV
48.8%
16.3%
34.9 %
Since March 2008, ethanol represents more than 50% of Brazil’s otto-cycle fuel consumption.
In 2007, Brazil consumed 2.5 Bi gallons of hydrous Ethanol and 1.6 Bi gallons of anhydrous
blended with gasoline
Otto-Cycle Fuel Consumption in BrazilJan 2000 to Aug 2008
Consumer decision. NotMandatory
Available in 33,000 gasstations across the country
Source: ANP - Elaborated by Ethanol Trading – pices refer to State of São Paulo in August 2008.
Price at the Pump: R$ 1.20 liter *
100% of Brazilian Gasolineis blended – from 20 to
25% ethanol, defined bythe government.
Price at the Pump: R$ 2.40 liter *
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Consumption: Domestic market is FFV
Source: ANP, ANFAVEA – elaboreted by Ethanol Trading
FFV is the driver to future increasing consumption of ethanol on the world market;
FFV started to be supplied in Brazil in March 2003, currently represents over 90% of new cars sold
and aprox. 25% of the entire fleet, today close to 6 Mi. FFV on Brazilian streets;
Consumer made an option! Thus, manufactures don’t have a choice any longer! They must offer FFV !!!
Why not to have FFV available to consumers worldwide ? : a energy hedge for countries and drivers !!!
Flex - FFVAlcohol
Gasoline10.96%
89.03%
New Vehicles Fleet
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Consumption: new uses!
Ethanol to Polyethylene
First FFV motorcycle
Bio-Chemestry BioPlastic
Source: UNICA, FT - Elaborated by Ethanol Trading
On sale from March 2009
Consumer decision of fuel – gasoline or ethanol
300 cc – Delphi Automotive // Amazonas MotocicletasEspeciais
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Exporting the Brazil Ethanol Experience
Regulatory FrameworkRegulatory Framework
AgricultureIndustrial
&Processing
ManagementDistribution
&Marketing
Markets&
Consumers
World Ethanol and Sugarcane Production in 2007
Source: F.O. Licht, UNICA, FAO, Elaborated by Ethanol Trading-
Potential for Sugarcane Ethanol Production
Brazil is increasing exports of its sugarcane based Ethanol Experience For the entire BioEnergy value chain: from “crop to cars”!
Market and regulation must be secured to promote production in other parts of the world.
There is a huge potencial to increasesugarcane based ethanol productionaround the world.
Areas that could grow sugarcane for ethanol
Ethanol SugarcaneMi Gallons Tonns
US 6,508 Corn 27,750,600
Brazil 5,026 Sugarcane 514,079,729
EU 569 Beetroot / Wheat 60,000
China 487 Corn / Cassava / Wheat 106,316,000
Canada 212 Corn / Wheat -
India 106 Sugarcane 355,520,000Thailand 79 Cassava / Sugarcane 64,365,682
Colombia 75 Sugarcane 40,000,000
Central America 40 Sugarcane 27,340,800
Australia 26 Sugarcane 36,000,000
Pakistan 9 Sugarcane 54,752,000
Paraguay 5 Sugarcane 3,400,000
Others 16 328,080,167Total 13,158 1,557,664,978
Country Main Feedstocks Used
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Thous. gl US$ Thous. gl US$ gl US$
