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September 12, 2011
THE RISE OF ETHANOL IMPORTS: TRENDS IN BRAZIL’S ETHANOL MARKET
Marcos Sawaya JankPresident and CEO
Brazilian Sugarcane Industry Association (UNICA)
The Brazilian Sugarcane Industry Association (UNICA) is the leading sugarcane industry association in Brazil. Its more than 140 member companies, voluntarily engaged, represent over 50% of the ethanol and 60% of the sugar produced in Brazil.
UNICA has around 60 staff and its expertise covers key areas including the environment, energy, technology, international trade, corporate social responsibility, sustainability, regulation, economics and communications
It has offices in five locations: São Paulo (headquarters), Ribeirão Preto (in the heart of the sugarcane producing region), Brasília (Brazilian capital), Washington D.C, and Brussels
ABOUT UNICA
Sector Revenue More than US$ 50 billion
Foreign revenue (exports) US$ 13.8 billion (2010)
Number of mills More than 434 nationwide
Sugarcane growers 70,000
Job creation 1.28 million
Share of Brazilian energy use 18% (2nd source, > hydroelectricity)
Avoided CO2 emissions > 600 million tons since 1975
KEY NUMBERS OF BRAZILIAN SUGARCANE SECTOR
Elaboration: UNICA.
1. A look at the current domestic market 2. The development of biofuels programs worldwide
3. Ethanol as a commodity: a two-way street
4. What needs to be done?
OUTLINE
1. A look at the current domestic market 2. The development of biofuels programs worldwide
3. Ethanol as a commodity: a two-way street
4. What needs to be done?
OUTLINE
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
0.00
100,000,000.00
200,000,000.00
300,000,000.00
400,000,000.00
500,000,000.00
600,000,000.00
700,000,000.00
Sugarcane Sugar Ethanol
EVOLUTION OF SUGARCANE,
SUGAR AND ETHANOL PRODUCTION
Sources: UNICA and MAPA. Note: 11/12* - estimated data.
Proalcool Program
FFV
1st phase: Proalcool Flex Fuel Vehicles
Strong government interventionPure ethanol vehicles
Automakers’ decision
0
10
20
30
40
50
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Mill
ion
s
Flex Fuel Gasoline Ethanol Only
50%
86%
Source: UNICA.
NATIONAL LIGHT VEHICLE FLEET
Today, 12 automakers offer over 90 models of flex fuel vehicles, which already account for almost 50% of the
Brazilian light vehicle fleet.
SUGARCANE SECTOR: OVERVIEW OF THE LAST DECADE
Ethanol: 10.1% a.a.
Sugar: 7.4% a.a.
Flex-fuelVehicles
Global FinancialCrisis
CAGR10,4%
CAGR3,6%
Sugar
Ethanol Exports
EthanolDomestic
market
Mill
ion
tons
of
suga
rcan
e
Sources: UNICA e MAPA. Note: 10/11p – preliminary data; 11/12e – estimated data.
05/06 06/07 07/08 08/09 09/10 10/11 11/12e0
5
10
15
20
25
30
35
9
1925
30
19
105
Since 2008/09, investment in the sector has slowed down and there is little indication that investments to expand production will resume in coming years.
harvest year
High level of investm
ent to
expand production
Acceleration of sector’s consolidation – M&A
involving more than 144 million tons of sugarcane
NEW PLANTS IN SOUTH-CENTRAL REGION
Source: UNICA. Note: 11/12e – estimated data.
?
Moema Group
Despite recent M&A, the industry remains fragmented Higher concentration increases competitiveness
(economies of scale and scope)
STRONG CONSOLIDATION
PROJECTED TOTAL FUEL CONSUMPTION
Sources: ANP and Unica. Note: equivalence ratio 1 liter of hydrous ethanol = 0.7 liter of gasoline
BillionLiters(volume converted in gasoline equivalent)
Light Vehicle Fleet
million million million
EthanolShare
EthanolShare
Ethanol
202020102000
Bill
ions
lit
ers
of e
than
ol
FUEL ETHANOL CONSUMPTION
Ethanol Consumption(anhydrous + hydrous)
Proportion of Ethanol Otto Cycle
billion liters
billion liters
billion liters
Source: UNICA and ANP. Note: Otto cycle refers to vehicles powered by gasoline or ethanol.
billion liters
0%
4%
8%
12%
16%
20%
0
5
10
15
20
25
30
3520
10
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Theoretical potential % Energy Matrix
BIOELECTRICITY POTENTIAL
Note: 1 t of cane produces 250 kg of bagasse and 204 of straw and points, 1 t of cane (bagasse + straw) generates 199,9 KWh for export, Lower Calorific Value (LCV) of straw = 1,7 LCV of bagasse, capacity factor = 0,5 (Koblitz), using a 65 bar boiler. In 2008/09, it should be considered a use of 75% of available bagasse and 5% of available straw and, from 2015/16, a use of 75% of available bagasse and 70% of available straw. Up to 2010, it was considered the energy traded at Energy Auctions in a Regulated Contracting Environment, for 2011 an increment of 1600 MW was considered, and by 2012 an increment of 2000 MW per year. Source: Electricity Demand (EPE, 2011); Teoretical potential (UNICA, 2011).
