WELCOME Kansas Agriculture and Rural Leadership Program Agenda Our - - PowerPoint PPT Presentation

Kansas Agriculture and Rural Leadership Program

WELCOME

Agenda

• Our history
• From idea to reality
• Investment, reinvestment and financial performance
• Today’s opportunities & leveraging our capabilities
• Fun Facts about EKAE
• How ethanol is made
• Video - look at the process
• Questions

OUR VISION

To be a recognized industry leader in efficient production of agriculture-based products while pursuing diversified growth through early adoption of advanced technologies.

OUR MISSION

To be a diversified agriculture and energy-based company that enhances unit holder value by producing high quality products and utilizing innovative technologies and best practices.

A Brief Look Back

Where we've been. Where we're headed. 2001 “What If” coffee shop talk 2004 SEC registration and subscription sales 2005 Production starts in June 2008 Plant idled for 93 days due to boiler incident 2011 Localized drought forces grain purchases

• utside trade area

2012 Widespread drought slowed operations— and eventually led to suspended operations October 1 2013 WE'RE BAAACK! Restart operations September 16

• 136,736,355 bushels of corn ground
• 376,360,529 gallons of production
• 384,583 lbs. of dry distillers
• 34,977,220 lbs. of wet distillers
• 34,977,220 lbs. of corn oil

From coffee shop concept to multi-million-dollar biofuels refinery

• 750,000 hours of no lost-time accidents

(10 years)

• Diversity of revenue stream
• Nameplate of 35 MGY; Now 48 MGY
• Renewable diesel expansion
• 32 jobs in 2005; now 50+ when Renewable

Diesel starts

• Improved unit holder value
• Plant sustainability

From coffee shop concept to multi-million-dollar biofuels refinery

Economic Impacts

• You get 2.8 - 2.9 gal of ethanol per bushel of corn
• We also produce animal feed as a co-product

– Dried Distillers Grains (10% moisture)

• 70,000 ton/year (200 ton/day)

– Wet Distillers Grains (65% moisture)

• 115,000 ton/year (400 ton/day)
• You get 17.3 lb of DDG/bu grain
• The facility cost ~$50 million to construct
• EKAE employs 52 people, with an annual

payroll of ~$2.8 million

General Economic Impacts

(from Ethanol Today, Mar06 – based on a 40mgy plant)

• Construction generates a 1-time boost of $142million as

spending circulates throughout the economy

• A plant will spend $56million annually on goods and services,

ranging from corn to labor to utilities

• Expand the economic base of the local economy by $110.2

million

• Generate an additional $19.6 million in household income
• Generate at least $1.2 million in new tax revenue for state and

local governments

EKAE Fun Facts

• The plant was designed and built by ICM out of Colwich, KS
• Our design capacity is for 35 million gallons per year of ethanol

(100,000 gal/day) Actual 125,000 gal/day

– Today rate of 45 Million gallons/day has been achieved

• We will process 16 million bushel of corn per year (~45,000 bu/day)
• The facility was built in 8 months
• At one time there was 300 contractors on site for construction
• In past, we use both corn and milo in our process (5%-20% milo)

– Today, we are 100% EtOH

• We reached full rate production in 3 days
• We have a steam driven turbine in which we produce ~18% of our
• wn electrical needs
• Part of our water needs come from the discharge from the city

wastewater plant in the form of gray-water.

Where does our corn come from?

• Corn

– We consume ~45,000 bushel/day – Roughly 75% comes from within a 70 mile radius – We originate our grain and buy direct from growers and from commercial grain sources – There is a link on our website in which you can access our daily price posting

• Corn Farmers & choice!

– Elevator, livestock producers or EKAE

• Work with farmers producers

– We need to earn the biz of the farmer and understand that the success of any local EtOH operation goes hand in hand with the success of the local grain producer – Provide innovative pricing designed to help both the farmer and EKAE – Work with them as a partner

Yields expected to increase

55 year trend in Red; suggests 160-165 bpa – greater if weather cooperates

These trends are likely to continue, which means yields should continue to increase over time, at an accelerating rate. Much of this improvement will be due to hybrid development. Genetic advances are being specifically targeted at enhancing yield; either increasing yield per se, or things like drought tolerance and nitrogen use efficiency that also increase yield.

40 60 80 100 120 140 160 180

US Harvested Corn Acres

50000 55000 60000 65000 70000 75000 80000 85000 90000 Also trending higher; farmer will pull back in 2014, but lower input costs will prevent a decline back to trend

Where do our products go?

