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PERUPERUETHANOL MEGAETHANOL MEGA--PROJECTPROJECT
September 2004
THE WORLD THE WORLD
THE BIGGEST BIODIVERSITY – THE LUNG OF THE PLANET
SUSTENTABILITY SUSTENTABILITY
COAST
MOUNTAIN
FOREST
NORTH
CENTER
SOUTH
Agriculture Cattle Forestry Non productive
Total
Worldw ide 60 20 16 7 103Peru 55 16 10 3 84
Percentage 91.70% 80.00% 62.50% 42.90% 81.60%
Localization of MicroclimatesNumber of Microclimates as per aptitude
PERU AND ITS NATURAL REGIONS
PACIFICOCEAN
AREAS OF AGRICULTURAL PRODUCTION IN PERU
NORTH
CENTER
SOUTH
HIGH FOREST1’774.540 Has.
LOW MOUNTAIN2’831.597 Has.
COAST128,000 Km2 (10%)
Pob. 12’591.000 (52%)
MOUNTAIN410,000 Km2 (32%)
Pob. 8’692.000 (35%) FOREST747,000 Km2 (58%)
Pob. 3’089.000 (12%)
SUGAR CANE
The activityData about worldwide production
National production
Sugar Cane worldwide production
Sugar Cane worldwide production (millionof MT)
0
25,000
50,000
75,000
100,000
125,000
150,000
175,000
200,000
225,000
250,000
275,000
300,000
325,000
350,000
375,000
400,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Mile
s de
TM
Brasil 2003: 386 mill. Tm.
India 2003: 290 mill. Tm.
China 2003: 90 mill. Tm.
Colombia 2003: 37 mill. Tm.
Perú 2003: 8.8 mill. Tm.
EE.UU 2003: 31 mill. Tm.
292 mill. Tm
229 mill. Tm
66 mill. Tm
31 mill. Tm
29 mill. Tm5.43 mill. Tm
Brasil and India are the biggest producers concentrating 50% of the Sugar Caneworldwide production.
Peru has only 0.67%
Worldwide productivity 2003: MT of cane/Ha
Rendimiento a nivel mundial 2003
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Z im
babw
e
Sen
ega l
Sw
asila
ndia
Zam
bia
Ma l
awi
Cha d
Bur
k ina
Fa s
oM
a la s
i a
Gua
tem
a la
Co l
omb i
a
Ecu
ador
EEU
U
Br a
sil
Uru
guay
Arge
n tin
a
Ven
e zue
la,
Pa r
a gua
y
Bo l
ivia
C uba
Tm d
e ca
ña/ H
a.
Peru holds the biggest productivity with 124 MT/ha in 2002 and 114.5 MT/ha in 2003.
País 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Perú 106.4 106.1 112.6 109.4 108.4 108.0 110.0 122.3 123.7 114.5Zimbabwe 107.25 110.97 90.51 108.16 96.22 108.3 98.31 111.9 111.9 111.9Senegal 109.71 109 109.26 109.38 109.51 109.75 107.59 111.25 111.25 111.25Swasilandia 94.65 90.84 98.6 95.39 100.97 108.08 106.43 108.11 108.11 108.11Zambia 109.38 109.17 107.69 107.14 103.33 103.12 106.67 105.88 105.88 105.88Malawi 105.56 105.56 105.38 100 105.56 100 105.26 105.56 105.56 105.56Chad 93.48 95.59 103.27 84.44 83.63 79.31 94.29 100 101.43 101.43Burkina Faso 100 100 100 100 100 100 100 100 100 100Malasia 68 68 68.09 68.09 68.09 68.09 74.84 75.92 75.37 94.12Guatemala 91.6 111.43 87.26 