Ethanol is pure ethyl alcohol produced from fermenting and distilling various crops (corn in the United States, sugar cane in Brazil & India, sugar beets & wheat in Europe). It is currently blended into the gasoline (up to 10%) but can function as an alternative transportation fuel in modified vehicle engines in this case we speak of E85 (up to 85% of ethanol & 15 of gasoline). As the world’s lowest cost producer of ethanol, Brazil rivals the United States as the leading volume producer, while ranking as the dominant exporter. Brazil’s vast and untapped agricultural land resources leave considerable room to expand the production of sugar cane, the feedstock for the Brazilian ethanol industry.

Biodiesel is a renewable fuel that can be produced from a number of feedstocks, such as rapeseed, soy, palm oil, and can be used as a substitute for fossil diesel. It can provide significant environmental benefits, such as 40-60% reduction in carbon lifecycle emissions. Biodiesel is produced by the chemical esterification of oils from oilseed crops such as soy, rape, mustard, or from other sources such as waste cooking oil. The esterification step involves a simple chemical reaction of the oil with methanol in the presence of a catalyst resulting in the formation of biodiesel and a glycerine by-product. Europe is currently the main producer of biodiesel in the World but area as South Eastern Asia, Africa and Brazil we play an important role in the coming years.

Second-generation biofuels will be produced from from non-food feedstocks, such as waste from agriculture and forestry (straw, corn stover, miscanthus, wood…). These technologies promise quantum leap, but not until 2010-12. We see different technologies - for ethanol : thermochemical & biological method, enzymatic hydrolysis, acid hydrolysis and for biodiesel : pyrolysis and gasification combined with Fisher-tropsch. They could significantly reduce CO2 production, do not compete with food crops and some types can offer better engine performance. When commercialised, the cost of second-generation biofuels has the potential to be more comparable with standard petrol and diesel. Used at 100% concentration, second- generation biofuels could reduce well-to-wheels CO2 production by up to 90%. Second- generation biofuels offer the potential to be the most cost-effective route to renewable, low-carbon energy for road transport. We currently saw large investments in R&D from oil majors, agribusiness & pulps & paper firms and enzymatic companies in second-generation biofuels, which promise to use much more widely available inputs such as cellulose biomass, therefore reducing production costs significantly.

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Oil World maintains the view that global biodiesel capacity will increase from 8 mn tonnes in 2006 to 20 mn tonnes by the end of 2008. EU imports of the four edible oils reached 7.8 million tonnes last year, exceeding China's 7.1 million and India's 4.9 million tonnes. Total imports of the four vegetable oils increased by 35 percent in 2006 from the previous year as the EU boosted usage of the oils to produce biodiesel and electricity.

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European Union leaders agreed to set a binding target for biofuels to make up at least 10 percent of petrol and diesel used by vehicles by 2020. "Under a 10 percent minimum obligation, about 59 million tonnes of cereals, or about 18 percent of domestic use, would be used as first -- and including straw, also as second -- generation feed stock. This scenario is still optimistic when we focus only on biodiesel where around 23 MT should be produce in 2020 and maximum production of rapeseed oil is estimated to 25 MT in EU-27 in domestic. Thus less than a quarter of demand can be covered with domestic rapeseed in 2020 in EU. Importation of vegetable oil from Asia, South America, Russia and South America will boom from 2008 – 2011 and we will continue to see strong pressure on feedstock price. This European example of domestic feedstock that not cover demands is also the case in US between soybean oil vs biodiesel.

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Fossil Energy Balances - Estimates

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Today, the development of biofuel pathways is closely associated with targets for the reduction of greenhouse gas (GHG) emissions in the transport sector. Well-to-wheel assessments indicate that the use of these automotive fuels of vegetable origin yield definite benefits in terms of GHG emissions and fossil energy consumption compared to petroleum-based automotive fuels.

Comparison of yields among different feedstock

It provides a comparison of litres per hectare extractable from different feedstock of bioethanol and biodiesel and their related feedstock yields.

Biofuels offer another advantage in that the replacement of petroleum-based products reduces oil dependence and enables exploitation of domestic resources.Their cost, although still high, is nearing that of conventional motor fuels, i.e. gasoline and diesel, as a result of the upward trend in the price per barrel (not taking taxes into account). In Brazil, ethanol production costs are especially low and already competitive with those of petroleum-based motor fuels. In most cases, biofuels still cannot be developed without public funding (the United States allocated an estimated $5-7 billion in 20062). This is especially true now, given the high level of demand and the particularly elevated prices of ethanol in the United States and Brazil, and of Biodiesel in Europe.

Another disadvantage of biofuels is that, for key existing pathways, the per-hectare yield is relatively low: 1 toe/ha for Biodiesel made from rapeseed oil or sunflower oil, 1-2 toe/ha for ethanol ex-wheat or ex-corn, and 3-4 toe/ha for ethanol ex-sugar beet or ex-sugar cane. Moreover, agronomic constraints are such that it is not possible to cultivate all species on all types of soil under the same conditions. As a result, if biofuels were to be developed on a large scale using existing pathways, this sector would eventually find itself competing with the food industry for the use of land. Given the abundance of co-products, sales outlets are likely to reach the saturation point, which would eventually make the production of biofuels more costly. To replace 10% of gasoline and diesel consumption in Europe and in the United States, about 20-25% of all arable land in these parts of the world would have to be mobilized.

Outlook for the Global Ethanol Market

The global ethanol market is in its infancy. During the past few years, ethanol has developed into a politically charged alternative fuel and source of potential energy independence for gasoline heavy markets. Because of its potential abundance from various crops (i.e. corn, sugarcane, sugar beet, etc.) and high prices of gasoline, the pace of development has been quite rapid with the U.S. market recently surpassing Brazil in production capacity last year from virtually nothing ten years ago.

