Richard Gilmore, President and CEO, The GIC Group.
notes from:
Advanced Biofuels Summit, Washington, DC; April 20-21, 2009
Investors are like sheep and they all went over the first generation biofuel cliff at the same time.
Taxpayer money should not go to propping up companies that are not viable.
1. Have to look at the demand side of the equation, which was not looked at in the first generation ethanol market.
2. We also need to look at the transportation side of the equation. We need to have a price equillabrator. First generation, we could not separate feedstock production from refining by more than 100 miles.
Also, need new products from ethanol production. Such as protein feeds.
3. Create a more sustainable regulatory environment. Moving the renewable fuel standard from to 10 to 13% would be huge. Many mini steps that are less exciting, but not as disruptive while moving us to the next generation.
US export market for selling ethanol overseas has collapsed.
Brazil is a very significant exporter of biofuels. Their production costs are lower than ours, even with an import tariff.
EU has lowered its production targets.
Clean energy investment growth stories are in biofuels, solar and wind.
The pace of ethanol production plant openings is slowing and there are numerous bankruptcies. Restructuring of the industry is underway.
State subsidies play an important role in ethanol production.
Return on equity from ethanol production plants has collapsed to zero, from a high of 250% annualized in 2006.
Margin is not correlated with the price of oil. Other factors play an important role in the profit picture.
The spot margin for ethanol now is 6 cents per gallon, down from 14 cents per gallon in the hay day, proof that ethanol margins and the price of oil are not tightly linked.
Projection is that biofuels fall short of the 36 billion gallon renewable fuel standard target of 36 billion gallons in 2022, but exceeds it by 2030.
Structure of rural economies is very significant. Need to try to retrofit and make it a sustainable equation to produce biofuels.
Brazil ethanol production expanded 70% in last 6 years.
Name of the game for financing is some form of co-investment. Marrying sovereign and private sector investments.
Be careful to draw the wrong conclusion from Verasun bankruptcy, not related directly to inefficiencies in production.
Verenium – indicates that profit margins and geographic location are related.
Petrobas – maintains strategic relationships with Japanese corporations. Government supported and government financed organization.
28 Apr
