Reducing volatility and financial risk and increasing returns by producing coproducts in a lignocellulosic bio-refinery

Transcription

1 Reducing volatility and financial risk and increasing returns by producing coproducts in a lignocellulosic bio-refinery

2 Fuel prices have shown high volatility over the last 1 years High volatility = high risk Replacement of oil with renewables will require massive investment at least US$ trillion Investment is likely to prefer lower risk projects

3 Ethanol price is more volatile than oil or gas = higher risk Average monthly change in oil price over last 9 yeast is 8.6% Average monthly change in natural gas price over last 9 yeast is.9% Average monthly change in ethanol price over last 9 yeast is 9.6% Higher ethanol price volatility impacts on investment decisions

4 Number of observations % of observations fall within a variance of % Distribution of Price Variance - WTI Oil Oil price moves a maximum of % on a monthly basis -4% % -4% 4% -3% 4% -3% 3% -3% % -% % -% 1% -1% 1% -1% -% to % to % to % % % 1% Range of monthly price changes 1% to 1% 1% to % % to% to % 3% 3 Distribution of Price Variance - CBOT Ethanol Ethanol price moves a maximum of 7% on a monthly basis Number of observations % of observations fall within a variance of 6% -7% 6% -6% % -4% % -4% 3% -3% -% -1% to % 1% % % to 1% 1% to % Range of monthly price changes % to 3% 3% to 4% 4% to % % to 6% 6% to 7%

5 Ethanol only model system volatile cash margins Assume ethanol only lignocellulosic project started operation 9 year ago Assume average cash margin of 1% based on historical ethanol price Result: Significant periods of time when cash margins are negative Ethanol Only Lignocellulosic Project - Sales - US$M - Annualised Basis Ethanol Only Lignocellulosic Project - Margins - US$M - Annualised Basis 3 14 Sales US$M - Annualised 1 1 Estimated operating costs annually US$128.M US$M - Annualised Total margins over 9 years = US$2.B Nov Months Jan Nov Jan 1 Months

6 Ethanol only model system high variance in monthly margins In % of the time, a change in margins in excess of US$9M was observed Result: Makes financing of commercial facilities more difficult Number of observations Distribution of Variance in Project Margins - Ethanol Only 9% of observations fall within a variance of US$9M change in margin per month 8 to 9 7 to 8 6 to 7 to 6 4 to 3 to 4 to 3 1 to to 1-1 to Range of monthly margin changes - US$M

7 The MBG bio-refinery concept may solve volatility issues The MBG yeast and process results in two products not just one Overall yield from substrate increases by over % Yeast co-product is likely to be a higher value product than ethanol Similar quantities of fuel (ethanol) and high value feed (yeast) are produced

8 Feed prices also demonstrate high volatility Fishmeal, Corn and Soybean meal all show relatively high volatility over the past 9 years Over 9 years, prices have varied by up to %

9 Feed prices also demonstrate high volatility Number of observations 1 1-3% 4% -3% 3% Distribution of Price Variance - Soymeal -3% % 9% of observations fall within a variance of % -% % -% 1% -1% -1% % 1% -% to % % to % % to 1% Range of monthly price changes 1% to 1% 1% to % % to % % to 3% Number of observations % % -% % Distribution of Price Variance - Fish Meal -% 1% -1% 1% -1% -% to % to % % % % to 1% 1% to 1% Range of monthly price changes 9% of observations fall within a variance of 4% 1% to% to% to3% to3% to % % 3% 3% 4% Number of observations % 6% 9% of observations fall within a variance of 6% -6% % -4% % Distribution of Price Variance - Corn -4% 3% -3% % -% 1% -1% to % % to 1% 1% to % Range of monthly price changes % to 3% 3% to 4% 4% to % % to 6% to 6% 7%

10 Feed price volatility similar to that of fuel price volatility

11 But little or no co-correlation between ethanol and feed price changes Correlation between fishmeal and ethanol is less than 1% and corn and ethanol less than 4% Strongest correlation is between soybean meal and ethanol at less than 8% Data implies that the addition of yeast feed to an ethanol only facility will reduce margin volatility

12 Yeast is a high value product assume it is priced much lower Yeast (aerobically produced) currently sells at US$3/kg or more As a feed it is sold at prices in excess of US$/kg (at small scale) Trials have shown that SC yeast is potentially suitable as a partial or full fish meal replacement Assumption is made that aerobically produced yeast is sold at the mid point between soymeal and fishmeal

13 Impact significant reduction in cash flow volatility Key assumptions include: 2,tpd refinery, same capital and operating costs and no hedging Operating costs are assumed to be the same as an ethanol only refinery generating a 1% margin Ethanol Only Lignocellulosic Project - Sales - US$M - Annualised Basis Bio-refinery - Ethanol and Yeast - Sales - US$M - Annualised Basis 3 3 US$M - Annualised 1 1 US$128M/year operating costs US$M - Annualised 1 1 Feed yeast Revenues US$128M/year operating costs Ethanol Revenues Months Months

14 Impact significant reduction in cash flow volatility cont Ethanol only project generates cash margins of US$2.B over 9 years Bio-refinery project with 2 products generates cash margins of over US$.9B over 9 years US$M - Annualised Ethanol Only Lignocellulosic Project - Margins - US$M - Annualised Basis 1 Total margin over 9 years = US$2. billion Months US$M - Annualised Biorefinery Lignocellulosic Project - Margins - US$M - Annualised Basis Total margin over 9 years = US$.9 billion Months

15 Impact significant reduction in cash flow volatility cont Project margin cash flow volatility is estimated to have halved 9% of margins fall within a US$9M variation range for the ethanol only project 9% of margins fall within a US$M variation range for the ethanol only project 3 Distribution of Variance in Project Margins - Ethanol Only Distribution of Variance in Project Margins Ethanol and Feed yeast Number of observations to 4 to 3 1 to to 1-1 to Range of monthly margin changes - US$M 4 to to 6 6 to 7 7 to 8 8 to 9 Number of observations to to 1 1 to to 3 Range of monthly margin changes - US$M 3 to 4 4 to to 6 6 to 7 7 to 8 8 to 9

16 Bio-refineries makes more financial sense than single product operations Most biofuel facilities already produce multiple products However, to minimize volatility risk it is an advantage to produce at least two co-products Lower revenue and cash flow volatility is a major advantage over single product bio-refineries Producing more than one primary product has other process advantages such as yield and efficiency Gazing into the crystal ball suggests Expect future facilities to produce a combination of fuel, chemicals and food The evolution of bio-refineries will continue for decades