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CME Group / CBOT Ethanol Futures
CME Group / NYMEX Ethanol Futures
The key to ethanol production is first fermenting the sugar (such as glucose, fructose, and sucrose) that is found in the any plant-based material. The second step is then distilling the alcohol produced during the fermentation process. The knowledge to distill and produce ethanol has existed for several thousand years. The industrial strehgth ethanol produced on a large scale has also been "denatured", which means that it has been rendered unfit for consumption.
Historically, the raw material that is to be fermented (feedstock) was derived from the starch found in cereal grains (which can be grown in temperate climates) such as corn sorghum and millet. The fermentation process is completed by introducing a yeast (which is a microorganism, and are primarily from the Saccharomyces group) into the starch of the grains, which then ferments the sugar in the starch.
The ethanol fermentation is by the anaerobic process, which means that it occurs without the presence of oxygen. As the yeast organisms consume the sugars in the feedstock, ethanol and carbon dioxide are produced as waste products. During the fermentation process one glucose molecule is converted into two ethanol molecules and two carbon dioxide molecules: C6H12O6 → 2 C2H5OH + 2 CO2
In the United States, when corn is first delievered to the mill it must meet a maximum moisture limit. It also must undergo test weight and be within a specific range of pounds per bushel. The corn is also checked for the presence of foreign material.
The most common feedstock used in the United States for large scale denatured fuel grade ethanol production is corn. One bushel of corn produces approximately 2.8 gallons of ethanol and approximately 17 pounds of distillers dried grains. One acre of corn can produce approximately 415 gallons of ethanol. Presently, corn-based ethanol is the largest alternative fuel source available in the United States but other fuels, like biodiesel, are also available.
The United States maintains a 54¢ per gallon tariff on imported ethanol. Thus, corn prices have to be high enough (as the primary ethanol feedstock) that it is profitable to import ethanol with the added expense of the tariff.
Since January 1999, annual ethanol production in the United States has increased more than 300%, from 1.5 billion gallons to an estimated 6.3 billion gallons in 2007. The USDA indicates that expansion in the industry is projected to continue, particularly over the next few years, exceeding 12 billion gallons by 2010. Although more moderate growth is projected in subsequent years, over 14 billion gallons of ethanol are expected to be produced annually by 2017 (which assumes the tax credit available to blenders of ethanol and the 54¢ per gallon tariff on imported ethanol used as fuel remain in effect). The large ongoing expansion results in almost a third of the corn crop used to produce ethanol by 2009/10, remaining near that share in subsequent years. Nonetheless, even by 2017, ethanol production (by volume) represents only about 8.5% of annual gasoline use in the United States.
There is some controversy related to the production of ethanol:
There is also the issue of ethanol distribution: the introduction of ethanol into the liquid petroleum pipeline infrastructure, which must resolve the movement of currently marketed ethanol / gasoline blends such as E10 and in the future, movement of intermediate ethanol-rich products (E15, E20, E40) and E85. The issue revolves around the incompatibility of large quantities and concentrations of ethanol with existing pipeline system materials and the unknown short and long-term risks to operational and system integrity of shipping ethanol / gasoline blends. Most biofuels used in the U.S. today are transported exclusively by marine vessel, rail, and/or highway. Barge, rail and truck shippers of ethanol are currently investing heavily in infrastructure to ship ethanol. The Pipeline and Hazardous Materials Safety Administration (PHMSA) has the regulatory responsibility for pipeline integrity.
Why is it important to resolve the tranportation issue? It is a question of added expense. A large pipeline can transport roughly two million barrels of gasoline a day. By way of comparison, 9,375 large semi-truck tankers are required to transport two million barrels of product. It takes twenty-four 100-car unit trains extending three miles each, or ten 15-unit barge tows, to transport two million barrels. Trucks, vessels, and trains consume diesel or other liquid fuels and also contribute to congestion in our Nation's freight and passenger transportation corridors. Further, as the National Transportation Safety Board has observed, pipeline transportation has a consistently lower accident rate than other modes.