114.85 101.05 93.48 90.95 93.05 93.86 93.91Colombia 83.58 84.69 90.16 93.03 86.4 86.36 82.59 82.86 83.26 84.14Ecuador 64.39 63.55 63.21 55.56 63.64 83.12 69.82 72.44 87.21 77.98EEUU 74.01 74.05 74.3 77.87 82.15 79.66 78.42 75.44 77.89 77.29Brasil 67.22 66.61 66.75 68.88 69.25 68.15 67.62 69.56 71.38 72.82México 69.08 77.57 71.15 73.56 77.54 72.89 71.33 75.75 72.18 70.61Uruguay 56.89 54.54 51.41 62.05 53.94 49.21 53.39 60.86 60.55 61.11Argentina 63.61 60.01 59.33 65.07 63.47 60.73 59.26 61.13 63.46 55.29Venezuela, 60.74 60.74 61.53 61.69 54.7 57.47 58.81 57.33 52.63 52.64Paraguay 50.31 46 48 48.34 48.28 46.95 37.76 40.22 47.75 47.75Bolivia 45.07 47.98 42.75 39.71 40.56 42.41 42.96 44.76 49.12 44.85Cuba 34.59 28.54 33.19 31.21 31.28 34.14 34.97 31.87 33.33 33.33Mundo 62.01 63.03 62.71 64.71 64.92 65.58 63.89 64.80 66.31 65.29 Fuente: FAO, MINAG
Worldwide productivity: MT of sugar cane/Ha
Worldwide cultivated surface (000 of Ha)
País 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Brasil 4,345.26 4,559.06 4,750.30 4,814.08 4,985.82 4,898.84 4,845.99 4,973.30 5,095.75 5,303.56India 3,420.00 3,870.00 4,150.00 4,170.00 3,940.00 4,054.90 4,219.70 4,320.00 4,440.00 4,300.00China 1,119.41 1,185.56 1,243.65 1,108.22 1,186.94 1,042.38 1,188.59 1,281.01 1,421.80 1,328.00
Pakistán 962.80 1,009.00 963.10 964.50 1,056.20 1,155.10 1,009.80 960.80 999.70 1,086.00Cuba 1,248.90 1,177.40 1,244.50 1,246.30 1,048.50 995.80 1,040.90 1,007.10 1,041.20 1,041.20
Tailandia 799.52 922.71 985.00 980.26 917.60 945.12 921.92 850.00 850.00 970.00México 587.54 573.05 633.61 614.76 630.58 643.15 618.28 623.74 632.22 639.06
Colombia 373.28 377.86 388.19 386.97 393.51 374.03 396.56 403.11 430.00 435.00Australia 338.00 365.00 383.00 401.00 420.00 414.00 419.00 411.00 417.00 423.00
Estados Unidos 379.10 377.30 359.73 369.20 383.27 401.98 417.76 415.94 414.08 403.39Argentina 238.97 294.94 296.67 298.90 305.65 275.00 270.00 265.00 260.00 255.00
Venezuela, 107.37 101.21 104.40 104.21 130.85 127.18 128.61 137.79 131.28 131.28Bolivia 86.51 88.86 91.87 86.76 86.34 87.15 83.84 86.22 96.40 97.00Perú 51.02 59.59 54.43 63.37 52.61 58.13 64.81 60.37 68.05 77.18
Ecuador 105.60 106.21 106.00 90.00 110.00 66.92 77.38 78.05 65.02 72.98Paraguay 55.64 56.00 57.00 57.82 58.00 61.17 59.45 59.58 67.22 67.22Uruguay 3.80 3.70 3.70 3.36 3.10 2.80 2.80 2.90 3.10 2.70Mundo 17,662 18,649 19,492 19,368 19,415 19,323 19,495 19,670 20,180 20,420
Fuente: FAO, MINAG* Participación en el mundo año 2003
Brazil concentrates the 26% of the worldwide cultivated surface.
Peru only reaches only 0.38%.
