1. Special Committee on Energy & Environmental Policy Kansas Legislature August 20, 2008 Status of the Kansas Ethanol Industry Production, Transportation & Profits Daniel OBrien, Ph.D. Extension Agricultural Economist K-State Research and Extension

3. Kansas Ethanol Production (2005-2008*)

4. The Kansas Ethanol Industry Plants In-Production as of August 1, 2008 Arkalon EnergyHayne/Liberal (SW)110 MGY Bonanza Bioenergy, LLCGarden City (SW)55 MGY Reeve Agri-EnergyGarden City (SW)15 MGY Western Plains Agri Energy, LLCCampus/Oakley (WC)48 MGY ESE Alcohol, Inc.Leoti (WC)2 MGY Prairie Horizon Agri-EnergyPhillipsburg (NW)40 MGY White EnergyRussell (Central)52 MGY Kansas EthanolLyons (SC)55 MGY MGPAtchison (NE)*6 MGY NESIKA Energy, LLCAtchison (NE)*10 MGY East Kansas Agri-EnergyGarnett (EC)35 MGY State Total11 Plants428 MGY

5. The Kansas Ethanol Industry (more) Plants Off-Line or Under Construction as of 8/1/08 Abengoa (off-line) Colwich (SC)25 MGY Gateway Ethanol (off-line) Pratt (SC)55 MGY Goodland Energy Center (Start pending) Goodland (NW)20 MGY State Total3 Plants100 MGY Other Ethanol Plants Under Consideration: Abengoa, Hugoton (115 MGY: 85 MGY Grain-based + 30 MGY Cellulosic) Everton Energy, Concordia (100 MGY) ???? Others ????

6. U.S. Ethanol Industry Comparing Years 2006 & 2008 20062008 Number of operating ethanol plants: 97 163 Plants under construction or expanding: 35 47 Announced plants: 300 (17%) ??? Current production capacity: (BGPY) 4.8 9.5 Projected production capacity: 12.4 BGPY end of 2008 13.6 BGPY end of 2009 Corn Used for Ethanol Production & % of U.S. Crop: Bu. (mln.) % of U.S. Crop 2006/07 – 2,100 20% 2007/08 – 3,00023% 2008/09 – 4,10033%

7. Kansas Feedgrain Supply-Use Grain ethanol production at current plant capacity would use 153 million bushels of feedgrains / year 27% of 2005-2007 avg. corn production (566 mln. bu.) Livestock feeding estimates averaged 158 million bushels / year over 2005-2007 period Kansas Imports of Supplemental Feedgrains Predominant inter-state sources: Iowa & Nebraska Projected feedgrain deficits in Nebraska & Iowa in the near future due to in-state ethanol development

8. Max. Potential DDG Feed Use & Supply (2005-2008*)

9. Ethanol Production Capacity In Use by Crop Reporting District (2005-2008*)

10. Regional Grain Use By Ethanol Plant Western Kansas Locations Plant Location:Campus / Oakley PhillipsburgGarden City (2 plants) Hayne / Liberal Plant Capacity (MGY) 48 MGY 40 MGY 70 MGY 110 MGY Feedgrain Use (mln bu) 17.5 mln. bu. 14.5 mln. bu. 25.5 mln. bu. 40 mln. bu. Counties Gove Logan Sheridan Thomas Graham Norton Osborne Phillips Rooks Smith Finney Gray Haskell Hodgeman Kearny Lane Scott Grant Haskell Meade Seward Stevens % Grain Production41.0%46.8%32.3%53.1%

11. Regional Grain Use By Ethanol Plant Central & Eastern Kansas Locations Plant Location:LyonsRussellGarnettState Total Plant Capacity (MGY) 55 MGY 52 MGY 35 MGY 428 MGY Feedgrain Use (mln bu) 19.6 mln. bu. 18.9* mln. bu. 12.7 mln. bu. 153 mln. bu. Counties Barton McPherson Rice Reno Stafford Barton Ellis Ellsworth Lincoln Mitchell Osborne Rooks Allen, Anderson Bourbon Coffey Franklin Linn Miami Osage Woodson All Counties % Grain Production51.0%44.3%*62.4%25.7%

12. Comparative Transportation Advantages of Kansas Ethanol Plants WDGS Sold to Local Cattle Feeders Lower drying / natural gas costs Selling 50% of Denatured Ethanol via Truck to Blenders within 150 miles of Plants Reduced cost vs plants relying on rail transportation Reduced Rail Transportation Cost of Denatured Ethanol to Western U.S. Geographic cost advantage for the Western Corn Belt