Related to product transportation is the safety issue. For instance, fires involving ethanol/gasoline mixtures containing more than 10% ethanol, such as E85, should be treated differently than traditional gasoline fires because these mixtures are polar/water-miscible flammable liquids (they mix readily with water) and degrade the effectiveness of non alcohol-resistant fire-fighting foam.
The PHMSA has devised shipping names and identification numbers (ID) that may be used on shipping papers for fuel mixtures composed of ethanol and gasoline in various concentrations.
| Proper Shipping Name and ID | Ethanol Concentrations |
| Gasohol, NA 1203 | E1 thru E10 |
| Gasoline, UN 1203 | E1 thru E10 |
| Ethanol and gasoline mixture, UN 3475 | E11 thru E99 |
| Denatured alcohol, NA 1987 | E95 thru E99 |
| Alcohols, n.o.s, UN 1987 | E95 thru E99 |
| Ethanol or Ethyl alcohol, UN 1170 | E100 |
Overall, the nation of Brazil is the worldwide leader in the supply of energy from renewable sources. This source of energy increased 4.2% in 2006 and represents almost 45% (101.5 million tpe) of total Brazilian energy supply, whereas the global average energy supply from renewable sources is 13.2% of domestic energy.
Sugarcane is the sole source of feedstock for large scale fuel grade ethanol production in Brazil. ATO / São Paulo forecasts total marketing year (MY) 2007/08 sugarcane production was at 478 million metric tons (mmt), up 50 mmt relative to MY 2006/07. The MY 2007/08 sugarcane crop was expected to divert more sugarcane toward ethanol production and away from sugar production as a consequence of higher demand for ethanol in the domestic market and less attractive sugar prices in the international market. Total ethanol production for MY 2007/08 was projected at 20.45 billion liters (8.6 billion liters of anhydrous ethanol and 11.85 billion liters of hydrated ethanol), up 2.59 billion liters from previous marketing year.
Total sugarcane planted area for MY 2007/08 was projected at 7.19 million hectares (ha), a 10 percent increase vis-à-vis MY 2006/07 (6.55 million ha). Total harvested area for MY 2007/08 was forecast at 6.47 million ha, up 530,000 ha from MY 2006/07 (5.94 million ha).
Sugarcane ethanol production has steadily expanded in Brazil in recent years. The number of sugar ethanol and ethanol plants in Brazil was 325 in 2006/07. It was estimated that 18 new plants started operations in MY 2006/07, 16 new plants were expected to begin crushing in MY 2007/08 and 32 are expected to open in MY 2008/09. Expansion has occurred in western São Paulo, Parana, Minas Gerais, Mato Grosso do Sul, Goias and Mato Grosso.
Currently, Louis Dreyfus is the major foreign group in sugarcane crushing in Brazil (7 plants crushing over 10 mmt of sugarcane in 2006/07), followed by the Tereos Group (8.5 mmt in 2006/07). Other foreign enterprises include Kuok, Cargill, Noble, Adeco Agro, Sucden and Clean Energy.
Currently, sugarcane occupies approximately 2.0% of total agricultural land, whereas natural and extensive pastures occupy the vast majority of the land suitable for agriculture. Whereas sugarcane may displace some soybeans, corn and cotton production, it should not replace them given that sugarcane area expansion takes place mainly in pasture areas. There has been some controversy that expanded sugarcane cultivation has led to deforestation in the Amazon Rain Forest region. However, as indicated above most of the expansion has been in in western São Paulo and Minas Gerais, both of which are located in the southeast of Brazil (the Amazon Basin is located in the northwest). Secondly, expansion has been into pasture land and marginal arable land. Rather, deforestation in the Brazilian Amazon region is from settlers seeking farm land and the creation of new pasture land to run cattle.
Industry sources estimate the current cost of producing ethanol from sugarcane at US$ 0.29/liter (rate of exchange US$ 1.00 = R$ 2.00).
