www.eia.gov U.S. Energy Information Administration Independent Statistics & Analysis

Biofuels Workshop Institute of Medicine, National Academy of Sciences January 24, 2013 | Washington, DC By Howard Gruenspecht, Deputy Administrator

Biofuels in the United States: Context and Outlook

Topics addressed • Current role of biofuels

• Biofuels outlook – EIA’s Annual Energy Outlook 2013 Reference case

• Biofuels and fuel market segmentation

• Biofuels in the context of multiple policy issues

2 Howard Gruenspecht January 24, 2013

Liquid biofuels currently provide about 1 percent of total U.S. energy

3

0

20

40

60

80

100

120

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

U.S. primary energy consumption quadrillion Btu

Source: EIA, Annual Energy Outlook 2013 Early Release

History 2011

36%

20%

26%

8% 8%

1%

Shares of total U.S. energy

Nuclear

Oil and other liquids

Liquid biofuels

Natural gas

Coal

Renewables (excluding liquid biofuels)

2000

23%

39%

24%

6% 8%

Howard Gruenspecht January 24, 2013

Nuclear

Oil and other liquids

Liquid biofuels

Natural gas

Coal

Renewables (excluding liquid biofuels)

The import share of U.S. liquid fuels use has been declining since 2005

4

0

5

10

15

20

25

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

U.S. liquid fuels supply million barrels per day

Source: EIA, Annual Energy Outlook 2013 Early Release

45%

38%

12% Natural gas plant liquids

Petroleum production

Net petroleum and biofuel imports

5%

Liquids from natural gas and coal

Biofuels excluding imports

Howard Gruenspecht January 24, 2013

0

5

10

15

20

25

30

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Transportation sector motor gasoline has been declining since 2007

5

Transportation energy consumption by fuel quadrillion Btu

60%

11%

Source: EIA, Annual Energy Outlook 2013 Early Release

2% 4%

22%

Motor gasoline

Jet fuel

Pipeline fuel

Other

Diesel

Howard Gruenspecht January 24, 2013

History

0%

2%

4%

6%

8%

10%

12%

2000 2004 2008 2012

volume

energy

Despite recent growth, ethanol and biodiesel provide a modest share of U.S. motor fuels

6 Howard Gruenspecht January 24, 2013

Source: EIA, Short-Term Energy Outlook, November 2012.

Ethanol share of gasoline

Biodiesel share of distillate

Biofuel consumption

Ethanol is cheaper than gasoline on a volume basis

7 Howard Gruenspecht January 24, 2013

Gasoline and ethanol prices and ethanol margins Dollars per gallon

Source: Calculated from USDA Agricultural Marketing Service, National Weekly Ethanol Summary http://www.ams.usda.gov/mnreports/LSWEthanol.pdf; Thomson-Reuters Henry Hub natural gas prices, http://www.eia.gov/dnav/ng/hist/rngwhhdd.htm; Weekly U.S. Gulf Coast Conventional Gasoline Regular Spot Price FOB, http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EER_EPMRU_PF4_RGC_DPG&f=W. .

$0.00

$1.00

$2.00

$3.00

$4.00

2009 2010 2011 2012 2013

Ethanol Margin (Corn Oil) Gulf Coast Motor Gasoline Iowa ethanol

…..but more expensive than gasoline on an energy content basis

8 Howard Gruenspecht January 24, 2013

Gasoline and ethanol prices and ethanol margins Dollars per million Btu

Source: Calculated from USDA Agricultural Marketing Service, National Weekly Ethanol Summary http://www.ams.usda.gov/mnreports/LSWEthanol.pdf; Thomson-Reuters Henry Hub natural gas prices, http://www.eia.gov/dnav/ng/hist/rngwhhdd.htm; Weekly U.S. Gulf Coast Conventional Gasoline Regular Spot Price FOB, http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EER_EPMRU_PF4_RGC_DPG&f=W. .

