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THE FUTURE ROLE OF RENEWABLE RAW-MATERIALS

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1 THE FUTURE ROLE OF RENEWABLE RAW-MATERIALS
CHANCE AND CHALLENGE FOR THE CHEMICAL REGIONS Presented: Martin Kubů, PREOL (a member of AGROFERT HOLDING) 6th April 2009

2 INTRODUCTION AGROFERT HOLDING, a.s.
Leading company in CZ/SK agriculture with substantial stakes in chemistry and food industry with consolidated turnover more than 100 bln CZK in Martin Kubů Worked in KAUČUK, a.s., ČESKÁ RAFINÉRSKÁ, a.s. , PARAMO,a.s. and ALIACHEM, a.s.. Recently responsible for group renewable business, motor fuel trading and biofuels. Chairman of the Board of PREOL, a.s., a competence centre of AGROFERT and AGROPOL for biofuels, motor fuels and renewable energy.

3 CHEMISTRY, KEY PLAYER ON ENERGY MARKET

4 WORLD ENERGY DEMAND AND TRENDS

5 ENERGY CONSUMPTION TRENDS OECD/non-OECD

6 GROUP SYNERGY CHEMISTRY/RENEWABLES
Regional leader in industrial (non energetic) NG consumption (as „feedstock“ ) AND Important regional electricity buyer at the same time utility producer at chemical plants due to participation in regional agriculture important player in biomass sourcing/consumption = HIGH POTENCIAL FOR SYNERGIES BETWEEN RENEWABLES, REGIONAL RELATIONSHIP AND CHEMICAL PRODUCTION

7 OUR BUSINESS FINDINGS BIOMASS usage as renewable energy/chemical feedstock in CZ is influenced: DIRECTLY by: (i) CZ local conditions for substitutes (WIND, CNG, SOLAR, etc.) and (ii) subvention allocations (frequently non consistently applied – SOLAR/WIND availability, Excise tax for BIOFUELS/CNG, Green bonuses , etc.) INDIRECTLY by: (i) differences in BIOMASS SUPPORT SCHEMES in neighbor areas Decision to run business in renewable segment is FREQUENTLY INFLUENCED BY OTHER FACTORS than relating to BIOMASS PRODUCTION CYCLE

8 Example: CZECH WOOD PELLETS BORDER CROSSING

9 FEEDSTOCK POTENCIAL FOR 1G BIOFUELS PRODUCTION IN CZ
FAME ETOH FEEDSTOCK HARVEST (RAPE SEED 75%, GRAIN 25%) kt Cca 1 250 Cca 6 000 BIOFUEL PRODUCTION POTENCIAL Kt 372 402 FOSSILE FUEL REPLACEMENT POTENTIAL % (w.) 8,13% DIESEL 12,21% MOGAS % (v.) 8,89% DIESEL 20,3% % (e.o.) 5,35% MOTOR FUELS 4,17% TOTAL FOSSILE FUEL REPLACEMENT POTENTIAL 9,52 %

10 FEEDSTOCK POTENCIAL FOR 1G BIOFUELS PRODUCTION IN CZ
FAME ETOH FEEDSTOCK HARVEST (RAPE SEED 75%, GRAIN 25%) kt Cca 1 250 Cca 6 000 BIOFUEL PRODUCTION POTENCIAL Kt 372 402 FOSSILE FUEL REPLACEMENT POTENTIAL % (w.) 8,13% DIESEL 12,21% MOGAS % (v.) 8,89% DIESEL 20,3% % (e.o.) 5,35% MOTOR FUELS 4,17% TOTAL FOSSILE FUEL REPLACEMENT POTENTIAL 9,52 % Including feedstock for 2G biofuels (biomass, FGW, etc. ) in CZ exists higher potencial than EU recommended target 8% of motor fuel born on renewable used for transport in

11 MOTOR FUEL EXCISE TAX in EU AND IN CZ/GERMANY
COUNTRY GASOLINE DIESEL LPG CNG TAX (€/l) VAT(%) TAX(€/l) VAT (%) TAX (€/GJ)* EU min. 0,359 0,302 0,125 2,600 CZ 0,400 19 0,336 0,133 0,000 GERMANY 0,654 16 0,486 0,180 1,290 FRANCE 0,589 19,6 0,417 0,108 0,370 AUSTRIA 20 0,297 0,261 1,650 POLAND 0,356 22 0,290 0,204 SLOVAKIA 0,398 0,373 0,201 2,570 SWEDEN 0,536 25 0,455 0,146 1,130 GB 0,682 17,5 0,692 0,132 0,600 Source : European Union of Natural Gas Industry and VSCHT 11