GW
ONS data indicate a 4% savings in reservoirs for every 1,000 MWa of bioelectricity generated during the dry season (April-November)
BIOELECTRICITY AND HYDROELECTRICITYARE COMPLEMENTARY
Source: Nivalde J. de Castro et. al. From CCEE and EPE .
Theoretical Potential 35 GW (2020)
Uses and applications
Processes
TECHNOLOGICAL EVOLUTION
BIO-HYDROCARBONS GENETIC
ENGINEERINGFERMENTATION
OTHERSFine chemicals
BIO-ETHYLENEPHB, PET, PE, PP, PVC
TURBINES AND MOTORSFLEX, BIOFUEL DEDICATED, HYBRID (cars, stationary, moto,buses, trucks, aviation)
SECOND GENERATION
BIOFUELS
BIOBUTANOL
1. A look at the current domestic market 2. The development of biofuels programs worldwide
3. Ethanol as a commodity: a two-way street
4. What needs to be done?
OUTLINE
WORLD BIOFUELS PROGRAMS
Oil consumption
Current Mandates
In discussion
Consumption Targets
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Biomass based diesel 1.89 2.46 3.03 3.79 3.79 3.79 3.79 3.79 3.79 3.79 3.79 3.79 3.79 3.79
Celulosic advanced 0.38 0.95 1.89 3.79 6.62 11.36 16.09 20.82 26.50 32.18 39.75 51.10 60.57
Non-celulosic advanced 0.38 0.76 1.14 1.89 2.84 3.79 5.68 7.57 9.46 11.36 13.25 13.25 13.25 15.14
Conventional 15.14 17.79 34.07 39.75 45.42 47.70 49.97 52.24 54.51 56.78 56.78 56.78 56.78 56.78 56.78 56.78 56.78
0
20
40
60
80
100
120
140
160
Bill
ion
liter
s
Conventional
Non-celulosic advanced
Celulosic advanced
Biomass based diesel
Sources: EISA of 2008, U.S. Environmental Protection Agency (RFS-2), Final Rule.
U.S. government imposes a US$ 0.54/gallon import tariff and a US$ 0.45/gallon subsidy
US - RENEWABLE FUEL STANDARD 2
2022 mandate: +136 bln. liters, of which
58% must come from advanced biofuel
EU LEGISLATIVE FRAMEWORK
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200
2
4
6
8
10
12
14
3.3 3.4 3.7 3.9 4.2 4.5 4.7 5 5.7 5.4 61.4
3 3.1 3.23.6
4 4.44.9
5 6.16.2
Domestically produced ethanol Traded ethanol (intra EC & 3rd countries)
10% of renewable energies in the transport sector by 2020 without specific targets for certain renewable energy sources and without intermediate targets.
Source: based on the 23 NREAPs available on 1 Nov. 2010 (Belgium, Poland, Estonia and Hungary are due to submit their plans. . Elaboration: UNICA
Billi
on li
tres
Ethanol estimates according to the National Renewable Action Plans (EU 23)
CHALLENGES
Tariff barriers:
US: 2.5% + U$ 0.14/liter (U$ 0.54/gallon)
EU: € 0.19/liter
Non-tariff barriers:
Non-harmonized and questionable methodologies to measure
avoided emissions
Unbalanced sustainability criteria
Discriminatory compliance schemes, including certification
1. A look at the current domestic market 2. The development of biofuels programs worldwide
3. Ethanol as a commodity: a two-way street
4. What needs to be done?
OUTLINE
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
e
0
10
20
30
40
50
60
70
80
90
100
110
120
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
e
-
1,000
2,000
3,000
4,000
5,000
6,000
WORLD ETHANOL PRODUCTION AND EXPORTS
PRODUCTION X EXPORTS EXPORTS BY COUNTRY
Source: LMC. Elaboration: UNICA. Note: e - estimate
Billion liters Billion liters
Production
Exports
Brazil
USA
Others
BRAZILIAN ETHANOL IMPORTS AND EXPORTS
Source: SECEX. Elaboration: UNICA. Note: 2011/12* - estimate.
