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Status of the Kansas Ethanol Industry Production, Transportation & Profits

Status of the Kansas Ethanol Industry Production, Transportation & Profits. Daniel O’Brien, Ph.D. Extension Agricultural Economist K-State Research and Extension. Kansas Ethanol Production (2005-2008*). The Kansas Ethanol Industry Plants In-Production as of August 1, 2008.

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Status of the Kansas Ethanol Industry Production, Transportation & Profits

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  1. Status of the Kansas Ethanol IndustryProduction, Transportation & Profits Daniel O’Brien, Ph.D. Extension Agricultural Economist K-State Research and Extension Special Committee on Energy & Environmental Policy Kansas Legislature August 20, 2008

  2. Kansas Ethanol Production(2005-2008*)

  3. The Kansas Ethanol IndustryPlants In-Production as of August 1, 2008

  4. The Kansas Ethanol Industry (more)Plants Off-Line or Under Construction as of 8/1/08 • Other Ethanol Plants Under Consideration: • Abengoa, Hugoton (115 MGY: 85 MGY Grain-based + 30 MGY Cellulosic) • Everton Energy, Concordia (100 MGY) ???? • Others ????

  5. U.S. Ethanol IndustryComparing Years 2006 & 2008 20062008 • Number of operating ethanol plants: 97163 • Plants under construction or expanding: 3547 • Announced plants: 300 (17%)??? • Current production capacity: (BGPY) 4.89.5 • Projected production capacity: 12.4 BGPY end of 2008 13.6 BGPY end of 2009 • Corn Used for Ethanol Production & % of U.S. Crop: Bu. (mln.)% of U.S. Crop 2006/07 – 2,100 20% 2007/08 – 3,000 23% 2008/09 – 4,100 33%

  6. Kansas Feedgrain Supply-Use • Grain ethanol production at current plant capacitywould use 153 million bushels of feedgrains / year • 27% of 2005-2007 avg. corn production (566 mln. bu.) • Livestock feeding estimates averaged 158 million bushels / year over 2005-2007 period • Kansas Imports of Supplemental Feedgrains • Predominant inter-state sources: Iowa & Nebraska • Projected feedgrain deficits in Nebraska & Iowa in the near future due to in-state ethanol development

  7. Max. Potential DDG Feed Use & Supply (2005-2008*)

  8. Ethanol Production Capacity In Useby Crop Reporting District (2005-2008*)

  9. Regional Grain Use By Ethanol PlantWestern Kansas Locations

  10. Regional Grain Use By Ethanol PlantCentral & Eastern Kansas Locations

  11. Comparative Transportation Advantages of Kansas Ethanol Plants • WDGS Sold to Local Cattle Feeders • Lower drying / natural gas costs • Selling 50% of Denatured Ethanol via Truck to Blenders within 150 miles of Plants • Reduced cost vs plants relying on rail transportation • Reduced Rail Transportation Cost of Denatured Ethanol to Western U.S. • Geographic cost advantagefor the Western Corn Belt

  12. Trucking Needs of Kansas Ethanol Plants • Assumptions • 100% of feedgrains transported by truck to plants • 50% of ethanol transported by truck (50% by rail) • 90% of Distiller’s Grains sold in “Wet Cake” form(i.e., Wet Distillers Grains) • Quantities per Truckload • 1 truckload of feedgrains = 950 bushels • 1 truckload of Ethanol = 9,000 gallons • 1 truckload of WDGs = 25 tons

  13. Daily Trucking Use by Ethanol Plants Kansas estimates as of August 1, 2008*

  14. Annual Trucking Use by Ethanol Plants Kansas estimates as of August 1, 2008*

  15. Ethanol-Related Costs for the Kansas Trucking Industry / Year (July 2008 estimates)

  16. Corn Ethanol & WDG $Value vs Corn $Nebraska / Kansas #s, February 2007 - August 15, 2008

  17. Ethanol Profit MarginEst.($ / gallon) PricesJuly 07Aug 08Change Corn ($/bu.) $3.27 $5.09 1 +58% Ethanol $/gal $1.91 $2.10 +13% RBOB Gas $/gal $1.98 $2.84 +51% Profit Margin +0.26+0.01 2 1 Prices Aug 12, 2008. Breakeven corn price - $5.15 2 Ethanol profit for a 100 million gallon plant = $1 million Distiller’s Grain revenue would be about $54.6 million. To compete with gasoline as substitute, ethanol price would need to fall to $1.88 per gallon.

  18. NE-KS Ethanol ProfitabilityCalculated Returns per Gallon: February 2007 - August 15, 2008

  19. Questions or Comments? K-State Agricultural Economics Extension Website: www.AgManager.info Special Committee on Energy & Environmental Policy Kansas Legislature August 20, 2008

  20. Supplemental Reference Information Special Committee on Energy & Environmental Policy Kansas Legislature August 20, 2008

  21. Ethanol’s Impact on Irrigation • Increased water use due primarily to increased corn acreage, secondarily to more intensive irrigation / acre  Effect of Ethanol Demand • Greater Irrigated Corn Acreage • Higher profitability of corn vs alternative crops • More Intensive Irrigation per Acre • Impact of  corn$ on irrigation cost-benefit decisions • Greater water use for corn vs alternative crops • Other Analysis: Jeff Peterson @ KSU

  22. Water Use by Ethanol PlantsFor Grain Dry Milling Processes • Process Water 33% of Plant Use • Water in contact with grain • Mixing, slurry, fermentation, saccharification processes • Non-Process Water 67% of Plant Use • Water not coming in contact with grain • 90% of non-process water used in heating-cooling • Plant Water Use: 4.23 gal. / gal. ethanol • Water use for a 40 mln gal. capacity Ethanol Plant water use by 2 ¾ pivot irrig. systems / yr (18-20 a.i.)

  23. Net Energy BalanceAlternative Energy Sources ProductEnergy Out / Energy In Gasoline 0.81 Ethanol from grain 1.67 Ethanol from cellulose 2.00 Diesel 0.83 Bio-diesel 3.20 Source: Congressional Research Service, RL32712, May 18, 2006

  24. Input-Output Values of Oil vs Corn $100 worth of:Will produce: Oil@ $120/barrel16.6 gal. of gasoline 11.6 gal. of diesel Corn @ $5/barrel 56 gal. of ethanol  40 gal. of gasoline

  25. Comparing Corn & Cellulosic Ethanol CornCellulosic Capital cost per gallon $2.00 $5-6.00 est. Raw mat. cost per ton $200 $100 Enzyme cost per ton $3.15 $33.00 Ethanol yield per dry ton 100-110 gal. 75-90 gal. Conversion process simple complex Water use per gallon 3-5 6-10 Processing time, days 2 7 Cost of prod. per gallon $2.00 $3.50 est. Sources: Testimony of Keith Collins, USDA Chief Economist, 26 Aug. 2006; Popp and Hogan presentation at Farm Foundation Conference 12-13 April 2007; and M. Woolverton calculations.

  26. Ethanol Plant Economics • Cost to build a 100 MGPY plant:$160 million • Purchases: 37-39 million bushels of corn • 240,000 acres of Irrigated Corn @ 163 bu. /acre in Western Kansas • Daily water use:1.5 million gallons • Natural gas expense:$15 to $25 million • Payroll expense: $2 million / year • Distiller’s Dried Grains income: $25 million / year • CO2 income: $4 million /year (?????) • Goal:30% R.O.I.

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