As indicated abaove, one of the factors that drives ethanol demand in the United States is renewable fuels standard and other Federal policies, and corresponding state-level programs. These regulations are primarily derived from environmental concerns. The Clean Air Act Amendment of 1990 (and subsequent laws) mandated the sale of oxygenated fuels in areas of the United States with unhealthy levels of carbon monoxide. Methyl tertiary butyl ether (MTBE) was the original ingredient blended with gasoline to oxygenate the fuel. However, it became knowledge that MTBE was seeping into and polluting ground water aquifiers and MTBE was replaced by the usage of ethanol.
The additional important factor that drives etahnol demand in the United States are concerns over the ever increasing reliance on the importation of foreign petroleum products. There is a real requirement to expand and secure the U.S. fuel supply.
In the United States, the primary usage of ethanol is now as an automotive motor fuel and fuel additive. Nearly all of the ethanol produced within the United States is blended into E10 fuel (10% etahnol and 90% unleaded gasoline). Ethanol is blended into approximately 60% of all gasoline sold / used in the United States. E10 fuel can be used in any gasoline powered automotive vehicle or machinery without modification. It should be noted that E10 can contain up to 10% ethanol but in many cases it does not even have that amount and in many cases unleaded gasoline contains no ethanol at all.
In the United States in 2005, nearly 4 billion gallons of ethanol were blended into gasoline. The Energy Information Administration (EIA) estimates that the U.S. gasoline fuel market was approximated 142 billion gallons in 2007. In 2008, the EPA requires that minimum 7.76% of gasoline products be blended with ethanol, which translated into approximately 9 billion gallons of ethanol. However, there is the possibility that production will ultimately outstrip the capacity to blend ethanol if E10 is the only blend offered (by definition, ethanol cannot exceed 10% of the gasoline pool if it is blended exclusively into E10). This limit to the use of ethanol (basically, where ethanol supply exceeds demand) is referred to as the E10 blend wall.
Blends of ethanol and unleaded gasoline above 10% require the use of flexible-fuel vehicles (FFVs), which are sold by several auto Manufacturers. The most widespread utilized blend in addition to E10 in the United States is is E85 (85% ethanol and 15% unleaded gasoline). FFV can actually operate with any proportion of blended ethanol and gasoline as a fuels source up to a maximum of 85% ethanol with gasoline. There is research and analysis regarding the adaption of E15, E20 and E40 intermediate ethanol blends. Further adaption of fuel blends in excess of E10 will require the U.S. Environmental Protection Agency (EPA) must approve a waiver to the Clean Air Act, classifying the blends as "substantially similar" to gasoline. It will also require the additional investment in service station infrastructure to dispense the blends to consumers. As of December 19, 2008, the U.S. Dept. of Energy, Alternative Fuels and Advanced Vehicles Data Center estimates that there 1,699 E85 stations within the United States (lower 48 states).
U.S. Dept. of Energy, Alternative Fuels and Advanced Vehicles Data Center: E85 Fueling Station Locations
Ethanol has been used as an automotive motor fuel in the past but the distillate was never adopted as a primary fuel source because the heat produced by ethanol is approximately 1/3 of the heat produced by a similar quantity of petroleum distillate. Secondly, ethanol absorbs water from the atmosphere, which can lead to the corrosion of the very machinery it is being used to power.
Since 1978 major manufacturers of fuel tanks have provided the same warranties for use of both unblended gasoline and ethanol blends up to E10 (10% ethanol and 90% gasoline). Flex-fuel vehicles (FFVs) can use blends containing more than 10% ethanol, such as E85 (85% ethanol), and auto manufacturers can produce FFVs at only a small additional cost. In 2007, of a total 229 million light-duty cars and trucks on the road, an estimated 5.5 million were FFVs, and this portion will likely grow. It is estimated that by 2030, approximately 10% of the total U.S. car and truck sales will be FFVs. However, of approximately 170,000 fueling stations in the United States, only 1,700 offer E85, so flex-fuel vehicles have a harder time locating stations offering this fuel. Thus, the key to greater Ethanol usage is one of scale: the U.S. would require several very large production facilities, a distribution system similar to existing gasoline stations and the adoption of flex-fuel vehicles (not just passenger automobiles but all types of commercial vehicles too).