USA 214,716 350,556,380 341,119 640,505,150 59% 83%
CBI 212,599 320,760,783 287,704 486,357,557 35% 52%
EUROPEAN UNI. 142,671 239,789,664 262,720 448,726,908 84% 87%
AFRICA 39,449 64,897,751 21,746 39,071,157 -45% -40%
SOUTH AMERICA 3,766 7,132,346 4,189 7,754,886 11% 9%
ASIA 86,353 142,789,907 67,838 109,346,872 -21% -23%
OTHERS 22,370 36,214,843 15,517 29,918,850 -31% -17%
TOTAL 721,924 1,162,141,674 1,000,832 1,761,681,380 39% 52%
JAN-SEPT 2007 JAN-SEPT 2008 % Change 08/07
BRAZIL EXPORTS
Foreign Markets: Brazil Ethanol Exports
Source: SECEX - Elaborated by Ethanol Trading
Share of Brazil ExportsJan – Sep 2008
63%
1 Bi Gallons exported in 2008 (Sep) – 39 % more than same period of2007.
When compared to 2007, maingrowth was direct exports to US
(59%) and to European Union (84%) CBI – Hydrous ethanol; indirect
exports to US
US Summer &Brazilian Harvesting Season
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Foreign Markets: Brazil Ethanol ExportsMonthly Brazil Ethanol Exports
Jan 2006 – Sep 2008 (gallons)
Monthly Shares Brazil Ethanol ExportsJan 2006 – Sep 2008 (%)
US
CBI
Rest of the World
Total Brazil
CBI
US
Source: SECEX - Elaborated by Ethanol Trading
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Main Foreign Market: US Ethanol Imports
US Ethanol Imports (‘000 gallons)
Brazil
CBI
Brazil
Jamaica
Trinidad Tobago
El Salvador
Costa RicaCanada China
Virgin Islands
Share of US Imports – Country of Origin
US Total Ethanol Imports
From Jan 1993 to Jul 2008 (thousand gl)
Summer 2006MTBE substituition
Summer 08Floods inMid-West &Corn @ U$$8,00/ bushel
Due to US$ 0,54/galimport tariff:
Brazil’s direct exports tothe US market are spotand market windows.
Or Brazilian hydrous isdehydrated in CBIcountries.
Source: DoE - Elaborated by Ethanol Trading
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What lies ahead: logistics!
Share per Ports of Brazil’s Ethanol Exports
Brazil needs to solve its internal logistics problems:
To the port: currently ethanol is mainly trucked to ports
Ethanol dedicated pipeline to ports: many projects under discussions; 3 only to the port of Santos!
also important to increase rail freight to port
Ports: Almost 70% of Brazil’s Ethanol Exports are through Santos – already on the limit. Demurrage is an issue!
Logistics in foreign markets: Brazilian companies are starting to invest in terminals overseas to be able to getcloser to final clients.
Source: SECEX - Elaborated by Ethanol Trading
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What lies ahead: technology!
Production
of Ethanol
Cogeneration
Sugarcane Crop varieties: increase yields, reduce water usage, reducefeedstock costs – Brazilian companies are investing in sugarcane genetics
Cellulosic technology, enzimatic or acid hydrolises, will allow fast increasein ethanol production with higher environmental and economic benefits (alsoend the food vs. fuel discussion).
Sugarcane Bagasse will help to bridge Brazil’s energy projected gap
Retrofit and greenfield: increase investments in cogeneration
Technology developments driving this industry: High pressure boilers Reduction of steam waste on operations Bagasse and straw (top)
Gasefication of vinasse (future)
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90% Gasoline blended with 10% Ethanol
Ethanol as an additive to gasoline
Mandatory Market by Government Legislation
and Regulation
Compulsory and Firm Demand
100 % Auto Fleet in the Region/State
Existing Gas Station Pump Terminals
15% Gasoline blended with 85% Ethanol
Ethanol as a substitute to gasoline
Voluntary Market / Fuel Switchers
Price Oriented and Volatile Demand
Only Flex Fuel Vehicles – FFV’s
Required new Pumps on Gas Stations
US could import Brazil Ethanol tariff free only for the E85 market.
Dyed ethanol – not to mix with E10 market (special RIN)
There are more than 6 million FFV vehicles in the US, but only 1,800 pumps of E85 in the entire country
E85 market does not compete with, mandatory, E10. Would help to achieve RFS targets and to promote ethanolconsumption in the US.
What lies ahead: market access!
E10 E85
Two Products: Two Markets
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Energy Security is not Energy Independency,
Energy Security is Energy Diversity!
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