National average sugar cane, Peru (2003) and Colombia (2003)
Pucalá 8,102.0 13.7 82.6 8.6 100.1 Tumán 9,118.0 14.6 118.6 13.5 110.9 Pomalca 7,638.0 14.0 79.0 7.6 99.4 Casa Grande 16,966.0 16.9 90.2 9.8 107.6 Cartavio 10,303.0 15.6 135.6 14.1 101.9 Laredo 6,899.0 16.6 134.6 16.8 121.0 San Jacinto 5,434.0 15.5 122.2 13.5 109.0 Paramonga 8,106.0 16.7 121.1 13.5 107.0 Andahuasi 3,639.0 15.0 154.6 18.0 116.2 Chucarapi 971.0 20.0 128.2 10.5 84.2 Promedio Nacional 77,176.0 15.8 114.5 12.5 105.7 Promedio Colombia 2003 430,000.0 13.5 84.0 12.8 70.5
Rendimiento azúcar
(Kg/t caña)
Rendimiento azúcar (t/ha)
Area Cosechada (ha)
Empresa
Edad de corte
(meses) 2002
Rendimiento Caña (t/ha)
Fuente: APPAB, Cadenas Productivas de Colombia
Peruvian sugar cane production
Historical data
0102030405060708090
100
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Años
Mile
s de
Has
.
52 mil Has.1961
77mil Has.2003
Cultivated surface
020406080
100120140160180
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
años
Tm /
Ha
154.6Tm caña por Ha. 1961
114.5 Tm.cañaPor Ha.
2003
Productivity
955,307 963,657
0
200000
400000
600000
800000
1000000
1200000
1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2001 2002 2003
TM
AZUCAR PRODUCIDA Lineal (AZUCAR PRODUCIDA)
Historical sugar production (MT)1930 to 2003
La Libertad y Lambayeque concentrate the 75% of the cultivated surface
La Libertad43%
Lambayeque32%
Lima16%
Ancash7%
Arequipa2%
Production distribution by zone
Activity statistical summary
Fuente: APPAB, MINAG
PERÚ 1970 1974 1980 1990 2000 2002 2003
107.9
9.2
992.5
54,339
169
Caña Molida (millones de Tm.)Azúcar comercial
(miles de Tm.)
Hectáreas (has.)
Rendimiento (Tm./ Ha.)
Kgs. Azúcar / Tm. De caña
7.5 5.6 5.9
48,212 49,137 48,419
102.8 96.0 100.3
7.1 8.5 8.8
770.8 537.4 592.0 724.1 877.6 955.3
64,814 68,044 77,176
156 114 123 110 125 114
102.0 103.2 105.7
SUGAR CANE
PERUPotential for
Ethanol Production
New fields with dripping irrigation current results show a rising productivity in the northern Peruvian coast with thefirst cut between 16 and 18 months (year 2002-2004):
• Cartavio (Trujillo): 220 MT/Ha
• Laredo (Trujillo): 210 MT/Ha
• Andahuasi (Lima): 280 MT/Ha
New experience in thePeruvian northern coast
A pilot test of 12 has. shown in year 2000 with traditional irrigation:
– A production of 180 MT/Ha
– Sucrose over 16%
– Water consumption of less than 20,000 M3 /Ha-year
COMISA ProjectSullana - Piura
In the current supporting properties, 220 MT/ha is being
achieved; and the expectation with "ferti-irrigation", is
superior to 240 MT/ha, with a very high sucrose content.
COMISA ProjectSullana - Piura
COMISA ProjectComparison Agronomic Costs
7.15 10.06 9.99 MT COST IN THE FIELD $
18084.5140PRODUCTION MT/Ha
1,287.80 849.75 1,398.63 TOTAL
68.83 41.57 483.15 OTHERS
943.18 470.42 575.88 SUPPLIES
197.87 204.24 143.35 MACHINERY
77.91 133.52 196.25 LABOR
COMISABRAZILNATIONALCONCEPT
Measured over 12 months
100.00%0.006519,306Total A&G Expenses
2.50%0.00013,306Depreciation
15.36%0.00181,816Others
22.75%0.001121,147Technical Assistance
2.64%0.00014,061Materials
56.75%0.003302,283Personnel
%US$ / ltrUS$ TotalA&G Expenses
100.00%0.0412,839,552Total Production Costs
25.91%0.011993,132Depreciation
5.87%0.002225,045Others
9.06%0.004347,113Technical Assistance
21.74%0.009833,226Supplies
9.32%0.004357,184Chemicals
28.10%0.0111,076,985Personnel (Industry)
%US$ / ltrUS$ TotalProduction Cost
Total Industry Costs per Liter 0.047
COMISA ProjectReferential Industrial Costs for an Ethanol 500,000 ltr/d Facility
Year Lima/Ancash La Libertad Lambayeque Piura Total
2005-2006 4,000 10,000 6,000 20,000
2007-2008 10,000 28,000 30,000 12,000 80,000
2009-2010 40,000 68,000 70,000 22,000 200,000
2011-2015 80,000 140,000 100,000 80,000 400,000
2016-2020 110,000 240,000 150,000 200,000 700,000
2021-2025 150,000 320,000 230,000 300,000 1’000,000
PerúPotential Areas for Sugar Cane
in the Northern Coast(in Hectares)
CASSAVA
PERUPotential Production
CASSAVA CASSAVA –– MANDIOCA MANDIOCA -- YUCAYUCA
A root with every eight months cropin Peru
• Amazonas 11,000 has• Cajamarca 10,000• Cusco 6,000• Huánuco 7,000• Junín 8,000• Lamabayeque 1,500• Lima 1,500• Loreto 36,000• Madre de Dios 3,000• Pasco 5,000• San Martín 20,000• Ucayali 11,000
• Total (partial) 120,000 has
Potential: 1’500,000 has
REGION Ago. Set. Oct. Nov. Dic. Ene. Feb. Mar. Abr. May. Jun. Jul.