0

10

20

30

40

2009 2010 2011 2012 2013

Ethanol Margin (Corn Oil) Gulf Coast Motor Gasoline Iowa ethanol

Biodiesel costs more than than diesel fuel

9 Howard Gruenspecht January 24, 2013

Diesel prices, biodiesel prices, and biodiesel margins Dollars per gallon

Source: Calculated from USDA Agricultural Marketing Service, National Weekly Ag Energy Roundup, http://www.ams.usda.gov/mnreports/LSWAgEnergy.pdf; National Weekly Ag Energy Roundup and Methanex historical methanol prices, http://www.methanex.com/products/documents/MxAvgPrice_Feb282012.pdf. EIA, Weekly U.S. Gulf Coast Ultra-Low-Sulfur No. 2 Diesel Spot Price, http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EER_EPD2DXL0_PF4_RGC_DPG&f=W.

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2009 2010 2011 2012

Iowa Biodiesel U.S. Gulf Coast Diesel

Biodiesel Margin

Since 2010, the United States has been a net ethanol exporter; we have two-way ethanol trade with Brazil

10 Howard Gruenspecht January 24, 2013

Imports and exports Million gallons

* 2012 data includes actual data through October plus estimated data for November and December. Source: EIA, U.S. Imports of Fuel Ethanol by Destination,

http://www.eia.gov/dnav/pet/PET_MOVE_IMPCUS_A2_NUS_EPOOXE_IM0_MBBL_M.htm.

-1200

-600

0

600

1200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U.S. Imports from Brazil U.S. Exports to Brazil

Total U.S. Imports Total U.S. Exports

imports

exports

*

As tax incentives are phased out, biofuels policy is increasingly focused on mandates • Three Federal tax incentives expired at the end of 2011 – one

remains – Ethanol blending tax credit (45 cents per gallon) – Biodiesel blending tax credit ($1 per gallon) – Ethanol import tariff (54 cents per gallon) – The tax credit for cellulosic ethanol ($1.01 per gallon) was scheduled to expire at

the end of 2012, but was extended in the “fiscal cliff” legislation • Renewable Fuels Standard

– Enacted with Energy Policy Act of 2005 (RFS) and expanded by the Energy Independence and Security Act of 2007 (RFS2)

• California continues to pursue its Low Carbon Fuel Standard

– State policy to reduce greenhouse gas emissions from motor vehicles.

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The targets for cellulosic biofuels are very ambitious

Howard Gruenspecht January 24, 2013

Renewable Fuels Standard requirements Billion ethanol-gallon equivalents

Year Total Biofuel

(including Advanced)

Advanced Biofuel

(including Cellulosic and

Biodiesel)

Cellulosic Biodiesel

(physical gallons) Statutory Goal

EPA Final Rule

2009 11.1 0.6 0 0.00650

2010 12.95 0.95 0.1 1.15

2011 13.95 1.35 0.25 0.00600 0.8

2012 15.2 2 0.5 0.01045 1

2013 16.55 2.75 1 ? 1.28

2014 18.15 3.75 1.75 ? ?

2015 20.5 5.5 3 ? ?

2016 22.25 7.25 4.25 ? ?

2017 24 9 5.5 ? ?

2018 26 11 7 ? ?

2019 28 13 8.5 ? ?

2020 30 15 10.5 ? ?

2021 33 18 13.5 ? ?

2022 36 21 16 ? ?

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The Outlook for Biofuels: AEO2013 Reference case projections

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Key results from the AEO2013 Reference case:

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• Growth in energy production outstrips consumption growth • Crude oil production, particularly from tight oil plays, rises sharply over

the next decade • Natural gas production grows faster than in previous projections, serving

the industrial and power sectors and an expanding export market • Motor gasoline consumption reflects the introduction of more stringent

fuel economy standards, while diesel fuel consumption is moderated by increased natural gas use in heavy-duty vehicles

• The U.S. becomes a larger exporter of natural gas and coal than was projected in earlier projections

• All renewable fuels grow, but biomass and biofuels growth is slower than in previous projections

• U.S. energy-related carbon dioxide emissions remain more than five percent below their 2005 level through 2040, reflecting increased efficiency and the shift to a less carbon-intensive fuel mix

Howard Gruenspecht January 24, 2013

U.S. energy use grows slowly over the projection reflecting improving energy efficiency. Liquid biofuels gain share but remain a small source.

