Advanced Demand

Rising demand for low-carbon, advanced biofuels to ramp up sugarcane-based ethanol demand
By Kris Bevill | November 15, 2010
The world faces a looming shortage in biofuels supply beginning in 2015, according to a recent study published by Hart Energy Consulting. Worldwide demand for biofuels is expected to increase by more than 100 percent over current demand levels by 2020 in response to increased regulatory requirements. As a result, global ethanol supply may be short by 5 billion gallons in 2020, a stark contrast to the oversupply situation experienced by U.S. producers in recent years.

"We view this as good news for the industry," says Tammy Klein, global study leader and assistant vice president of Hart Energy Consulting. "We are projecting increasing demand for the product in the market and high utilization rates. However, we don't expect a rush of new facilities or additional build-out in the industry. Rather, we think it's more likely the producers will debottleneck, possibly expand facilities and run over nameplate capacity. We expect facilities will improve efficiency and this is meaningful for future potential low carbon fuel standard (LCFS) and renewable fuel standard (RFS) compliance. This is the challenge for producersto make their process more sustainable' and GHG [greenhouse gas] friendly'and we think they will rise to that challenge."

Klein says she expects only one billion gallons of U.S. cellulosic ethanol to be produced in the next decade, although she recognizes the situation could change rapidly as technological breakthroughs occur. Poet LLC CEO Jeff Broin says the U.S. ethanol industry has consistently expanded to meet growing demand, and he expects that will remain the same in the future. He is also confident that U.S. cellulosic ethanol producers will rise to the challenge of providing low-carbon fuel to meet regulations. "There is a billion tons of cellulose available for ethanol production in this country and corn yields are projected to double in the next 20 years," he says. "Those factors ensure that there will be plenty of available feedstock to produce the ethanol needed for our country's renewable fuel goals."

But despite the confidence expressed by U.S. producers, Hart Energy's report favors Brazilian sugarcane ethanol as the main source of low-carbon fuel. Ethanol imports to the U.S. from Brazil and through the Caribbean Basin Initiative are expected to ramp up to more than 2 billion gallons by 2020, nearly four times the average amounts imported between 2004 and 2008. Klein says U.S. entities will have to bid against European countries, Japan and China for the sugarcane ethanol. China will become the U.S.'s biggest competitor for Brazilian ethanol, doubling its demand from current rates to 2 billion gallons by 2020. "Obligated parties in the U.S. will find themselves competing for these volumes as never before," says Frederick Potter, Hart Energy Publishing executive vice president. "We expect this to lead to continued price appreciation for sugarcane ethanol over the 2011-'20 period."

To meet increasing demand for its ethanol, Klein anticipates that Brazil will double its supply capacity over the next 10 years. By 2020, she expects Brazil will have the capacity to supply 3.5 billion gallons to the global market. And while most Brazilian producers have been slow to complete the necessary RFS registrations required to import ethanol to the U.S., Klein says that will soon change. "Brazilian sugarcane ethanol in our view will be a key avenue toward compliance with the LCFS," she says.

Hart Energy's report was published prior to the U.S. EPA's partial E15 approval, and it was estimated that market blending of E15 will reach 88 percent by 2020.