Amazonas 12.2 11.3 10.6 14.4 11.8 8.9 7.3 6.7 4.9 3.6 3.2 5.1
Cajamarca 2.8 6.0 7.5 9.5 10.9 10.5 10.5 11.5 10.6 8.7 6.5 5.0
Cuzco 1.3 7.6 38.1 36.6 10.6 2.7 0.4 0.6 0.4 0.4 0.6 0.7
Huanuco 6.9 15.6 19.9 15.9 9.3 6.1 5.5 4.5 5.4 4.7 3.6 2.6
Junín 8.7 17.3 20.1 18.7 8.8 5.1 3.0 3.3 3.6 4.1 4.3 3.0
Lambayeque 7.2 2.6 9.7 11.8 13.2 12.6 7.1 10.9 9.3 4.6 5.6 5.4
Lima 15.8 19.9 14.4 12.0 14.5 3.2 2.7 2.3 3.3 3.8 3.5 4.6
Loreto 9.4 9.3 10.4 10.0 5.2 6.1 5.5 4.5 4.4 9.1 10.0 16.1
Madre de Dios 5.7 6.1 13.3 15.2 8.9 5.7 8.3 7.5 8.6 7.7 7.7 5.3
Pasco 17.7 13.2 18.4 17.2 9.0 0.0 9.1 5.2 2.6 3.5 2.9 1.2
Puno 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
San Martín 6.7 8.8 8.0 9.2 6.9 8.0 9.1 9.3 7.9 9.4 8.5 8.2
Ucayali 6.8 7.7 14.0 11.7 8.5 5.9 4.2 4.2 8.6 9.8 11.8 6.8
Sowing Calendar
REGION Ene. Feb. Mar. Abr. May. Jun. Jul. Ago. Set. Oct. Nov. Dic.