12 MOTOR FUEL EXCISE TAX in EU AND IN CZ/GERMANY
COUNTRY GASOLINE DIESEL LPG CNG TAX (€/l) VAT(%) TAX(€/l) VAT (%) TAX (€/GJ)* EU min. 0,359 0,302 0,125 2,600 CZ 0,400 19 0,336 0,133 0,000 GERMANY 0,654 16 0,486 0,180 1,290 FRANCE 0,589 19,6 0,417 0,108 0,370 AUSTRIA 20 0,297 0,261 1,650 POLAND 0,356 22 0,290 0,204 SLOVAKIA 0,398 0,373 0,201 2,570 SWEDEN 0,536 25 0,455 0,146 1,130 GB 0,682 17,5 0,692 0,132 0,600 Source : European Union of Natural Gas Industry and VSCHT Fossile fues Excise tax worth 0,0856 €/l…… …… Energy tax on biofuel in Germany worth 0,09 €/l…….and will grow 12

13 Biomass (biofuels) vs Fossil fuels in CZ
Internal environment CNG FAME (RME) ETHANOL Legislative 10% of fuels consumtion target till 2020 Priority in National Energy Saving Program From 2008 at 2 % (vol.), 2009 at 4.5 %, at 5.75% (energy content) B30 notification valid till July 2010 (recently prolonged up to 2015) Biofuels share from 2008 at 2 % (vol.), 2009 at 3.5 % (vol.), 2010 and beyond no decision taken yet Excise Tax 0 $/m3 in 2007 By 2010 increasing from 5 ¢/m3 to ¢/m3 = 82.5 $/MT 49.75 ¢/l = 1.88 $/gallon 498 $ / 1000 l = 420 $/MT Zero Excise tax for B100 cancelled within 2007 economical reform, renewed in 2008 59.2 ¢/l = 2.24 $/gallon 592 $/1000 l = 447 $/MT Zero Excise tax for „E100“ and „E85 “ cancelled within 2007 economical reform, renewed in 2008, Government financial backing Government subsidy $ 40 ths per a bus CNG company subsidy $ 10 ths per a bus Government subsidy $115 ths per a low-floor bus $ 165 ths total savings per a bus Decreasing subsidies for biofuels producers from 350 $/MT to 184 $/MT in 2005, presently 0 $/MT Partial excise tax refund for B30 cancelled in 2006, renewed in 2008, approved in 2008 till 2015 Similar to FAME/RME Other government benefits Government participation in negotiation with automobile producers Goal: Mass introduction of CNG vehicles Zero promotion of FFV cars

14 Environmental benefit
Biomass (biofuels) vs. Fossil fuels in CZ Global environment CNG FAME (RME) ETHANOL Fuel origin Import from Russia and Norway 9.5 billions m3 (3 millions m3 for trafic) Sufficient domestic rape seed resources to cover 9 % (vol.) of diesel consumption = 5,36 % energy content of all fuels cunsumption Sufficient domestic grain resources to cover 20 % (vol.) of gasoline consumption = 4,17 % energy content of all fuels cunsumption Σ 10 % energy content of yearly fuels consumption from domestic renewable resources Import Effectively 100 % 0 % Renewability Not renewable Renewable Environmental benefit CO2 emissions 3 kg/MT (oil eq) 1,9 – 2,4 kg/MT (oil eq) Agriculture No support for agriculture or local industry Direct and indirect support for agriculture Environmental benefits Decrease of dependability on fuel imports Positive impact on public budget Stimulation of employment , new job vacancies in consequential industry Non food usage of agriculture products

15 RENEWABLE VS. FOSSILE Till supports for „ fossil fuels“ might be bln CZK Till supports for renewable Biofuels might be 18,2 bln only = 14,5% of theoretical support for other fossil fuels

16 SOLID BIOMASS: Decision to run business in renewable segment is FREQUENTLY INFLUENCED BY OTHER FACTORS than relating to BIOMASS PRODUCTION CYCLE/MARKET PRICE We suffer because electricity markets trade prices at the margin Last man in dictates the price – on the face of it coal and nuclear actually have low base cost. European prices are high because they are set on the margin - gas and carbon drive the price.