• EtOH –

– Local truck markets

• KC, Tulsa, Ok City, Joplin, Springfield, Wichita
• Feed Products

– Partnership (they built their biz around EKAE) – Wet Cake (WDG)

• 9% protein, 3% fat, 35% dry solids
• Stays within ~120 mile radius
• Shorter shelf life during summer

– Dried Distillers (DDG)

• 25% protein, 8% fat, 10% moisture
• Majority is sold within a 200 mile radius
• Has the ability to be shipped anywhere in the US and even exported (Asia)
• Corn Oil

– Biodiesel / Renewable Diesel – Feeders

U.S. EtOH Bio-refinery Locations

EtOH is, without question, the biggest thing to happen to the grain industry since the Russian Grain deal of the 1970’s.

Historical & projected Ethanol Demand

(Based on the RFS)

Reduction to advanced bio mandate would help US re-gain market share Reflects the large increase & future increase in US demand for EtOH.

Co-Product - DDGS

• In ethanol production, every 56 lb

bushel of grain = 2.8 gallons of ethanol + 17 lbs of high-protein animal feed known as dried distillers grain with solubles (DDGS)

• DDGS serves as animal feed for beef and

dairy cattle, swine, poultry, and fish

• In 2014, the U.S. ethanol industry

created more than 39 million metric tons of DDGS, enough to produce 7 quarter pound hamburgers for every person worldwide

EKAE Biofuels Core Competencies

EKAE will continue to focus on our core strengths and pursue future

• pportunities that leverage our strengths.
• Grain Origination
• Trading/Risk management
• Logistics
• Plant operations
• Processing knowledge as a Bio-fuels producer
• Biofuels
• Deep bio-fuel customer and industry relationships
• Understanding of market pricing dynamics
• Engaged, talented, experienced team

• 14.3 billion gallons produced vs. 15

billion gallon capacity

• Gasoline Demand rising
• Exports at high levels
• Margins were very favorable for the

entire industry

• Actually revived failed project in the

industry

• Record margins in the industry
• 2nd best year ever at EKAE

Two fuels from one kernel of corn …

• True drop-in fuel; indistinguishable from

petroleum diesel

• Leverages technology & expertise already in place
• Adds value to corn oil we already produce
• Meets criteria for advance biofuel
• Aligns with long-term business strategy

Two fuels from one kernel of corn …

• Enhances existing customer relationships
• Helps mitigate risk
• Feedstock flexibility as commodity prices

fluctuate

• Higher value product maximizes profits from

corn oil recovery

Renewable Diesel

Renewable Diesel leverages our strengths, experience and market knowledge.

• Can run with or without the EtOH plant

(commodity risk)

• Diversify our portfolio
• Market acceptance
• Leverage current skills & experience
• Feedstock flexible
• Better value proposition than traditional biodiesel

Renewable Diesel

Why Renewable Diesel for an Ethanol Plant?

• Corn oil production holds significant revenue

potential

• Simply taking product stream up the value chain
• Diversified product offerings
• Maximizes profits associated with corn oil recovery

Essentially adding value to our distillers corn oil!

Comparisons & Considerations

BIODIESEL RENEWABLE DIESEL PROS PROS

Lower capital costs True drop-in fuel Less complex operation High value co-products Increase value of DCO Integration options Low CI value of 13 gm CO2/mj Feedstock flexible Relatively short project timeline Extremely low CI value of 6 gm “Elegant” integration with ethanol plant

Comparisons & Considerations

BIODIESEL RENEWABLE DIESEL CONS CONS Blend wall/blending restrictions 7 labeling requirements Higher capital costs Cold flow/seasonal concerns Refinery-like operations Less valuable co-products Project timeline 12-16 months

Renewable Diesel

The competitive advantage

• True drop-in fuel
• Indistinguishable from petroleum diesel
• Meets ASTM standard D975
• Same spec that petroleum refiners meet
• Fully feedstock flexible
• Wide range of vegetable oils, animal fats as

well as DCO

Renewable Diesel

The competitive advantage

• Valuable co-products
• Naphtha and propane
• Classified as Advanced Biofuel under

RFS2

• Generate 1.7 D4 RINs/gallon
• $1/gallon tax credit if reinstated?

