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DEKALB, give wings to your growth

Biofuel Symposium

15 September 2006

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DEKALB, give wings to your growth

Earths Atmosphere = 78% N & 21% 02 (no impact on climate)Climate is affected by the remaining 1% of gasses (including CO2)

Carbon Emissions1950 1.6 billion tons1977 4.9 billion tons2000 6.5 billion tons

Since the atmosphere's capacity to fix carbon is fairly constant, as the volume of emissions rises, the earth fixes a decreasing percentage of emissions.

The increased atmospheric concentrations of CO2 and other greenhouse gases (GHG) trap more of the earth's heat, causing temperatures to rise.

These in turn are responsible for melting ice, rising sea levels, and a greater number of more destructive storms

Industrial revolution

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DEKALB, give wings to your growth

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DEKALB, give wings to your growth

Energy demands are increasing – current resources limited

• US Department of energy “Global energy consumption is expected to rise 60% over the next 20 years”– Coal by 45%– Oil by 58%– Natural gas by 93%

• 75% of carbon emissions are from fossil fuels, 25% from changes in land use (mainly deforestation)

• US Department of energy “Global energy consumption is expected to rise 60% over the next 20 years”– Coal by 45%– Oil by 58%– Natural gas by 93%

• 75% of carbon emissions are from fossil fuels, 25% from changes in land use (mainly deforestation)

Country Oil Reserves

Oil reserves based on usage

Oil reserves based on exports

Gas reserves based on production

Coal reserves based on production

Bil bbl SA 0.04 0.3 (0.5) 20* 221.0

Angola 5.7 821.9 23.1 1,053.0 Egypt 3.3 16.8 29.0 61.0

Australia 3.2 10.8 (1,095.9) 103.0 243.0 Brazil 8.5 11.1 (44.2) 17.0

France 0.1 0.1 (0.1) - 17.0 India 4.0 5.7 (8.8) 20.0 235.0

Malaysia 3.7 22.5 33.6 71.0 - Mexico 25.0 31.6 50.8 26.0 101.0

Canada 5.1 10.5 10.4 21.0 97.0 USA 22.4 2.9 5.1 8.0 252.0

World 1025** 37.5 37.5 63** 204**Africa 77.4 97.3 36.2 197.0 247.0

Years

Fossil fuels are finite

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• Two issues1. Impacts of climate change due to greenhouse emissions2. Fuel demand vs supply

• There is enough fuel– 60% of SA fuel comes from coal > 200 yrs supply.– SASOL are putting up Fischer Trophe conversion plants throughout the world

• The drive for biofuels is driven by both the above points but of more importance is the environmental impact.

• Need for sustainable fuel sources

• Two issues1. Impacts of climate change due to greenhouse emissions2. Fuel demand vs supply

• There is enough fuel– 60% of SA fuel comes from coal > 200 yrs supply.– SASOL are putting up Fischer Trophe conversion plants throughout the world

• The drive for biofuels is driven by both the above points but of more importance is the environmental impact.

• Need for sustainable fuel sources

Environment vs fuel supply

Policy to date

• Kyoto protocol (came into force 16 Feb 2005)– which commits industrial nations to reduce their emissions by at least 5 percent

below 1990 levels by 2008-12– Ratified by countries representing >55% of emissions

• Kyoto protocol (came into force 16 Feb 2005)– which commits industrial nations to reduce their emissions by at least 5 percent

below 1990 levels by 2008-12– Ratified by countries representing >55% of emissions

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• SA is the 44th largest user of energy in the world, but has the 12th largest CO2emissions.

• South Africa is a signatory – to the United Nations Framework Convention on Climate Change (UNFCCC 1997)– Kyoto Protocal (voluntary signatory and only has voluntary obligations as a

developing country)

• I.t.o a white paper on renewable energy (approved Nov 2003), Government commitsto:– Create an enabling environment for a renewable energy industry.– Develop a Biofuels industry is SA.– Support the implimentation of specific technologes.– Ensure uptake through adoption of a target for renewable energy

South Africa Government policy

South Africa Renewable energy target

• 10 000 GWh renewable energy contribution to final energy consumption by 2013– Equivelent to 2 x 660 MW coal fired power stations or 1.1 Billion liters diesel

(14%)– Biomass, wind, solar, small-scale hydro electric– Utilised for non-electric technologies such as water heating, Biofuels

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DEKALB, give wings to your growth

Food/fuel for thought

• Bio-fuel feedstock are generally competing with food markets.

• Producers of feedstock (farmers) have alternatives in terms of marketing produce (eg – wheat can be used for ethanol or food)– Contracts will have to adhere to market pricing mechanisms

• Bio ethanol plants will have to pay market related prices for feedstocks

• Food will always take priority (people must eat)– Should demand for ethanol affect food supply, prices will rise to the

point that ethanol becomes unproductive

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DEKALB, give wings to your growth

Ethanol viability

• Investment into a bio-ethanol plant is significant– R700 million per plant.

• Before a plant provider/financier will commit to a new undertaking (own risk profile ito securing payment)– Off-take must be guaranteed

• Ceiling price = import price from international markets (Brazil??)

– Feedstock must be guaranteed• Within profitable pricing range (more on next slide)

– Competition from food ????

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Energy Output/Input Ratios for Different Feedstocks

8.3Sugar Cane1.9Sugar Beet1.6Maize / Corn1.2Wheat0.8Gasoline

Avg Energy Output/Input RatioFeedstock

Source: UNICA

Sugar is far more efficient feedstock than maize

• Brazilian ethanol from Sugar cane– Cost of production = $1 per gallon (R1.85 per liter @ xch of 7)

• USA ethanol from Corn– Cost of production - $1.30 per gallon (R2.40 per liter @ xch of 7)

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Ethanol viability

• Profitability of bioethanol. Bioethanol producers will probably be competing against the cost of Brazillian imports (able to produce at les than 30% that of the USA whose feedstock is mainly corn based and at a comparable cost of R700 per ton vsSA maize costs – Maize is considered a better feedstock than small grains).

• Forecasted increase in world commodity prices (good news for farmers) resultant from increased world wide ethanol demand implies higher cost for feedstocks.

• Any large scale ethanol plant will require a guaranteed feedstock. Cape options = wheat and Triticale. Should farmers grow Triticale for ethanol – they will be faced with a single buyer (implies price control). Alternative = wheat (channel for both food and ethanol). Problem = identity preservation of high fermentable wheat and segregation from wheat for food.

• Ethanol has a lower energy content than petrol. As such price of ethanol must be lower than petrol (Brazil the cost of ethanol is 30 – 40% lower than petrol to accommodate) which again affect profitabiity

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DEKALB, give wings to your growth

Conclusion – Be careful

• The world will have enough fuel (GTL, BTL)• Forecasted increase in demand for commodities (feedstocks for biofuels

and food)– Feedstock prices will probably increase– Impacts on the profitability of biofuels

• Capital cost of a plant is significant – requires a constant feedstock at economic prices– Triticale for biofuel implies a single purchaser (implies price control)– Higher world wheat prices may translate to wheat for food– What happens if the oil price falls to $ 35 per barrel

• Wheat is a less efficient feedstock than maize which is less efficient than sugar.– Can we compete with Brazillian imports

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DEKALB, give wings to your growth