Global Energy Outlook & Intersection with the Forest ... · emerging biofuels market segment zImprove the performance of first-generation product quality assurance ... advanced biofuel

© 2007 Chevron Corporation

Global Energy Outlook & Intersection with the Forest Products Industry

Rick Zalesky

Vice President, Biofuels and Hydrogen Business

May 10, 2007


Biofuels and the Energy Industry

Global Perspectives

Biofuel Drivers

Biofuel Success Factors

Chevron’s Actions


Global Energy Perspectives

Grow energy demand globally, especially in China, India and Latin AmericaIncrease competition and investments for resourcesDevelop cleaner fuels and technologies

Improve energy efficiencyDiversifying supply & integrating sustainable resourcesIncreasing expectationssurrounding climate change


Millionbarrelsper day

Extra-Heavy Oil and Bitumen

Gas to LiquidsCoal to Liquids

Bio-Fuels

Source Data: Chevron & Consultant Consensus

Shale Oil

Diversification of Feedstock and FuelHow big will it be? What will it be and by when?

0 -

20

2005 2010 2015 2020 2025 2030

Hydrogen

International Regulation Pushes Biofuels Penetration Further

Regulation also in place/under discussion in many other countries

Japan• Target of 10%

renewable fuels by 2008

Australia• Subsidies for

local ethanol producers of $0.92/gal

Source: IEA; DOE; USDA; National Biodiesel Board; CHR; McKinsey; Deutsche Bank

Europe• 5.75% biofuel content mandate for 2010• Germany $3.10/gal ethanol blend tax

exemption; $2.30/gal biodiesel tax exemption• Spain $1.90/gal ethanol exemption• France $1.60/gal ethanol tax subsidy• Tax subsidies in Italy, UK

Thailand• Requires E10 to

be sold at all Bangkok gas stations

United States• MTBE ban – replacement with ethanol• 7.5 billion renewable fuel mandated by 2012• $0.51/gallon subsidies for ethanol; $1.00/gal blend subsidy

for biodiesel• AB 32: Establishes the goal of reducing the state's

greenhouse gas emissions by 25 percent below levels projected for 2020

• Low Carbon Fuel Standard (LCFS): Requires a 10 percent reduction in the carbon content of all passenger vehicle fuels sold in California by 2020; Expected to replace 20 percent of California’s on-road gasoline consumption with lower-carbon fuels and place more than 7 million alternative fuel or hybrid vehicles on California's roads

South America• Brazil requires 20%

ethanol blends• Colombia requires 10%

ethanol in large cities• Argentina requires move

to 5% ethanol by 2011

Canada• 2 provinces require 7.5 to 10%

ethanol

China• E10 blends in six

provinces required• Possible 10%

ethanol mandate after 2010

Korea• Mandate of 20%

renewable fuels by 2008 under consideration

New Zealand• Biofuels sales

obligation commences in 2008

• Sales obligation at 3.4% by 2012


Customer Acceptance

Energy companies will provide whatever fuels customers demand

For a customer to demand an alternative fuel, they want to see three criteria fulfilled:1. Equal or improved driving performance, safety,

reliability and comfort2. Equal or lower vehicle and fuel costs 3. Improved fuel economy and environmental benefits


Btu Spent for One Btu of Diesel Available at Fuel Pump

Total Fossil Energy Added

Fossil Energy Added

(NG + Coal + Petroleum)

Petroleum EnergyAdded

0

0.5

1

1.5

2

2.5

Btu Spent for One Btu of Gasoline Available at Fuel Pump

Total Fossil Energy Added

Fossil Energy Added



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Source Data: Consultant Consensus

Biofuels Energy Balance

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Btu Spent for One Btu of Diesel Available at Fuel Pump

Total Energy(Fossil +

Renewable, includes Energy in Feedstock)

Fossil Energy Added



0

0.5

1

1.5

2

2.5

Btu Spent for One Btu of Gasoline Available at Fuel Pump

Total Energy(Fossil +

Renewable, includes Energy in Feedstock)

Fossil Energy Added



0

0.5

1

1.5

2

2.5

Renewable BTU

Fossil BTU

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Renewable BTU

Fossil BTU

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Biofuels Energy Balance

CO2 Benefits from Biofuels

Wells to Wheels Greenhouse Gas Emissions

0 -

5 -

10 -

15 -

20 -

25 -

30 -

Gasoline Corn Ethanol

Cellulosic Ethanol

Diesel Soy FAME Biodiesel

Biomass FT Biodiesel

Per GallonGasoline Equivalent

Per GallonDiesel Equivalent

LB CO2 Equivalent Per Gallon



Biofuels Success Factors

2nd generation production technology

Industrial-scale infrastructure

Large, concentrated supplies of feedstock

..plus, sustainable business models


Chevron’s Biofuel Objectives

Build a focused biofuels organization that coordinates enterprise efforts while actively shaping and managing the emerging biofuels market segmentImprove the performance of first-generation product quality assuranceDevelop next-generation processing technology to open up the choice of feedstocks, including cellulosic materials Improve small-scale distributed manufacturing


Biofuels – E85 project

Demonstration program to learn more about E85 and how it works in practical applications

Collaborative project with the state of California, General Motors and Pacific Ethanol Inc.

Evaluate E85 performance, efficiency and environmental issues from October 2006 thru December 2007, using California-formulated fuelTwo locations – Oakland and Marysville, California

Provide dispensing and storage capabilities


Biodiesel – U.S.