2006/07 2007/08 2008/09 2009/10 2010/11 2011/12* -
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
3,808 568 2,441 22,971 78,076
3,691,610
3,624,823
4,721,898
3,165,592
1,905,621
Imports
Exports
Harvest season
1.450
1.100
BRAZILIAN ETHANOL IMPORTS AND EXPORTS
Imports of 1.10
billion liters
Exports of 1.45
billion liters
4% of Brazilian production*
6% of Brazilian production*
*2011/2012 estimated production
A “GLITCH” IN LONG-
TERM BRAZILIAN
ETHANOL SCENARIO
BRAZIL’S ETHANOL GLITCH
Ethanol imports in 2011 reflect a temporary snag, unlikely to repeat itself in the long run
Imports are a consequence of sharp decreases in cane production, caused by:
Delays in replanting cane fields
Atypical weather conditions in three consecutive harvests: excessive rain, drought, frost
Reduced agricultural productivity – losses in excess of 15% of the harvest
Without ethanol imports, more gasoline imports would be required
Production of all fuels is falling short in Brazil, given accelerated economic expansion and subsequent increased energy demands
Current ethanol exports reflect orders placed several months ago
Expanded exports to the US are attractive option, given bonus on Brazilian ethanol, as evidenced by rising RINs for advanced biofuels
RIN PRICES FOR ADVANCED ETHANOL:
A PREMIUM FOR SUGARCANE ETHANOL
Source: LMC. Elaboration: UNICA.
Apr/01 May/01 Jun/01 Jul/010.00
0.15
0.30
0.45
0.60
0.75
0.90
US
D c
en
ts/g
allo
n
BRAZILIAN SUGAR MIX x INTERNATIONAL SUGAR PRICE
00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12*
5.00
7.00
9.00
11.00
13.00
15.00
17.00
19.00
21.00
23.00
30%
40%
50%
60%
NY contract nº 5 (US$c/lb) Sugar mix
US
$ c
en
ts/lb
Su
ga
r m
ix (
%)
Source: UNICA and NYBOT. Note: international sugar prices per year refers to NY contract nº 11, based on the average monthly prices; 11/12* - previous data concerning the sugar mix and international sugar prices based on the average monthly prices until August 2011.
2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/110
10,000
20,000
30,000
40,000
50,000
60,000
Thailand Australia Others EU India Brazil
Source: LMC, FOLicht, UNICA.
GLOBAL SUGAR EXPORTS
Brazil accounts for 50% of world sugar exports in the 2010/2011 harvest season
851
Millions of hectares*
Total Landmass
338
Arable Land
172
Pasture Land
55
Crop Land
8,7
Sugarcane
498
Forests and Native Vegetation
58% 40%
15
Others
2%
103
100%
2,6%
Avaliable 30%
51%
16%
SIGNIFICANT POTENTIAL FOR SUSTAINABLE SUGARCANE EXPANSION IN BRAZIL
0
4,000
8,000
12,000
16,000
70's Today Future
Liters of ethanol per hectare
Sources: Icone, Esalq e IBGE. Elaboration: Cosan and UNICA. Note: Area 2009.
1. A look at the current domestic market 2. The development of biofuels programs worldwide
3. Ethanol as a commodity: a two-way avenue
4. What needs to be done?
OUTLINE
Short term Improve strategic planning of Brazilian transport fuels matrix. With predictability
and stability, potential shortages will be foreseen and the security of domestic energy supplies will increase;
Medium and Long term
Increase energy and environmental efficiency of flex vehicles, in order to boost mileage and increase competitiveness of ethanol compared to gasoline
Incentives for R&D programs focused on increasing productivity and efficiency, to reduce costs
Review of domestic tax structure on fuels, with recognition of social, environmental and economic benefits provided by ethanol
Incentives to expand the use of bioelectricity though regulatory measures
DOMESTIC CHALLENGES
A clear, stable and lasting institutional framework must be established,to restore the competitiveness of hydrous ethanol
1. Consumer demand and public policies will drive increased use of
biofuels.
2. Key factors favoring the commoditization of ethanol:
Adoption of targets for the use of biofuels by a growing number of
countries
Global corporations from a wide range of sectors investing in ethanol
production, generating economies of scale and scope
Ethanol helps countries achieve emission reduction targets and mitigate
climate change
Sugarcane ethanol can be produced in many countries (energy
diversification and economic development factor)
INTERNATIONAL CHALLENGES
3. Factors preventing ethanol from becoming a global commodity:
Tariffs and trade-distorting measures
Small and volatile international market
Lack of common standards and excessive non-tariff barriers.
Proliferation of sustainability requirements
4. What needs to be done?
Repeal fallacious myths and inform about benefits to climate change mitigation
Increased technical, scientific and economic cooperation between third countries
Elimination of trade-distorting domestic support mechanisms
INTERNATIONAL CHALLENGES