Amazonas 5.0 5.1 5.2 5.4 7.0 9.1 7.7 9.1 10.0 10.1 13.3 13.0
Cajamarca 5.9 9.3 7.7 6.8 4.5 5.8 7.3 9.3 9.8 11.1 11.4 11.2
Cuzco 8.7 8.9 9.4 8.2 8.9 8.1 7.8 7.2 8.1 7.9 8.7 8.1
Huanuco 6.4 7.5 6.7 7.9 9.5 9.4 7.3 11.6 11.3 9.1 7.3 6.0
Junín 5.9 4.9 6.5 6.9 9.2 10.3 8.9 8.1 9.0 10.2 10.1 10.0
Lambayeque 9.6 5.9 6.7 4.1 6.6 5.7 7.4 8.5 9.3 11.5 9.9 14.8
Lima 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Loreto 7.7 7.6 7.7 7.5 7.7 7.4 8.1 8.5 9.4 9.4 10.0 9.0
Madre de Dios 2.8 4.1 8.2 10.3 10.8 10.8 10.8 12.6 12.1 9.1 6.3 2.1
Pasco 9.6 8.7 5.9 9.7 7.8 8.6 10.5 6.2 7.9 7.8 7.6 9.7
Puno 0.0 2.2 5.3 9.8 22.4 25.0 35.3 0.0 0.0 0.0 0.0 0.0
San Martín 6.8 8.7 8.5 8.1 9.2 8.6 8.3 9.1 7.9 8.7 7.9 8.2
Ucayali 11.2 9.9 8.6 7.1 5.6 7.1 5.8 7.3 8.7 8.7 8.6 11.4
Cropping Calendar
• Projected yield: 25,000 to 35,000 Kgs/ha
• Price at industry gate $0.10 / Kg
• Crop Income $1,200.00
• Production cost $500.00
• Gross margin $700.00
once a year
A typical Processing PlantA typical Processing Plant
Cassava ReceptionCassava Reception
ProcessingProcessing
Feeding Process to Fermenting TruckFeeding Process to Fermenting Truck((futurefuture))
SugarCane Axle
PERUVIAN ETHANOL MEGA-PROJECT
COMPARISON SUGAR CANE COMPARISON SUGAR CANE vsvs CASSAVA CASSAVA vsvs CORN CORN AgronomicAgronomic FieldField CostsCosts
Average / Ha as Average / Ha as perper PeruvianPeruvian StandardsStandards
Sugar Cane Cassava Corn(90-200-1000) (180-30-500) (330-10-800-2)
Avrg. Cost / Liter of Ethanol $0.055 $0.093 $0.242
ETHANOL
THE INTERNATIONAL MARKETTHE INTERNATIONAL MARKET
FUEL ETHANOL AS A WORLD COMMODITY?Source: ED&FED&F Alcohol Inc.Alcohol Inc.By William MaloneyDirector of Business Development
Positive Developments
• Increasing Trend Towards Main Trading Blocks
– NAFTA, EU, CAFTA, FTAA
• WTO & Reform in World Agricultural Trade– Reduced Barriers & Subsidies
• Increasing Environmental Awareness – Kyoto Treaty, Greenhouse Gas Reductions
• Technical Acceptance of Ethanol• Generally Higher Petroleum Prices
– Ethanol More Price Competitive
Overview – Key Factors for Success
• Abundance of Inexpensive Feedstocks– Northern Hemisphere – Grains– Southern Hemisphere – Sugar Cane
• Technology – Reduced Costs
• Supportive Political Framework – Tax Incentives – Blending Mandates
Major Ethanol Producers, 2001, thousand m3
2217.801 170
11 4347 347
3 090
1 780
390
120
385
EURussiaBrazilUSAChinaIndiaSaudi - ArabiaThailandSouth African CU
OverviewWorld Fuel Ethanol Production
000 CBM – Year 2001
OverviewProduction by Feedstocks
Grains39%
Sugar Crops61%
Historical Fuel Ethanol Trade Flows
Time Frame Origin Destination
1980’s Brazil, EU (via CBI) USA
1990’s USA, EU, South AfricaEU (via CBI)
BrazilUSA
2000 - 2003 Brazil & EU (via CBI) USA
Historical Fuel Ethanol Trade Flows
Brazil Fuel Ethanol Production
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
1992 1993 1994 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003(Proj)
2004(Proj)
Year
Lite
rs P
rodu
ctio
n
Brazil – Largest Producer, Consumer & Exporter
• Origins in ProAlcool Program of late 1970’s and early 1980’s in response to world oil price shocks
• Sugar Cane based – Cane increase from 7.3 MM MT in 1975 to 45.92 MM MT in 2002
• Produced 12.62 Billion Liters in 2002/03 Crop Year (2.915 Billion US gallons)
• Exported 1.59 Billion Liters in 2002 (420 MM US gallons)• Projected Production in 2003/04 Crop Year is 14.3 Billion Liters
(3.77 MM US gallons)• Project to Export 1.12 Billion Liters (295 MM US gallons) for all uses
Tremendous capability to expand production
Developing Fuel Ethanol Programs
– India – Sugar Cane– Australia – Sugar Cane, Grains– Thailand – Sugar Cane, Cassava– China – Sugar Cane, Grains, Imports– Central America & Caribbean – Sugar Cane– Colombia – Sugar Cane– Peru – Sugar Cane– Colombia – Sugar Cane– Canada – Grains– European Union – Sugar Beets, Grains, Imports?– Japan – Imports
Developing Fuel Ethanol Markets Key Drivers
A PROSPECTIVE VIEW OF WORLD’S ETHANOL´S DEMAND
ACTION
LOGIC
MANDATORY ORINDICATIVE
USE
DIFFERENTIATEDTAX RATES
ENVIRONMENT DEGRADATION
GASOLINE AND DIESEL ADDITIVE TO REDUCE NEGATIVE
EMISSIONS
LESS TAX FOR BIOFUELS/
CO2 TAX
OIL DEPLETION R & D & D HIGHER TAX FOR FOSSIL FUELS
SECURITY OF ENERGY SUPLY
CREATED DEMAND INCENTIVE FOR BIOFUELS
SUPPORT FOR RURAL ECONOMICS
SAFETY SUPPLY OF BIOFUELS
JOBS / RURAL INCOME/TRADE BALANCE
FIG. 2: World Ethanol Markets
0
5
10
15
20
25
30
35
1975
1980
1985
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
Vol
. Mil.