17 PREFFERED CONDITIONS FOR FOSSIL ENERGY SOURCES (FES) COMPARING BIOMASS (I) INCREASE SUPPORT NEEDED FOR BIOMASS, (II) REDUCE FES ATTRACTIVNESS AS FEEDSTOCK FOR REGIONAL CHEMICAL INDUSTRY DUE TO STEADILY GROWING PRICES IT INCREASES COMPETITION FOR REGIONAL CHEMICAL INDUSTRY DUE TO (I) LOWER UTILISATION OF LOCAL SOURCES, (II) INCREASE PRODUCT FLOW INTO EU MARKET Energy Information Administration (US, etc.) National Post (Canada) or Financial Times (UK and Belgium) World Bank Comisión Reguladora de Energía (Mexico’s Regulatory Commission of Energy – The Monthly Reference Prices section (Precios de Referencia Mensual) is the one that describes the best the tariff, but the Public Prices section (Precios al Público) is the one updated. Here you must search for the Industrial sector table and the figures you need are the ones on the column that says "Precio al Público sin IVA" (public price without taxes). This is the price paid by the industry in pesos per Gcal. ew AGN Chile BP plc East China Shanghai Gazprom (Russia, Ukraine, Baltics, etc.) Nigeria Liquefied Natural Gas (NLNG) Petronas Qatar Petroleum Kogas (www.kogas.or.kr/ENG/index.html) Tokyo Gas Japan - Can use imported LPG price + adjustment (www.paj.gr.jp) Cambridge Energy Research Associates (CERA) Wood Mackenzie World Gas Intelligence published by Energy Intelligence (www.energyintel.com) Check for Asian LNG prices and European border price estimates LNG Journal Gas Matters (www.gas-matters.com) Gas Exporting Countries Forum (nothing but check back) International Gas Union (www.igu.org) International LNG Alliance (www.iinga.org) Bloomberg Various national statistical agencies In absence of market prices, use the Internet (and above sources) to search for feedgas costs ($0.55 to $1.80) or other long-term supply prices or delivered cost ($2.40 to $3.75) of LNG into a market. Again, look for recently negotiated supply contracts. Conversion: 1.0 cubic meters = cubic feet = 36,374 BTUs Divide $/tonne of LNG by 52.0 to get $/mm BTUs

18 PREFFERED CONDITIONS FOR FOSSIL ENERGY SOURCES (FES) COMPARING BIOMASS (I) INCREASE SUPPORT NEEDED FOR BIOMASS, (II) REDUCE FES ATTRACTIVNESS AS FEEDSTOCK FOR CHEMICAL INDUSTRY DUE TO STEADILY GROWING PRICES Germany: $7.60 Russia: $1.50 UK: $8.65 Canada: $7.10 Belarus: $3.15 Belgium: $8.50 Ukraine: $3.60 South Korea: $8.80 USA: $7.20 Iran: $1.25 Libya: $1.00 Japan: $8.70 China: $6.30 Qatar: $1.80 Mexico: $6.85 Oman: $1.00 India: $3.70 Saudi Arabia: $0.75 Trinidad: $1.65 Energy Information Administration (US, etc.) National Post (Canada) or Financial Times (UK and Belgium) World Bank Comisión Reguladora de Energía (Mexico’s Regulatory Commission of Energy – The Monthly Reference Prices section (Precios de Referencia Mensual) is the one that describes the best the tariff, but the Public Prices section (Precios al Público) is the one updated. Here you must search for the Industrial sector table and the figures you need are the ones on the column that says "Precio al Público sin IVA" (public price without taxes). This is the price paid by the industry in pesos per Gcal. ew AGN Chile BP plc East China Shanghai Gazprom (Russia, Ukraine, Baltics, etc.) Nigeria Liquefied Natural Gas (NLNG) Petronas Qatar Petroleum Kogas (www.kogas.or.kr/ENG/index.html) Tokyo Gas Japan - Can use imported LPG price + adjustment (www.paj.gr.jp) Cambridge Energy Research Associates (CERA) Wood Mackenzie World Gas Intelligence published by Energy Intelligence (www.energyintel.com) Check for Asian LNG prices and European border price estimates LNG Journal Gas Matters (www.gas-matters.com) Gas Exporting Countries Forum (nothing but check back) International Gas Union (www.igu.org) International LNG Alliance (www.iinga.org) Bloomberg Various national statistical agencies In absence of market prices, use the Internet (and above sources) to search for feedgas costs ($0.55 to $1.80) or other long-term supply prices or delivered cost ($2.40 to $3.75) of LNG into a market. Again, look for recently negotiated supply contracts. Conversion: 1.0 cubic meters = cubic feet = 36,374 BTUs Divide $/tonne of LNG by 52.0 to get $/mm BTUs Brazil : $4.90 Bolivia: $1.85 Global Natural Gas Costs – 1st Quarter 2007 ($US per million BTUs) Argentina: $4.85 Source: ACC