15

0

20

40

60

80

100

120

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

U.S. primary energy consumption quadrillion Btu

Source: EIA, Annual Energy Outlook 2013 Early Release

History Projections 2011

36%

20%

26%

8% 8%

1%

32%

28%

19%

11%

9% 2%

Shares of total U.S. energy

Nuclear

Oil and other liquids

Liquid biofuels

Natural gas

Coal

Renewables (excluding liquid biofuels)

2000

23%

39%

24%

6% 8%

Howard Gruenspecht January 24, 2013

0

5

10

15

20

25

30

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Transportation sector motor gasoline demand is projected to fall further

16

Transportation energy consumption by fuel quadrillion Btu

Projections History 2011

60% Motor gasoline

E85 Jet fuel

CNG/LNG 11%

13% 4%

29%

47%

Source: EIA, Annual Energy Outlook 2013 Early Release

2%

Pipeline fuel 3%

4%

Other 4%

Diesel 22%

1%

Howard Gruenspecht January 24, 2013

U.S. tight oil production leads a growth in domestic crude oil production of 2.6 million barrels per day between 2008 and 2019

17

0

2

4

6

8

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

U.S. crude oil production million barrels per day

Source: EIA, Annual Energy Outlook 2013 Early Release

Tight oil

Alaska

Other lower 48 onshore

Lower 48 offshore

Projections History 2011

Howard Gruenspecht January 24, 2013

U.S. import share of liquid fuels falls due to increased production of tight oil and gas liquids, and greater fuel efficiency

18

0

5

10

15

20

25

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

U.S. liquid fuels supply million barrels per day

Source: EIA, Annual Energy Outlook 2013 Early Release

Projections History

Natural gas plant liquids

Petroleum production

Biofuels excluding imports

Net petroleum and biofuel imports

17%

7%

37%

38%

45%

38%

12%

5%

Liquids from natural gas and coal 1%

2011

Howard Gruenspecht January 24, 2013

Biofuels grow at a slow rate due to lower near-term crude oil prices and slow growth in sales of high-percentage ethanol blends such as E85

19

Renewable fuel standard credits billions ethanol-equivalent gallons

Sources: EIA, Annual Energy Outlook 2013 Early Release and EIA, Annual Energy Outlook 2012

0

5

10

15

20

25

30

35

40

2011 2022 2040

Other Advanced

Legislated RFS in 2022

Biodiesel Net imports

Cellulosic biofuels

Corn ethanol

RFS with adjustments under CAA Sec.211(o)(7)

Howard Gruenspecht January 24, 2013

Two closing scene setters

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Biofuels can play several different roles in the very complex market for motor fuels

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• Ethanol competes, or could compete, in three distinct market segments, with very different economic characteristics:

– Octane source

– Volume extender

– Energy content provider

• Ethanol is facing significant challenges in moving beyond its current roles as a source of both octane and volume

– Blend wall

– Availability of E85 and other high percentage blends

– Challenging economics of pricing of E85 and other high percentage blends to be competitive on an energy content basis

Biofuels intersect with multiple policy issues

22 Howard Gruenspecht January 24, 2013

Petroleum import dependence How do biofuels fit in relative to other potential import reducers, including additional vehicle efficiency improvements, increased reliance on natural gas as a transportation fuel (LNG, CNG, or GTL), increased domestic petroleum liquids production, electric vehicles, etc.?

Scale issues limiting the potential contribution of biofuels to the energy system

Greenhouse gas mitigation How do biofuels fit in with other possible uses of biomass for energy or other purposes related to GHG mitigation?

Rural economic development, food, water, environmental and health policy

There are likely to be important interconnections here, but others are better equipped to identify the key questions.

For more information

23 Howard Gruenspecht January 24, 2013

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