Ethanol x Gas X SugarSome thoughts in Supply & Demand
Marcelo PierossiDRAFT VERSIO
N
Economic Issues, Food & You - Coursera 2013
Journey Entry
10 - Relationship between ethanol and gasoline in Brazil reaches 71.73% (In portuguese)The article below is from an important brazilian newspaper and comments about the price relationship between ethanol for fueling vehicles and gasoline. In Brazil, we have the option to use both fuels, because our cars are flex fuel cars and are able to run with any mix of both fuels. But one issue important is that the energy content from ethanol is 70% of energy content of gasoline, so this ratio is the maximum value for using ethanol instead gasoline. And because ethanol is a agribusiness product with a large seasonal content, time of the year is other important issue in the equation: Ethanol or Gasoline?• What are the factors affecting this ratio?• This kind of relationship pushes towards market perfection? • How price is affected by supply and demand law?
http://economia.estadao.com.br/noticias/economia-geral,relacao-entre-etanol-e-gasolina-em-sp-atinge-7173,148563,0.htmDRAFT V
ERSION
© Marcelo Pierossi - 2013
Brazilian Sugarcane Production
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Brazilian Sugarcane Mills
Flexible operation: Sugar and Ethanol (from 40 to 60%)DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Production Mix
• Production defined by Prices• Sugar Prices – International Prices
• Ethanol Prices – Domestic Market Gas – competitor (every gas station has both) 70% of energy content compared with Gas
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Domestic Sugar S&D
Amortgui, H. - A PROSPECTIVE ANALYSIS OF BRAZILIAN BIOFUEL ECONOMY: LAND USE, INFRASTRUCTURE DEVELOPMENT AND FUEL PRICING POLICIES – UIUC, 2012
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Sugar International Market
World raw sugar price, ICE Contract 11
Jul-98 Apr-01 Jan-04 Oct-06 Jul-09 Apr-12 Dec-140.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00 C
en
ts p
er
po
un
d
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Sugar Domestic Market
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Flex Fuel Engines
• A flexible-fuel vehicle (FFV) or dual-fuel vehicle (colloquially called a flex-fuel vehicle) is an alternative fuel vehicle with an internal combustion engine designed to run on more than one fuel, usually gasoline blended with either ethanol or methanol fuel, and both fuels are stored in the same common tank.
• Modern flex-fuel engines are capable of burning any proportion of the resulting blend in the combustion chamber as fuel injection andspark timing are adjusted automatically according to the actual blend detected by electronic sensors.
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Flex Fuel Cars
• Evolution of the numbers of flex fuel cars in Brazil (a graph will be added)
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Domestic Ethanol S&D
Amortgui, H. - A PROSPECTIVE ANALYSIS OF BRAZILIAN BIOFUEL ECONOMY: LAND USE, INFRASTRUCTURE DEVELOPMENT AND FUEL PRICING POLICIES – UIUC, 2012
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Ethanol Domestic Market
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Gas Prices
Source: Financial Times
http://www.ft.com/cms/s/0/00d4d8ee-8603-11e2-bed4-00144feabdc0.html#ixzz2SVwhAOwa
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Gas Prices
Source: Bloomberg
http://www.bloomberg.com/news/2013-01-17/petrobras-gasoline-price-rise-undecided-on-inflation.html
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Gas International Prices
Source: Petrobrashttp://www.petrobras.com.br/en/products/price-composition/DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Gasoline Market
• Importation
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Petrobras Market Value
Source : Bovespa DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Ethanol vs Gasoline vs Corn USA
Jan-
00
Aug-0
0
Mar
-01
Oct-0
1
May
-02
Dec-0
2
Jul-0
3
Feb-0
4
Sep-0
4
Apr-0
5
Nov-0
5
Jun-
06
Jan-
07
Aug-0
7
Mar
-08
Oct-0
8
May
-09
Dec-0
9
Jul-1
0
Feb-1
1
Sep-1
1
Apr-1
2
Nov-1
20.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Corn $ / bu.
Ethanol $ / gal.
Gasoline $ / gal.
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Bankruptcy of sugar mills in Brazil
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Some remarks
DRAFT VERSIO
N
© Marcelo Pierossi - 2013
Conclusions
DRAFT VERSIO
N
© Marcelo Pierossi - 2013