The ethanol blended gasoline used in Brazil is E85 (85% ethanol and 15% gasoline). Approximately 90% or better of the new automobiles offered for sale to the public in Brazil have flexfuel engines, which can burn any combination of E15 through E85. The nation also has an extensive infrastructure network of E85 distribution and service station accessibility for consumers.
Market participants include farmers and farmer cooperatives, ethanol plant construction, ethanol plant operators, industry suppliers and marketers, distributors.
Ethanol futures began trading on the Chicago Board of Trade in March 2005, and is now traded on CME Group futures (which acquired CBOT).
The ethanol futures contract size is 29,000 gallons (approximately one railcar in volume).
The exchange deliverable grade for settlement is Denatured Fuel Ethanol ASTM D4806 + California Standards.
The Tick Size (minimum price fluctuation) is $0.001 per gallon ($1.827 to $1.828 = $29.00 per contract).
Contract settlement is by physical delivery.
A biofuel alternative to ethanol is butanol, which is also produced by fermenting grains and/or sugar however the fermentation is caused by a specific bacterium rather than a yeast. The result is that butanol has 2 additional carbon atoms, which is more energy than ethanol but still less than petroleum.
Other biofuels are referred to a cellulosic fuel such that the entire plant is utilized in production, not just the
grains. Cellulosic ethanol is similar to corn-based ethanol, but it can be produced
from a variety of biomass feedstocks such as:
Because cellulosic ethanol can come from a variety of raw materials, it can be produced in nearly every region of the country and has the potential to supply more fuel per acre than corn. Cellulosic ethanol production also produces less greenhouse gas (CO2, methane, and nitrous oxide) emissions than either gasoline or cornbased ethanol. Though it requires a more complex refining process, cellulosic ethanol contains more net energy than traditional corn-based ethanol. However, it requires a substantial amount of cellulose material to produce cellulostic ethanol in industrial quantities, which means that a substatial amount of land area would have to be specifically under cultivation in order to provide sufficient quantity of cellulosic material.
In the past several years there has been some investment in cellulosic technologies to convert non-food crop residues, grasses, and forest biomass into alternative biofuel. While clearly desirable from both an energy security and an environmental perspective, cellulosic ethanol is not yet commercially available because the conversion technology is only in its introductory stages and is expensive. There are currently no commercial cellulosic ethanol refineries in operation in the United States. The present acid hydrolysis process technology (for the decompostion of cellulose matter into simple sugars, which could then be fermented) is more expensive on a comparison basis with the dry milling of corn operation. The Enzymatic process for the conversion of cellulose proposes to lower costs, but is not yet benn commercialized.
The Department of Energy (DOE) has announced that it will provide funding for a number of projects:
There is also research being conducted that utilizes molecular enginnering to to create biopetrol from re-engineering enzymes or by utilizing synthetic biology to alter isoprenoid molecues, which are hydrocarbons similar to petroleum and can be utilized to produce a petroleum-like product rather than ethanol.
In 2008, the European Union voted and agreed to generate 10.0% of European transportation fuel from renewable sources by the year 2020. The emphasis of the directive was that biofuels would fulfill this requirement. However, in mid-2008 the United Kingdom requested that the targeted increase in production of biofuels be reduced due to the effect that the usage of some of feedstocks have on food prices, and that when carbon emissions to produce feedstocks / biofuels is also considered in the equation then the shift in production to biofuels does not present a sufficient enough carbon emission reduction. In mid-2010, the EU is in the process of determining a quality certification process to ensure that biofuel and ethanol production will comply with a low carbon, international standard.