m3
BeverageIndustrialFuel
World Ethanol Market
FIG.6: World Ethanol Markets, 2001-2005
0
5
10
15
20
25
30
35
40
45
2001 2002 2003 2004 2005
Year
Volu
me,
mill
ion
m3
BeverageIndustrialFuel
World Ethanol Market 2001 - 2005
Government sugar policy funds sugar stocks creating structural surplus of 9 million MT – better to convert sugar cane to ethanol
• Added value to agricultural– Reduce urban migration
• Improve environment – Air pollution– CO2
• Replace imported petroleum products• Improve balance of payments• Mandated Demand of 100-150 MM US Gallons per annum at E-
5 Blend• Potential Production much higher – Exports likely
India
Central America• Increase value-added from molasses conversion• Potential agricultural development in new sugar cane
cultivation– Sustain & increase employment
• Reduce imports of petroleum – no oil resources and few refineries
• Foreign exchange earnings from exports, improved balance of payments
• Greenhouse gas reductions – creditsMarket Potential:• Current Market Size (2002):
– E10: 305 MM Liters/Year (80 MM Gallons)
• Projected Market Size (2010):– E10: 460 MM Liters/Year (120 MM Gallons)
European Union
• Kyoto Treaty Compliance• Support Agricultural Economy
Indicative targets for use of renewable fuels have been established • Assumes 5% ethanol in all EU gasoline• Additional renewables from edible oils in diesel, question if
diesel targets can be met, may increase ethanol use further
Potential EU Market is 3 MM liters by 2005 and 9 MM liters by 2010
Large volume of imports likely required to meet targets
12,5%Great Britain
4%Sweden
27%Portugal
6%Neederlands
28%Luxemburg
6,5%Italy
15%Spain
13%Irland
25%Greece
21%Germany
0%France
0%Finland
21%Denmark
75%Belgium
13%Austria
REDUCTION TARGET (%)COUNTRIES
TARGETS OF EMISSION REDUCTION COMMITMENT AS PER THE KYOTO PROTOCOL EUROPE
8%European Community
Japan
• Kyoto Protocol Compliance• Starts regulation with a level of 10% Ethanol replacement in gasoline in year
2005• Lack of Landmass for large scale production• World’s largest importer of alcohols for industrial & beverage applications• Major importer of hydrocarbons – few liquid fuel resources• No conflict with local agricultural interests or domestic ethanol industry
Japan will likely become the world’s largest importer of fuel ethanol
Annual demand in 2005 of 6 MM liters increasing to 8 MM – 12 MM liters
China
• Short of Petroleum• Produces 163 million tones of crude oil a year or 70% of internal needs.