13. Trucking Needs of Kansas Ethanol Plants Assumptions 100% of feedgrains transported by truck to plants 50% of ethanol transported by truck (50% by rail) 90% of Distillers Grains sold in Wet Cake form (i.e., Wet Distillers Grains) Quantities per Truckload 1 truckload of feedgrains = 950 bushels 1 truckload of Ethanol = 9,000 gallons 1 truckload of WDGs = 25 tons

14. Daily Trucking Use by Ethanol Plants Kansas estimates as of August 1, 2008*

15. Annual Trucking Use by Ethanol Plants Kansas estimates as of August 1, 2008*

16. Ethanol-Related Costs for the Kansas Trucking Industry / Year (July 2008 estimates) Truck Loads Time / Load No. Trucks Cost / Truck Total Cost Grain177,0332.5 hrs 217$105,329$22.9 mln DGS120,7723.0 hrs 181$103,071$18.7 mln Ethanol25,6946.5 hrs 77$131,439$10.1 mln Total328,035475$51.6 mln

17. Corn Ethanol & WDG $Value vs Corn $ Nebraska / Kansas #s, February 2007 - August 15, 2008

18. Ethanol Profit Margin Est. ($ / gallon) Prices July 07Aug 08Change Corn ($/bu.) $3.27 $5.09 1 +58% Ethanol $/gal $1.91 $2.10 +13% RBOB Gas $/gal$1.98 $2.84 +51% Profit Margin +0.26 +0.01 2 1 Prices Aug 12, 2008. Breakeven corn price - $5.15 2 Ethanol profit for a 100 million gallon plant = $1 million Distillers Grain revenue would be about $54.6 million. To compete with gasoline as substitute, ethanol price would need to fall to $1.88 per gallon.

19. NE-KS Ethanol Profitability Calculated Returns per Gallon: February 2007 - August 15, 2008

20. Special Committee on Energy & Environmental Policy Kansas Legislature August 20, 2008 Questions or Comments? K-State Agricultural Economics Extension Website: www.AgManager.info

21. Special Committee on Energy & Environmental Policy Kansas Legislature August 20, 2008 Supplemental Reference Information

22. Ethanols Impact on Irrigation Increased water use due primarily to increased corn acreage, secondarily to more intensive irrigation / acre Effect of Ethanol Demand Greater Irrigated Corn Acreage Higher profitability of corn vs alternative crops More Intensive Irrigation per Acre Impact of corn$ on irrigation cost-benefit decisions Greater water use for corn vs alternative crops Other Analysis: Jeff Peterson @ KSU

23. Water Use by Ethanol Plants For Grain Dry Milling Processes Process Water 33% of Plant Use Water in contact with grain Mixing, slurry, fermentation, saccharification processes Non-Process Water 67% of Plant Use Water not coming in contact with grain 90% of non-process water used in heating-cooling Plant Water Use: 4. 23 gal. / gal. ethanol Water use for a 40 mln gal. capacity Ethanol Plant water use by 2 ¾ pivot irrig. systems / yr (18-20 a.i.)

24. Net Energy Balance Alternative Energy Sources ProductEnergy Out / Energy In Gasoline0.81 Ethanol from grain 1.67 Ethanol from cellulose2.00 Diesel0.83 Bio-diesel 3.20 Source: Congressional Research Service, RL32712, May 18, 2006

25. Input-Output Values of Oil vs Corn $100 worth of: Will produce: Oil @ $120/barrel 16.6 gal. of gasoline 11.6 gal. of diesel Corn @ $5/barrel 56 gal. of ethanol 40 gal. of gasoline

26. Comparing Corn & Cellulosic Ethanol Corn Cellulosic Capital cost per gallon $2.00 $5-6.00 est. Raw mat. cost per ton $200 $100 Enzyme cost per ton $3.15 $33.00 Ethanol yield per dry ton 100-110 gal. 75-90 gal. Conversion process simple complex Water use per gallon 3-5 6-10 Processing time, days 2 7 Cost of prod. per gallon $2.00 $3.50 est. Sources: Testimony of Keith Collins, USDA Chief Economist, 26 Aug. 2006; Popp and Hogan presentation at Farm Foundation Conference 12-13 April 2007; and M. Woolverton calculations.

27. Ethanol Plant Economics Cost to build a 100 MGPY plant: $160 million Purchases: 37-39 million bushels of corn 240,000 acres of Irrigated Corn @ 163 bu. /acre in Western Kansas Daily water use: 1.5 million gallons Natural gas expense: $15 to $25 million Payroll expense: $2 million / year Distillers Dried Grains income: $25 million / year CO 2 income: $4 million /year (?????) Goal: 30% R.O.I.