fuel ethanol in texas: opportunities challenges

1. Fuel Ethanol in Texas: Opportunities & Challenges �Road to Renewables �06� Ethanol & Biodiesel Workshop and Expo James Peeples Austin Airport Hilton February 15, 2006

2. U.S. Fuel Ethanol Market Overview U.S. demand for fuel ethanol has surged past 4 billion gallons in 2005 U.S. production capacity is expected to exceed 5 billion gallons per year in 2006 Over 50 production facilities under construction in the U.S. in 2006 The U.S. will surpass Brazil in production & use of fuel ethanol in 2006 Third generation technologies emerging to use wide range of feedstocks in addition to grains & other crops (biomass, energy crops, MSW, etc.)

3. U.S. Fuel Ethanol Market Overview Fuel ethanol now used in >15% of all U.S. gasoline Fuel ethanol is lowest net cost octane enhancer to reduce SI engine emissions Fuel ethanol is most cost-effective diesel fuel oxygenate (E diesel�) for emissions reduction Fuel ethanol (E85) is most available, lowest cost alternative fuel �Renewable Fuel Standard� (RFS) calls for 7.5 bgy remewable fuels by 2012 -- easy Fuel ethanol is projected to hit 25 � 30 bgy production in 20 years � more difficult, but achievable

4. U.S. Diesel Market Overview Diesel engine exhaust emissions under global assault (public health, etc.) Aggressive environmental policies challenge all players in diesel industry & customers Targeted emissions: NOx, PM, CO, air toxics Ultra-low sulfur diesel (ULSD) required starting mid-2006 to enable OEMs to lower emissions New exhaust devices required for MY07 on-road diesel engines Fleets of all kinds now face stricter emissions control regulations U.S. market size: >55 bgy & growing fast (Texas is biggest market) Diesel fuel & engine technology is now & will be for decades to come the lowest-cost means of moving goods to market, providing public transport, and serving the U.S. economy

5. Why E diesel�? Global environmental drivers forcing rapid change that no one fuel technology can fully address today Oxygenating diesel with ethanol offers immediate emissions and performance benefits World diesel demand growing faster than gasoline, due to greater efficiency, lower relative cost Current RFS � and proposed �Renewable Diesel Standard� (RDS) -- offer expansion opportunities Ethanol is plentiful & available everywhere in U.S. E diesel� is a cost-effective, drop-in �flex fuel� option for centrally-fueled fleets in nonattainment areas

6. What Is E diesel�? Up to 15vol% fuel-grade ethanol (ASTM D 4806); Up to 5.0vol% stabilizing additive(s); and Blended with any commercially available diesel fuel (ASTM D 975), including No.1, No.2, ULSD, TxLED, CARB diesel products Cetane adjustment required to match base diesel Fuel is easily blended at terminal rack, just like ethanol-gasoline blended fuels, and delivered to centrally-fueled fleet customers as they are accustomed

7. Performance Benefits of E diesel� Offers �premium diesel� characteristics Enhanced fuel lubricity (SLBOCLE, HFRR) Excellent cold temperature operability Good fuel detergency Good fuel stability (water content & temperature) Good corrosion protection (NACE) Good thermal stability (Octel F-21 test) Outstanding fuel conductivity

8. Typical E diesel� Engine Emissions Test Results - Summary Compared to EPA No.2 & CARB diesel fuels, and depending on specific engine & testing protocols, E diesel� achieves: Up to 8% reductions in oxides of nitrogen (NOx) Up to 46% reductions in particulate matter (PM) Up to about 30% reductions in carbon monoxide (CO) Up to about 70% reductions in visible smoke (soot) . . . with no significant change in BHP or fuel efficiency

9. E diesel�: Performance in the Field Proven ease of logistics, distribution & handling �Fill & go� clean diesel solution Little or no infrastructure modifications required Excellent cold & hot weather operability Immediate & visible emissions benefits (soot) Good engine performance & driveability Fully fungible with any diesel, biodiesel, etc. No mileage/fuel economy demerits Excellent fleet fuel economics Few additional costs required to launch fleet program!

10. E diesel� Technical Agenda Managing flashpoint & safety issues (Class 1 fuel) Addressing all OEM fuel durability & materials compatibility concerns, questions (John Deere, etc.) Establishing uniform storage & handling policies Setting ASTM/NCWM fuel specifications & test methods Completing all federal & state regulatory requirements Anticipating all emerging new diesel fuel, engine, and exhaust aftertreatment technologies Complying with all federal, state & local requirements

11. E diesel� Consortium Established in 2003 to guide industry efforts to meet all OEM, government & industry requirements for E diesel� commercialization Comprised of large fuel ethanol producers, agricultural interests, OEMs (John Deere), additive suppliers, industry trade groups, etc. Managed under aegis of Renewable Fuels Foundation (Renewable Fuels Association) Coordinates E diesel� industry research, regulatory compliance, and outreach activities See www.e-diesel.org for more

12. Texas Ethanol Report Card: 2006 Biofiuels producer incentive passed & finally funded (2001 � 2005) Ethanol-gasoline blending as CO control strategy, started in 1989, continues in El Paso E85 fleet sales begun in San Antonio (CPS) in 2003; new public refueling station opens 2005 DOE Pantex Lab (near Amarillo) using 50,000 gals./year of E85 in its fleet NASA opens E85 refueling station in Houston (2005) Texas-produced ethanol being used in Texas today, and more on the way

13. Biofuels in Texas: Conclusions Environmental Benefits Clean fuel for RFG, TxLED, and as alt. fuel Only fuels capable of reducing GHG emissions Reduced air toxics Can be produced from wide array of feedstocks available in Texas (corn, grain sorghum, switchgrass, �waste� products, etc.) Economic Benefits Lower cost per ton of emissions reduced Immediate availability in Texas Proven economic benefits (agriculture sector, industrial jobs, local energy diversity)

14. Biofuels in Texas: Conclusions Strategic Benefits Renewable fuels produced in the United States Reduced dependence on foreign sources of energy/fossil fuels Seamless integration into all aspects of existing liquid fuel infrastructure No significant changes in fuel supply or added cost required

15. Thank You! James E. Peeples Transportation Fuels Consultant 6530 Dearborn Drive Falls Church, Virginia 22044 USA (703) 256-4497 (office) (703) 628-1503 (mobile) Peeples95@ aol.com (e-mail)