Apart from Brazil and the U.S., ethanol demand growth may be limited. Globally, there are only two major fuel ethanol markets: Brazil and the U.S. These two markets account for 74% of world ethanol demand. other countries will begin expand their ethanol consumptions by moving toward E5 and E10 blends, but under varying timeframes. However, because of the size of their market (think Canada, Thailand, Colombia), the cautious pace of implementation (think Japan, EU, India), or the fuel consumption mix of their vehicle fleet (EU diesel), demand for ethanol from other nations will remain limited through 2020.

Brazil is aggressively pursuing the domestic fuel market via government mandates and support for flex-fuel vehicles. Internationally, it is at the forefront of biofuels advocacy, developing partnerships and joint ventures with foreign firms. Government and industry leaders circle the globe meeting with stakeholders in the United States, Europe, and Asia to build relationships and champion ethanol as the fuel of the future. As they build these relationships, they hope to secure open access to and demand from these markets.

Cellulosic ethanol production will certainly not meet targets. Technologies for industrial-scale production of cellulosic ethanol are maturing. Although a number of producers are investing R&D dollars into cellulosic ethanol, there are no guarantees that the three billion gallon annual increase required beyond 2015 could be achieved from domestically produced cellulosic ethanol.

Cellulosic ethanol offers the most promise but the technology is not there yet.Cellulosic ethanol, on the other hand, is closer to industrial scale production. Iogen is operating a one million gallon cellulosic plant in Ottawa, Canada as a demonstration facility. Similarly, Abengoa, SunOptra, and China Resources Alcohol Corporation all have operating cellulosic ethanol production plants. Current plant sizes top out in the 1.5-2.0 million gallon range today and plans are in place for 10 and 25 million gallon facilities in the next two years.

Ethanol fuels new worries ; As need for corn grows, fears of soaring prices related to weather arise

US ethanol case study (from Los Angeles Times by Jerry Hirsch)

After a torrid 2007, corn prices have risen an additional 20 percent this year because of global demand for livestock feed, sweeteners and ethanol. The rush by American farmers to plant cash- producing corn, along with weather problems, has squeezed wheat supplies, pushing the price of that grain up 21 percent. Soy has risen 25 percent this year.

Analysts are already simulating what would happen if a drought hit the corn belt. Bruce Babcock, an agricultural economist at Iowa State University , estimates that corn could reach $8 a bushel from $5.46 now.

It could happen as soon as this summer.

"The risk of a drought right now is higher than normal because of the La Nina we are seeing," Babcock said, referring to the cooling of ocean temperatures that often has a drying effect.

As any farmer can tell you, Mother Nature is fickle. The U.S. has suffered four major weather disasters since 1971 that wiped out 21 percent to 29 percent of the corn crop at a time.

Periodic bad weather, including droughts, scorching heat waves and cold, cloudy spells at just the wrong time, has reduced harvests by billions of bushels. Previously, these disasters have raised food prices. The next drought will be the first to affect gas prices.

That's because ethanol - mostly refined from corn - will make up about 6 percent of the nation's gasoline supply this year, and that's expected to rise to 10 percent over the next five years.

But if there were a crop shortfall, the rising price of corn would prevent ethanol distillers from earning a profit, prompting them to slash production, Babcock said.

Oil companies would have to scramble to fill that sudden gap with conventional gasoline. Prices would soar for both fuels, said Philip K. Verleger Jr., an energy economist in Aspen , Colo.

A slowing U.S. economy would blunt demand. But such safety valves won't always exist. "Five years from now, this could be a big, big deal," Verleger said.

Farmers are also worried about what could happen in the short term. "A drought would be bad for everyone. The high prices would hurt my customers, and I would have no crop to sell," said Ron Heck, a fourth-generation soy and corn farmer from Perry , Iowa .

As demand for gasoline outstrips refinery expansions, fuel prices will be linked more tightly with the size of the corn crop. "You might see a point where even the threat of a drought could cause gas prices to rise," Wells Fargo's Swanson said.

Lester R. Brown, an author and president of the Earth Policy Institute, sees a scenario with global implications. He estimates that as long as oil prices continue to hover around $100 a barrel, ethanol distillers could pay up to $7 a bushel for corn and still make money. And, Brown said, "if the ethanol producers stay in the market, that will disrupt the food supply."

Because of the interrelationships among crops, a major shortfall in the U.S. harvest could tip global grain and soy markets into chaos. It would affect the prices of food made directly from these commodities, such as bread, pasta and tortillas, and food made indirectly, such as pork, poultry, beef, milk and eggs.

If it happened this summer, it would be especially bad because of the current pace of global food inflation.

"The rest of the world is less able to pay high prices for food. What's annoying for us is life-threatening elsewhere," Brown said.

The shortfall would lead to the "politics of scarcity," in which nations would stop exporting their domestic grain and soy crops to keep food prices under control for their own people.

Even without a crisis in America 's corn belt, that's already happening, Brown said.

In January, China levied export tariffs of 5 percent for corn, rice and soybeans and 20 percent for wheat to keep grains from leaving the country. Russia , Argentina and other nations also are slapping tariffs on grain exports to protect their food supplies.

More research and improved production of cellulosic ethanol - made from agricultural waste, switchgrass and other nonfood plant material - would ease dependence on corn, said Matt Hartwig, spokesman for the Renewable Fuels Association in Washington , D.C. But substantial production of such fuel is at least a decade away, according to government projections.