Renewable Diesel

The competitive advantage

• Far superior cold flow properties
• Also lower cloud point than traditional

biodiesel

• No market restrictions
• True drop-in fuel
• Pipeline & blending terminal compatible
• Trades at or above rack price of ULS

diesel

Renewable Diesel

The competitive advantage

• CARB added value
• Lower carbon intensity (as per CARB)
• LCF benefit has recently been $0.0075 per CI

unit relative to CARB fossil fuel CI baseline

• Exothermic process
• Beneficial integration with ethanol production

process

Renewable Diesel Process

FOG Hydrogen Fuel Gas Naphtha Renewable Diesel Water

HDO ISOM

SEPARATOR

FRACTIONATOR

Hydrogen Recovery Unit Improves Cold Flow Properties Removes Oxygen Diesel Recycle

EKAE Renewable Diesel Plant

(Looking Southeast)

The Outlook for Ethanol

We remain confident in the future of ethanol:

• The only viable renewable fuel on the market today
• Diversifies America's energy portfolio
• Revitalizes rural economy
• Improves our nation's energy security
• Offers significant clean air benefits

(reduced toxic emissions and particulate matter)

• Offers consumers more choices

at the pump!

Plant Video & Tour

• IF NEEDED

History of the RFS

• •2005 – The original Renewable Fuel Standard

(RFS1) is created by amendments to the Clean Air Act passed as part of the Energy Policy Act (EPAct)

• •2007 – The RFS2 is created by amendments

to the Clean Air Act passed as part of the Energy Independence and Security Act (EISA)

Overview of the RFS

• •Requires fuel refiners and importers (i.e.,

“obligated parties”) to “commercialize” specific volumes of biofuels each year through 2022

• •Compliance is demonstrated by acquiring

and submitting Renewable Identification Numbers (RINs)

• RINs are tradable

What is a RIN?

• A Renewable Identification Number (RIN) is a tradable credit that is

generated when a gallon of renewable fuel is produced

• –When a refiner buys a gal. of ethanol, he also obtains the RIN
• Every February, obligated parties (oil refiners/blenders) turn in RINs to

EPA to demonstrate that they complied with their RFS blending

• bligations
• –Refiners use oldest RINs first for compliance (FIFO)
• If a refiner blends more renewable fuel than is required, he can “bank”

the excess RINs

• –Excess RINs can be sold to other obligated parties who under-complied

with their obligation

• –Or, the obligated party’s excess RINs can be saved to use in lieu of

physical gallons in the future (subject to 20% limit)

• –RIN market is an open market; third party brokers may buy/sell RINs as

well

37

Price Risk Management: dealing with products that represent 70% or more of your costs of sales

Buying at the right price… …on the right day

Risk Manage – Feedstock

Overview

Nearly 200

• perating ethanol

biorefineries in 29 states produced a record 14.3 billion gallons of ethanol in 2014

Annual U.S. Ethanol Production

* 2014 projection is based on Jan.-Aug. production Source: DOE/EIA

Ethanol Consumption Steadily Growing

Production topping out near 2011 levels – very few new projections in pipeline

12.0 12.2 12.4 12.6 12.8 13.0 13.2 13.4 13.6 13.8 14.0 14.2

2010 2011 2012 2013* 2014*

Production Consumption

Top 10 Ethanol Producing States

• Iowa
• Nebraska
• Illinois
• Indiana
• Minnesota
• South Dakota
• Kansas
• Ohio
• Wisconsin
• North Dakota

How Is Ethanol Made

• Most ethanol

(~90%) is produced via the dry mill process

• The wet mill

process is used to produce the remaining ~10%

Ethanol & the Economy

• The 14.3 billion gallons of ethanol produced in 2014:

– Added $52.7 billion to the national GDP – Sustained 83,949 direct jobs and 295,265 indirect/induced jobs – Added $26.7 billion in household income – Contributed $10.3 billion in federal, state, and local tax revenue

Source: Urbanchuk, John M. Contribution of the Ethanol Industry to the Economy of the United States. ABF Economics (for the Renewable Fuels Association), February 2015.

Saving Consumers Money

• Ethanol stretches the transportation fuel supply decreasing

the amount of oil needed to move America’s cars and trucks.

• Over the past five years ethanol has been sold at a lower

cost than gasoline ultimately lowering the cost of the final product sold at gas stations. – Energy economist Philip Verleger found that ethanol saved drivers between $0.50-$1.50 in 2012 & 2013.

• Additionally, vehicles require high levels of octane in their

fuel, and ethanol is the cleanest and cheapest octane booster found anywhere in the world.