Imports the balance of 30%• Alternative sources are costly, sometimes cumbersome to transport and
distribute, and generally less efficient than oil• Replacements must be found since China’s oil gas reserves could be
exhausted in the next 30 years• China´s foray into ethanol is becoming a big concern• China has a surplus of corn which would be the main raw material for
ethanol
• Kyoto Protocol Compliance. New legislation is promoting the use of ethanol• Started regulation with a level of 10% Ethanol replacement in gasoline in year
2001• Is the world’s second larger producer of corn after USA• Actual production cost of Ethanol from corn over $0.35 / lt.• The use of the fuel ethanol is a strategic move by the Central Government to
promote sustainable economy, social development and environmental protection
• 9 provinces have decided to step forward in the commitment for replacement• Increasingly consumption of imported hydrocarbons• No conflict with local agricultural interests or domestic ethanol industry
China is expected to become one of the world’s largest consumer of fuel ethanolAnnual demand of 4.5 MM liters in year 2005 with a strong increasing projection
China
USA – North America
• Renewable Fuels Standard (RFS)• State & Federal Tax Incentives• Limited Market Access – High duty rates
Renewable Fuels (RFS) to be required by 2010 - 5 Billion US Gallons per annum, thereafter equivalent percentage of gasoline
Imports:• Imports duty-free under quota (7% of market) from Caribbean
Basin Initiative (CBI) beneficiary countries (Dehydrated Brazilian ethanol)
– Current Quota is 500, MM CBM (132 MM US gallons) increasing to 1.300 MM CBM (343 MM US gallons)
• Indigenous ethanol imports duty-free from Andean Trade Preferences Act, CAFTA.
Trade Agreements Allowing Free Trade In Fuel Ethanol
USA - • Andean Trade Preferences Pact • Caribbean Basin Initiative (CBI)• Israeli Free Trade Agreement• Jordan Free Trade Agreement (to be ratified by
Congress)• Central American Free Trade Agreement (Under
Negotiation)• Least Developed Countries
EU - • Andean Pact• Central American Common Market (CACM)• Lome Convention (ACP)• ‘Everything but Arms’ (GSP Lease Developed
Countries)
WORLD ETHANOL TRADE
00.5
11.5
22.5
33.5
44.5
1992 1993 1994 1995 1996 1997 1998 1999
Year
Volu
me,
mill
ion
m3
Sourcee: Berg, Christoph. World Production and Trade: Reforms and Subsidies. World Ethanol 2000 Conference, 9-10 November 2000, London.
World Ethanol Trade
Potential Volumes Traded Internationally
Market Range (Million CBM) Range (Million US Gallons)
European Union 0.3 – 0.9 79 – 237
Japan 8.0 – 12.0 2,110 – 3,168
USA 0.5 – 1.3 132 – 343
Other 0.0 – 0.5 0.0 – 132
Totals 8.8 – 14.7 2,323 – 3,880
Projected Future Fuel Ethanol Trade Flows
Ocean PacificAtlanticOcean
PERU – ASIA PACIFICTHE SHORTEST WAY FOR ETHANOL SUPPLY FROM SOUTH AMERICA
Restrictions to Increased World Trade
• Protections of Domestic Producers & Agriculture– Tariffs & Quota (e.g., CBI)
– Restricted Importation (e.g.,Japan, until new regime established)
– Tariff Classifications - denaturants
• Ethanol Specifications
• Lack of Vibrant World Exchange & Futures Market
Import Tariffs
Country / Trade Bloc Rate of Duty USA $143 CBM + 2.3% CIF Value
($0.54 per US Gallon)
Brazil 21.5% of CIF Value
European Union $206 / CBM Undenatured ($0.78 per USG)$110 / CBM Denatured ($0.42 per USG)
Ethanol Tariff Classification
2207 00 00
Undenatured ethyl alcohol of an alcoholic strength by volume of 80% vol or higher, ethyl alcohol and other spirits, denatured of any strength
2207 10 00
Undenatured ethyl alcohol of an alcoholic strength of 80% or higher
2207 20 00
Ethyl alcohol and other spirits, denatured, of any strength
2208 20 00
Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol, spirits liqueurs and other spirit beverages
Fuel Ethanol Specifications
Characteristic Unit ASTM (USA) ANP (Brazil) Sweden
Ethanol Volume %, min. 92.1 99.3 97.6
Methanol Volume %, max. 0.5 - 0.3
Solvent-washed gum mg/100 ml, max. 5.0 - 10.0
Water-content Volume %, max. 1.0 0.56 0.2
Denaturant Volume % min. & max. 1.96 & 4.76 - -
Inorganic Chloride Content Mass ppm (mg/L), max. 40 (32) - -
Copper Content mg/kg, max. 0.1 0.07 -
Acidity (as acetic acid) Mass % (mg/L), max 0.007 (56) 30 mg/L 30 mg/L
Hydrocarbons Content Volume % max. - 3.0 -
pHe 6.5 – 9.0 - 6.0 – 9.0
World Ethanol Exchange & Futures Market?
