Straggle Muster 173 - 2/12/2005
Energising the World with Tony Hammington, Rabobank.
Rabobank has recently released three reports on the topic of sustainable forms of energy. Each report focuses on one of the three main locations who are the drivers of consumable energy, Brazil, the EU and USA.
The implications for NZ are significant, because of our desired compliance to Kyoto Protocol standards and environmentally sustainable practices. Like the other three regions, there are also energy independent goals and an agricultural production significance.
The Rabobank report on Brazil looks at the public appetite for new vehicles that that are able to run on Flexifuel (any mixture of petrol and ethanol that a driver chooses to put in the tank). Growth since inception a few years ago has been spectacular, and in May 2005, 50% of new car sales were "Flexifuel cars". The implication for international markets is whether Brazil has the capacity to maintain its dominant sugar exporting position, and still meet the internal demand for ethanol produced from sugar cane.
Whilst Brazil derives ethanol from sugar cane, it is also derived commercially from white grain (wheat, barley) cereals, maize (corn) and sugar beet.
The USA is the only country to rival Brazil for production of ethanol. It accounted for 33% of world production in 2004, compared to Brazil at 37%, and has been growing by 17% per year for five years. Unlike Brazil, the USA ethanol production is driven by a legislative push in the form of the Energy Bill. This legislation, discussed in Congress since 2000, was passed in late July 2005, offering tax breaks of US$14.5 billion over 10 years. It signals a philosophical swing away from historical minimum commodity price support (production focused) to indirect support (such as creating regulatory demand for ethanol) which is more acceptable to international free trade principals. The political commitment is critical to continued progress, as is the oil companies' support. The oil companies are essential to contribute the isobutylene byproduct of oil refining to mix to ethanol for the stable fuel additive, and for the expensive infrastructure for production. To grow its use in domestic vehicles, it must be economically competitive to petrol and used as a substitute, rather than its current role as an additive.
Production is related to supply and demand of inputs for the dairy and cattle feedlot industries with competition for corn (maize) and soya meal, linked in the complex web of primary production.
The EU environment is similar in terms of legislative push since 2003, but the market is literally driven more by biodiesel. Europe accounted for approximately 95% of world biodiesel production in 2003. Like Brazil, new car purchasing trends are changing rapidly, with over 60% of new cars in France and Spain being diesel powered. The EU relies on oil imports for 76% of its transport fuel consumption, and this is heading towards 90% by 2020. Recent legislation targets consumption via excise duty rebates to assist its economic sustainability. The web of European agricultural legislation catches the traditional source of rapeseed oil for biodiesel, which is also regulated within the restrictions on acreage allowed of energy crops under the Common Agricultural Policy.
The advantages of biodiesel, being easier to blend than ethanol, a good lubricant, Sulphur free, and biodegradable, ensures continued government support for the future of animal and vegetable based oils and fat diesels to assist energy independence, environmentally friendly practices and support for the agricultural sector.
Please call into a local Rabobank office to obtain a copy of "Biofuels in the EU" "Brazil's flex-fuel future" or "Ethanol; reassessing the US sector after the Energy Bill"
Tony Hammington is Rabobank's Regional Manager based in Invercargill.
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