Biodiesel can be produced from fats, oils, and greases (including recycled fats, oils and greases) derived from an agricultural product; and any animal byproduct (in addition to oils, fats and greases). The process requires that first the source of the oil must be filtered to remove any water. Then, the glycerin and methyl esters are separated.
Biodiesel can be used by vehicles that use diesel fuel, and it is typically blended with petroleum diesel at levels up to 20% (B20 - 20% biofuels and 80% diesel). Most U.S. biodiesel is made from either soybeans or yellow grease from restaurant cooking oil. Like ethanol, biodiesel is a domestically produced fuel and, depending on how it is produced, its use generates about two-thirds less greenhouse gas emissions than petroleum-based diesel. At present, however, it is economically viable only because of a $1.00 per gallon tax credit for blending biodiesel from virgin oil (oil in its first-use) and a $0.50 per gallon credit for blending with recycled oil.
Pure biodiesel (B100) can also be be used to operate an automotive motor, but it currently requires significant engine modifications.
In 2004 the Brazilian Government created the National Biodiesel Production Program (PNPB) in order to promote domestic biodiesel production. Federal Law No. 11.097 (enacted on January 13, 2005) defined and established a legal mandate for use of biodiesel as a fuel. Current legislation authorizes blenders to market a mximum of 2 percent biodiesel in mineral diesel (B2) until January of 2008 when marketing of B2 will become compulsory nationwide. In 2013, the required blend will rise to five percent (B5). A number of raw materials are being used for biodiesel production, icluding soybeans, castor seed (Ricinus communis), African palm oil (dende), “pinhao manso” (Jatropha curcas), sunflower, peanut, animal fat, fried oil and others.
Jatropha trees (Jatropha curcas) grow in a variety of non-arable land soil conditions but primarily in the sub-tropical zone (the plant is native to the Caribbean region).
One of the largest biodiesel producers in the world, Brasil Ecodiesel SA (Brasil Ecodiesel Industria e Comercio de Biocombustiveis e Oleos Vegetais SA), became profitable in the third quarter 2009 after production and sales had declined substantially from May 2008 through June 2009. the company has operations in the states of Ceara, Bahia, Piaui, Rio Grande do Sul, Maranhao and Tocantins and primarily sells biodiesel by auction to the state-owned oil company Petrobras.
Certain strains of algae contain an oil that can be converted to a bodiesel fuel however the cost of production is quite high, presently exceeding the cost of petroleum fuels on a per gallon basis. If the cost could be brought down then algae ponds could be grown just about any where, especially on land not suitable for agriculture.
AllSAFE www.allsafe-fuel.org/
Alternative Fuels Institute (AFI) www.afisd.com/
Auto Alliance: Alternative Fuel Autos Overview www.autoalliance.org/index.cfm?objectid=721AEA0A-1D09-317F-BB18FFF52777142B
Canadian Renewable Fuels Association (CRFA) www.greenfuels.org/
Ethanol Promotion and Information Council (EPIC) www.drivingethanol.org/
Governor's Ethanol Coalition www.ethanol-gec.org/
Iowa Renewable Fuels Association (IRFA) www.iowarfa.org/
National Biodiesel Board (NBB) www.biodiesel.org/
National Ethanol Vehicle Coalition www.e85fuel.com/
Natural Resources Defense Council (NRDC) www.nrdc.org/energy/default.asp
Nebraska Ethanol Board www.ne-ethanol.org/
Renewable Fuels Association (RFA) www.ethanolrfa.org/
U.S. Department of Energy, Alternative Fuels and Advanced Vehicles Data Center: Ethanol www.afdc.energy.gov/afdc/ethanol/
U.S. Department of Energy, Energy Efficiency and Renewable Energy (EERE) www.eere.energy.gov/
U.S. Department of Energy, National Renewable Energy Laboratory (NREL): Biomass Maps www.nrel.gov/gis/biomass.html
U.S. Environmental Protection Agency, Renewable Fuel Standard Program epa.gov/otaq/renewablefuels/index.htm