• Will likely develop over time as traded volumes increase
• Requires international agreement on fuel ethanol specifications
• Requires liquidity – multiple producers and established markets, though may evolve like sugar, a “dump market” with volumes limited to thsewith non-preferential access
• NYMEX has expressed interest but,
• Major US ethanol producers oppose as they don’t want free flow of information and fuel ethanol to be a commodity
TODAY THERE ARE TRANSACTIONS, BUT NO MARKET
• A TRUE MARKET BY 2005 REQUIRES POLITICAL WILL, NEGOTIATIONS,FOCUSED AND SYTEMATIC EFFORTS, AND STAKEHOLDERS’ CONSENSUS
• BRAZILIAN CAPACITY TO GENERATE SURPLUSES FOR EXPORTS,DESPITE ATTRACTIVE SUGAR PRICES
• BRAZIL AND USA ARE NATURAL LEADERS FOR GLOBAL MARKETBUILDING INITIATIVES
• PUBLIC AND PRIVATE GLOBAL ETHANOL COALITIONS: DIALOGUE,NEGOTIATION AND PARTNERSHIP
• ROLE OF EMERGING PRODUCERS, CONSUMERS AND FUTURES MARKETS:AUSTRALIA, CANADA, CHINA, COLOMBIA, EU, INDIA, JAPAN, MEXICO,RUSSIA, SAUDI ARABIA, SOUTH AFRICA AND THAILAND ... and PERU
• R&D AGENDA, TECHNOLOGY TRANSFER AND NEW MARKETS (NEWGEOGRAPHY AND END-USE)
Prospects for Global Tradein Fuel Ethanol
USA 18 - 20
BRAZIL 15 - 18
JAPAN, all imported 6 - 12
CHINA, partially imported 6 - 12
EUROPEAN UNION 2 - 3
WESTERN HEMISPHERE 1 - 3
OTHER ASIA 1 - 3
CANADA 1 - 1.5
AFRICA 0.5 - 1
AUSTRALIA 0.5 - 1
Prospective Domestic Markets(Fuel Ethanol million m3/yr, 2010)
PerúA forthcoming competitive offer
• Kyoto Protocol Compliance• Should start with a level of 5% Ethanol replacement in gasoline in foreseen by
year 2005. Law still to be regulated• No Ethanol local production as of now• Prospection of development in Ethanol activity from sugar cane in the northern
coast (Internal Demand for the whole country):Years Number Production Internal Demand
(Acc. Has) (Million Liters/year) (Million Liters/year)
2005-06 20,000 3002007-08 80,000 900 3302009-10 200,000 2,520 3702011-15 400,000 5,400 4502016-20 700,000 9,900 5002021-25 1’000,000 15,300 600
• Also prospects the lowest production cost in the world market.
Conclusions• The international trade in fuel ethanol is likely to develop as a
number of contained trade flows taking advantage of existing trade agreements.
• Central America, Andean Pact and the Caribbean are well placed to take advantage of the major markets in the USA and Europe if they can be competitive.
• Brazil is now the natural supplier to the Far East (Japan) and the USA via the CBI; although Peru may have a competitive and comparative advantage due to its lower cost and shorter seaway respectively.
• China market arises as an important target because of its size; specially if volume and lower costs of product and sea transport are offered.
• A truly liberalized global market in fuel ethanol remains today a vision for the distant future – but opportunities exist.
PERUPERUETHANOL MEGAETHANOL MEGA--PROJECTPROJECT
PRESENTATION TO THE CMECCMEC--CHINACHINA DELEGATIONSeptember 2004