Biofuels – now the hard partGoing from theory to practical realities

Brian Conroy7th Annual Bioenergy Feedstocks SymposiumChampaign Illinois, January 11-12, 2010

Pioneering energy fields – then and now

Drake’s first wellTitusville, Pennsylvania1859

Energy cane test plotsHighlands, Florida2010

BP Biofuels: a focused strategy

Making ethanol better

Dedicated feedstocks

• Partnering with the agricultural sector to develop biofuels and technologies which provide new markets and revenue streams for rural economies, creating jobs and reducing dependence on foreign oil.

Sugarcane ethanol (Brazil)

Advantaged molecules (biobutanol)

Advanced technology (lignocellulosics)

• Focusing on feedstocks that:

• Minimise pressure on food supplies.

• Offer real GHG reductions.

BP Biofuels – plans, businesses, partners

BP Biofuels: cellulosic venture in US

• Vercipia Biofuels – partnership with Verenium, using speciality enzymes to convert energy cane

• BP/Verenium (Galaxy) technology being demonstrated in Jennings, Louisiana.

• Commercial scale plant to be built at Highlands County, Florida.Operational 2012, capacity 36 million gallons per year.

Cellulosic Ethanol Video

Highlands Ethanol LLC

• Lykes Brothers

Going forward – what’s required?

• Assured financing

• Regulatory certainty and transitional support mechanisms

• More mature feedstock supply value-chains

Assured Financing

• 2006-2007: US banks were ready and willing to fund the 2nd Cellulosic Ethanol plant, but not the 1st.

• 2008-2009: Financial crisis -US Commercial Bank Loan Activity down and not yet recovering.

• 2010: Who does the industry look to?

− US Government

− International markets

Economic Growth

Financial charts provided by PIRA

Regulatory Support and Transition Support Mechanisms

• Regulatory Support

− 2005 Renewable Fuels Standard (RFS1)

− 2007 Renewable Fuels Standard (RFS2)

− 2009 Cap and Trade and EPA Endangerment Finding

− 2010+

− Where is it heading?

− What can a loan officer rely on?

− Changing framework uncertainty risk

• Transition Support Mechanisms

− Blender/Producer Tax Credits

− Feedstock Support (BCAP)

− Grants

− State Support

Biofuels Price Components

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0$/gal

CommodityEthanol Value

RIN/Policy Value

cEtOHRIN

Allowance Adv

RINCorn Ethanol RIN

cEtOHGallon

2/3PetrolGallon

SCEtOH

Gallon

CornEtOH

Gallon

Ethanol has several different “supply and mandate” markets each split into two components.

1. Commodity ethanol value will vary with crude oil/gasoline price variation.

2. RIN value will vary depending on the EPA rule making andwhether the market is long or short of RINS.

The combination of both commodity ethanol value and RIN valueequals the producer sales price and volatility.

Producer Price

Upside potential

More Mature Feedstock Value Chains

Think like a purchasing manager

1.Security of supply

2.Quality

3.Price

More Mature Feedstock Value Chains

Think like a purchasing manager

1. Security of supply (Making value chain work and Agricultural risk)

• Can I get enough of it – over the lifetime of the project?

• Can I get it when I need it – seasonality, weather?

• Preventing “Force Majeure” – biological attack, fire

2. Quality

• Dirt, stones, fences, and animals

• Composition

• Ease of access to the sugars

• Sustainability (GHG savings)

3. Price

• Land, infrastructure, germplasm, business model, distance, preprocessing

Learning about agricultural risk from Brazil

• Genetic diversity

• Portfolio management

• Continual turnover

Pioneering energy fields – then and now

Drake’s first wellTitusville, Pennsylvania1859

Energy cane test plotsHighlands, Florida2010

Biofuels – now the hard partGoing from theory to practical realities

Brian Conroy7th Annual Bioenergy Feedstocks SymposiumChampaign Illinois, January 11-12, 2010