Modeling of Biofuels in the Annual Energy Outlook (AEO) Michael Cole, PhD, PE Office of Petroleum, Natural Gas & Biofuels Analysis March 20, 2013 | Washington, DC U.S. Energy Information Administration Independent Statistics & Analysis www.eia.gov
Overview • Modeling the total energy market in AEO • Modeling liquid fuels markets in AEO • Modeling biofuels in AEO – Biofuel categories – Three main drivers • Conclusion 2 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
A general model of the entire U.S. energy economy Energy Demand Macro Economy Primary Energy Energy Conversion Supply 3 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
Today’s presentations Light Duty Vehicle Markets and E85 Energy Ethanol (E85) Deployment Expansion Demand Sugars, Fuels, and Chemicals Cellulosic Biofuels in the FAPRI Baseline of 2012 Macro Economy Modeling of Biofuels in AEO Primary Energy Energy Conversion Supply Brazilian Biofuels Supply Drop-in Biofuels in AEO Applications of Biomass Scenario Model U.S. Biofuels Supply Analysis 4 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
EIA models the entire U.S. energy economy for the AEO Demand for: AEO uses * Liquid Fuels NEMS, a Energy * Electricity Demand * Natural Gas market equilibrium model Macro Economy Liquid Fuels Supply of: Primary Production Energy * Crude Oil Energy Conversion * Renewables Supply Electricity * Natural Gas Generation * Coal * etc. 5 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
Liquid fuels energy market Demand for: * Gasoline-like Liquid * Diesel-like Fuels * Jet Fuel, LPG, etc Demand * Petroleum Refining * Biofuels Production * CTL Macro * GTL Economy Supply of: Liquid Primary * Crude Oil Fuels Energy * Renewables Production Supply * Natural Gas * Coal * etc. 6 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
Liquid fuels energy market: LFMM is a new NEM module Demand: * Gasoline-like Liquid * Diesel-like Fuels * Jet Fuel, LPG, etc Demand * Petroleum Refining * Biofuels Production * CTL Macro * GTL Economy Supply of: Liquid Primary * Crude Oil Fuels Energy * Renewables Production Supply * Natural Gas * Coal * etc. LFMM: Liquid Fuels Market Module 7 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
LFMM’s main component is a Linear Program • Demands for liquid products (gasoline, diesel, jet fuel, etc.) • Statutory and Regulatory requirements (RFS2, for example) Input • Prices of primary energy (crude oil, etc.) • Minimize cost to meet fuel demands and legal requirements • Cost categories include capital costs and operating costs LP • Prices of end-use products • Production plan (how much each type of crude to use, how much Output of each type of ethanol to produce, where to produce, etc.) 8 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
A variety of biofuels are modeled in LFMM Cellulosic Advanced Ethanol sugarcane Gasoline-like Cellulosic Corn & Grain Drop-in Liquid Fuels FAME biodiesel Biomass- based diesel Diesel-like Green Diesel Cellulosic Drop-in 9 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
For use as motor fuel, ethanol must be blended with gasoline blendstock to make end-use products E10, E15, or E85 E10 E15 Ethanol E85 10 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
Main drivers of AEO results for biofuels Government Potential Market Laws and Size (Demand) Regulations Competition with Other Fuels and Other (non-fuel) Uses 11 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
EIA projects declining gasoline use and slowly increasing diesel use through 2040 Transportation fuel demand Quad Btu per year 18 Gasoline Diesel 16 14 12 10 8 6 4 2 0 2010 2015 2020 2025 2030 2035 2040 Source: AEO2013 Early Release, Energy used in transportation 12 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
Market size: NEMS models total consumer demand for E85 v. E10 using a mathematical function with three inputs E85 station availability (infrastructure) Number of Price of E85 flex-fuel relative to E10 vehicles Mathematical function of consumer demand for E85 v. E10 13 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
EIA projections assume current Laws and Regulations RFS2 • Nested yearly volume targets for biofuels (total, advanced, cellulosic, biomass-based diesel) • Subject to yearly adjustment by EPA • Under certain circumstances, the EPA is required to issue cellulosic biofuel waivers California LCFS • Yearly carbon-intensity targets for California motor gasoline and diesel Federal Taxes and Tariffs • Ethanol tariffs have expired • Most ethanol tax breaks have expired, except some related to cellulosic ethanol production • Biodiesel tax credits have been renewed for another year 14 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
Laws and Regulations: The four RFS2 volume targets are expressed as nested constraints in the LFMM LP Total Renewable Fuels Non- Advanced advanced Other advanced Biomass-based Cellulosic biofuel Corn ethanol diesel biofuel (including sugarcane ethanol) 15 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
Laws and Regulations: EPA has flexibility in administering RFS2 • In any given year, the EPA has broad authority to decrease one or more of the applicable volumes for the following year. The EPA also has the authority to increase the biomass-based diesel mandate. • If the EPA changes a sub- category’s applicable volume, it is not required to change the nesting category’s volume. • If, after 2015, the EPA reduces an applicable volume by 50% in a single year, or by 20% in two consecutive years, then it is required to reduce that applicable volume in the following years. • If EPA reduces the applicable volume for cellulosic biofuels for a given year, then it must make available cellulosic waivers at a price specified in the RFS statute. 16 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
Biofuels compete with other fuels. Cellulosic biofuels also compete against biochemicals, electricity Cellulosic biofuels, biochemicals, electricity • Classified as both RFS Cellulosic and RFS Advanced. • Cellulosic ethanol competes for a limited gasoline blend pool. • Ramp-up of cellulosic bio fuel production could be delayed due to production of higher-margin bio chemicals (not explicitly modeled in AEO) • Biomass can be burned to generate electricity Corn ethanol • Currently, most ethanol blended into E10 is (inexpensive) corn ethanol Sugarcane ethanol (mainly from Brazil) • RFS Advanced biofuel • Competes for a limited gasoline blend pool Biomass-based diesel • RFS Advanced biofuel 17 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
U. S. domestic biofuels production is steady through 2030, and then increases, particularly cellulosic drop-in biofuels million barrels per day 1.4 Cellulosic drop-in fuels 1.2 Biomass-based diesel 1.0 Cellulosic & other advanced ethanol 0.8 0.6 Conventional ethanol (mostly corn) 0.4 0.2 0.0 2010 2015 2020 2025 2030 2035 2040 Source: AEO2013 Early Release 18 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
Today’s presentations Light Duty Vehicle Markets and E85 Energy Ethanol (E85) Deployment Expansion Demand Sugars, Fuels, and Chemicals Cellulosic Biofuels in the FAPRI Baseline of 2012 Macro Economy Modeling of Biofuels in AEO Primary Energy Energy Conversion Supply Brazilian Biofuels Supply Drop-in Biofuels in AEO Applications of Biomass Scenario Model U.S. Biofuels Supply Analysis 19 Michael Cole, Biofuels Projections in the AEO, March 20, 2013
For more information U.S. Energy Information Administration home page | www.eia.gov Short-Term Energy Outlook | www.eia.gov/steo Annual Energy Outlook | www.eia.gov/aeo International Energy Outlook | www.eia.gov/ieo Monthly Energy Review | www.eia.gov/mer Today in Energy | www.eia.gov/todayinenergy 20
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