19 RES PRICING Petrochemicals BioRenewables Production [mio t / a] Price*
Carbon [ € / t C ] Ethylene C2H4 110 890 86% 14% - 1035 Propylene C3H6 75 850 988 Benzene C6H6 45 830 92% 8% 902 BioRenewables Production [mio t / a] Price* [ € / t ] C H O Carbon [ € / t C ] Glucose C6H12O6 143 300 40% 7% 53% 750 Bio-Ethanol C2H6O 36 365 52% 13% 35% 700 Source: Evonik Industries * Prices as of May 24th , 2007, Bio-Ethanol price for Brazil

20 AVAILABLE POTENCIAL AND BIOMASS USE (ČR, TJ.r-1 )
BIOMASS (Biofuel) POTENCIAL TJ.r-1 UTILISATION , TJ.r-1 % WOOD, WOOD REST 32 800 16 200 49.4 STRAW I (grain) 6 050 39 0.6 STRAW II (rape seed & others) 9 800 170 1.7 ENERGETIC CROPS 12 000 BIODIESEL 9 200 2 300 25 BIOGAS 7 000 1 000 14.2 TOTAL 76 850 19 709 25.6

21 CZECH „BIOGAS COVERAGE“
106 108 107 105 102 104 103 100 98 97 99 96 89 83 85 86 73 72 71 70 67 63 62 60 59 56 55 50 43 45 37 36 26 23 22 15 8 4 3 2 46 40 33 101 66 69 68 64 65 111 21 20 52 41 42 48 38 34 61 54 51 18 11 6 10 93 2 84 87 90 79 78 82 81 77 80 92 95 88 94 91 74 76 75 9 1 5 7 14 13 12 16 19 17 49 53 58 44 47 35 39 57 25 30 32 31 28 29 27 112 113 114 109 110

22 TRENDS IN RENEWABLE IN CHEMISTRY

23 TRENDS IN RENEWABLE IN CHEMISTRY
AGROFERT forecasts future replacement cheapest bio compounds used as motor fuel by other more sophisticated applications AGROFERT expects future coexistence of bio fuel IG and IIG due existing synergies (use of byproducts from IG as feedstock for IIG)

24 Taking off curve of the Ren
Taking off curve of the Ren. Energy Sources in the EU and reaction of AGROFERT Group ??? R&D center for Biomas to Syngas Tender announcement regarding to the „BIOMASS TO ENERGY“ project 2-4 biogas production units projects Decision about investing into the production of Ist gen. biofuels, mt source material, biofuels, energetic product

25 AGROFERT GROUP: REACTION TO THE TREND
Biomass sources in the Group (as of 2008) mt/y of Biomass I. Gen. Biofuels Biogas plants Biomass to energy R&D Biomass to Syngas

26 SHARED BIO/CHEMICAL HUB
Loading unloading Rapeseed, meal storage FAME Glycerin production Product storages Oil mill, extraction POWER GENERATION PLANT FERTILISER PRODUCTION PLANT

27 GHG savings = (EF – EB) / EF
GHG EMISSIONS, CZ CASE Total emissions from the biodiesel production chain calculated according newly issued sustainable criteria by EU GHG Emission Savings EF = 83.8 g CO2 / MJ (RED) EB = g CO2 / MJ Module [g CO2 / MJ] Cultivation (eec) 30.69 Direct land use change (el) Processing (ep) 15.82 Transport and Distribution (etd) 0.98 Biofuel in use (eu) TOTAL (EB) 47.49 GHG savings = (EF – EB) / EF GHG savings = %


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