Chevron invested in Galveston Bay Biodiesel

Texas-based biodiesel production facility

Potential production of 110 million gallons

One of 1st large-scale biodiesel facilities in North America


Biodiesel is Dependant on Incentives Due to High Feedstock Costs

Current Economics:

Biodiesel’s low projected penetration is driven by poor economics

Current technologies are not economically viable without generous subsidies

Feedstock costs, which account for ~80% of production costs, are the limiting factor

Biodiesel Incentive Programs:

Biodiesel demand has grown due to mandates and environmental benefits

Significant incentives are currently in place for biodiesel globally

However, many programs are ending or up for renewal


3.0

2.21.7

1.31.0

0.70.6

0

1

2

3

4

5

2006 2007 2008 2009 2010 2011 2012

Gen 2 Technology:Political issues will limit subsidized production on land that is (or could be) used to produce food

Feedstocks such as jatropha and algae could be desirable if proven sustainable and economic:

− Jatropha, and other species that can thrive on marginal lands, could provide a large supply without displacing food crops

− Algae, which require no arable land at all, potentially can produce much more oil per acre than any terrestrial crop

− These crops are still some years from being commercially viable feedstock sources

Feedstock availability w/ current land

Global Biodiesel Market Penetration*

Percent of 2006 Diesel Volumes

* Source: Mckinsey Analysis

Traditional Biodiesel Feedstock Availability & Gen 2 Technology

Traditional Feedstock Availability:World feedstock availability for traditional crops is a limiting factor without additional land

Food-for-fuel competition could put significant pressure on prices if world market penetration grows above current levels


Georgia Tech - Advanced distributed manufacturing technologiesChemical characterization of feedstocks; impact of pretreatment technologies on chemical structure and reactivity of biomass resourcesAnalysis of chemical constituents impacting fermentation of enzyme hydrolyzed biomass to bio-ethanolIntegration of chemical analysis into a systems model for biomass to bio-ethanol production.

UC Davis – Agricultural sciences, biotech, transportation policyCalifornia-based; biomass identification and development of technologies togrow, harvest and process into transportation fuelsPotentially includes a demonstration facility

NREL – Only U.S. National Lab devoted to renewable energyIdentification, evaluation and development of second-generation biofuels production from biologic pathways (e.g., algae)Identification, analysis and characterization of biomass and feedstock

Colorado Center for Biorefining and BiofuelsThe research focus of the center is on the identification and characterization of biomass energy crops and the development of advanced biofuel production technologies.Participating research institutions in C2B2 include the University of Colorado at Boulder, Colorado School of Mines, Colorado State University and NREL.

Lincoln University – New Zealand’s Leading Agricultural UniversityResearch into developing viable biodiesel crops of commercial value to NZ farmers.

Several other strategic relationships being developedFocused on feedstock, conversion technology and logistics.

Current Research Alliances

© Chevron 2007

Role of Feedstock and Technology

Key Messages - Cost

Gen 1 (corn and sugar cane) technologies will be the primary source of ethanol for at least the next decade

Corn and cane ethanol producers are likely to be locationally advantaged in a cellulosic world as well, since cheap cellulosic biomass will also be concentrated in the same regions (e.g., Brazil, USMW)

As cellulosic technologies gain scale over the 5-15 year horizon production costs are expected to fall, however Gen 1 capacity in cost-advantaged regions (e.g., USMW and Brazil) should remain viable

Key Messages - AvailabilityWith expected improvements in yield and expansions in acreage planted, corn and cane ethanol producers can address the likely needs through 2015 globally

If cellulosic technology does not gain scale, there would be sufficient feedstock from starch technologies to drive a E10-20 global volume penetrationImprovement in cellulosic technologies to the extent of 35% cost reduction or more could help increase the availability of economic biomass by a factor of 2Brazil is expected to be the largest source of biomass in both the Gen 1 and Gen 2 worlds


A Chevron-Weyerhaeuser Collaboration will Create Value for both Parties

Crop/Seeds Feedstock Supply Pretreatment Conversion Trading/Distribution /Marketing

A collaboration between Chevron and Weyerhaeuser maximizes cellulosic ethanol opportunities by integrating the value chain and enhancing conversion and commercial capabilities through

synergistic skill sets and core competencies

Process engineering, including pretreatment and thermo-chemical conversion technology

Operational excellence: safety and reliability

Process control expertise

Flammable liquid handling

Blending

Co-generation

Distribution logistics

Fuel hedging

Market understanding and customer access

Product engineering

Energy industry perspective

Process design

Conversion technology

Value engineering

Distillation design

Various pre-treatment technologies

IP position on these technologies

Aqueous processes: washing, environmental treatment

Recovered fiber supply contracts

Procurement logistics

Quality evaluation

Processing slurries/ wet solids

Transaction structuring

Logistics

Trading

Culture of upstream partnership

Yield improvement through pollination

Intercropping

Third party learnings from partnerships and alliances, e.g. UC Davis, Georgia Tech, NREL, etc.

Chevron and Weyerhaeuser Synergies in the Value Chain (cellulose to ethanol)

Key:

Chevron Synergy

WY Synergy


Documents

Global Energy Outlook & Intersection with the Forest ... · emerging biofuels market segment zImprove the performance of first-generation product quality assurance ... advanced biofuel