Ethanol & Energy Security

• Ethanol helps reduce America’s

dependence on imported oil and bolsters America’s energy independence

• The U.S. produces 13% of the

world’s oil and petroleum, but consumes 21%

• Despite the expansion of domestic oil

production, the U.S. still remains dependent

• n foreign oil as 47% of the crude oil refined

in the U.S. last year was imported

• The amount of ethanol produced last year

was enough to displace more than the gasoline equivalent of all the oil the U.S. imports from Saudi Arabia in a single year

Ethanol & the Environment

• Ethanol benefits the environment and helps reduce GHG

emissions from the transportation sector

• According to the Department of Energy, average conventional

ethanol reduces GHG emissions by 34 percent compared to petroleum

• The amount of ethanol produced last year reduced GHG

emissions by 39.6 million metric tons – the equivalent of taking 8.4 million cars off the road for a year.

• But, ethanol doesn’t only reduce GHG emissions, it also

reduces carbon monoxide, air toxins, fine particulate matter, exhaust hydrocarbons that are released into the atmosphere through tailpipe emissions.

Ethanol & the Environment

• Producers have streamlined the production process,

increasing efficiency while producing even more of the final product

• Since 1995:
• Natural gas use is down 36%
• Electricity use has plunged 38%
• Water use has dropped 53%

Next-Generation Ethanol

• Cellulosic ethanol has emerged onto the market with

plants in operation in Iowa and Kansas.

• Cellulosic ethanol is produced from corn stalks,

wheat straw, poplar, paper waste, municipal waste, forestry residue, etc.

• The use of cellulosic ethanol will cause GHG

emissions from the transportation sector to fall up to 110% compared to petroleum, according to the U.S. Department of Energy

The Renewable Fuel Standard

• The RFS is essentially halfway through the 15 year

program and has been a resounding success

• Congress adopted the RFS in 2005 and expanded it

in 2007

• The RFS requires oil companies to blend increasing

amounts of renewable fuels into gasoline, reaching 36 billion gallons in 2022

The Renewable Fuel Standard

4,000 8,000 12,000 16,000 20,000 24,000 28,000 32,000 36,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Million Gallons

Renewable Fuel Standard (RFS2) Requirements

Renewable Biofuel (20% GHG Reduction) Biomass-based Diesel (50% Reduction) Cellulosic Biofuel (60% Reduction) Advanced Biofuel (50% GHG Reduction)

Ethanol Balance of Trade Favoring US Exports in 2014

200 400 600 800 1,000 1,200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* million gallons

* = Linn Group Estimate

Exports Imports

Going Global - Ethanol

• The U.S. exported 836 million gallons of ethanol in 2014
• Top 5 export countries include Canada, Brazil, the United

Arab Emirates, Philippines, and India.

Canada Brazil Mexico Tunisia Philippines

• S. Korea

Rest of World India UAE EU 28

Going Global - DDGS

The U.S. exported a record-setting 11.3 million metric tons of DDGS in 2014

Mexico

• S. Korea

Rest of World Vietnam

China

Turkey Japan Canada Thailand

Ethanol Blends

• 97% of all gasoline in the U.S. is blended with

ethanol

• Gasoline today contains up to 10% ethanol
• In addition to E10 (up to 10% ethanol) other

popular higher-level ethanol blends include E15 (15 percent ethanol) and E85 (85 percent ethanol)

Ethanol Blends

E15 (15 percent ethanol)

• EPA-approved for vehicles 2001 and newer

and all flex-fuel vehicles

• Now available at nearly 100 stations in 16

states with more to come

• On the market for 2.5 years with no known

cases of engine damage or misfueling

• Nearly 70% of automakers approve E15 use

in MY 2015 vehicles

Ethanol Blends

E85 (85 percent ethanol)

• Approved for use in flex-fuel vehicles
• Flex-fuel vehicles account for roughly a

quarter of all new vehicles sold today

• Available at more than 3,200 stations

nationwide

The key to future growth:

Expanding E-85 and switching from prevailing E-10 blends to E-15

Food vs. Fuel

The petroleum industry has been pushing the false food vs. fuel premise to the public for years now. However, there is absolutely no truth in this false assertion.

• There is no correlation between biofuels and rising food prices.

– Food price increases have slowed since 2005 when the RFS was originally enacted.

• The global grain supply has reached a record high providing enough grain

to meet the world’s food, feed, and fuel needs.

– Ethanol uses less than three percent of the world’s grain supply

• The amount of money spent on the farm product of an item purchased at

the grocery store in minimum.

– 17 cents out of every dollar spent at the grocery store pays for the actual food product, while 83 cents is spent on packaging, transportation, etc.

• What causes food price increases?

– The World Bank has the answer finding that “most of the food prices increases are accounted for by crude oil prices.”