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5-2006

Ethanol production from grain

Department of Agriculture and Food, Western Australia

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Recommended Citation
Department of Agriculture and Food, Western Australia. (2006), Ethanol production from grain. Department of
Primary Industries and Regional Development, Western Australia, Perth. Report.

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ETHANOL PRODUCTION
FROM GRAIN

MAY 2006
 DISCLAIMER
While all reasonable care has been taken in the preparation of the material in this document,
the Western Australian Government and its officers accept no responsibility for any errors or
omissions it may contain, whether caused by negligence, or otherwise or for any loss,
however caused, sustained by any person who relies on it.

¤ State of Western Australia, 2006

 TABLE OF CONTENTS

Page

1. ETHANOL PRODUCTION PROCESS ................................................................. 1

2. TOTAL COST OF PRODUCTION ........................................................................ 3

2.1 Capital and financial costs ........................................................................... 3
2.2 Production cash cost .................................................................................... 4

3. EXPENSES ........................................................................................................... 5
3.1 Feedstock ..................................................................................................... 5
3.2 Energy costs ................................................................................................ 6

4. INCOME ................................................................................................................ 7
4.1 Ethanol ......................................................................................................... 7
4.2 Distillers grain ............................................................................................... 9
4.3 Carbon dioxide ............................................................................................. 10

5. ANALYSIS OF PROFITABILITY .......................................................................... 11

6. REFERENCES ...................................................................................................... 16
 ETHANOL PRODUCTION FROM GRAIN

1. ETHANOL PRODUCTION PROCESSES

The process of producing ethanol can be schematised as follows:

‰ Sugar Fermentation using

‰ Starch yeast or other Ethanol + impurities
‰ Cellulose micro organisms

Separation from impurities:

various options

Distillation Molecular Chemical Vacuum

sieves* (salt) fermentation

* Today, almost all ethanol plants use molecular sieves for dehydration. This technology alone reduces energy
use by 10 per cent per litre of ethanol produced.

Two methods are currently used to produce ethanol from grain: wet milling and dry milling.
The adjectives ‘wet’ and ‘dry’ describe the method, not the product. The different methods
affect both the profitability and logistics.

Dry mills produce ethanol, distillers' grain and carbon dioxide (Figure 1). The carbon dioxide
is a co-product of the fermentation, and the distillers’ dried grain with solubles (DDGS) is a
non-animal based, high protein livestock feed supplement, produced from the distillation and
dehydration process. If distillers' grains are not dried, they are referred to as distillers' wet
grain (DWG).

Figure 1. The conventional dry mill ethanol production process.

Source: Genencor International.

1
MAY 2006

Wet mill facilities are ‘bio-refineries’ producing a host of high-valued products (Figure 2). Wet
mill processing plants produce more valuable by-products than the dry mill process. For
example, in wet mill plants, using corn as feedstock, they produce:
x ethanol;
x corn gluten meal (which can be used as a natural herbicide or as a high protein
supplement in animal feeds);
x corn gluten feed (also used as animal feed);
x corn germ meal;
x corn starch;
x corn oil; and
x corn syrup and high fructose corn syrups.

Figure 2. The conventional wet mill ethanol production process.

Source: The Renewable Fuels Association, USA.

Wet mill plants cost substantially more to build and have higher operating costs than dry
mill processing plants and hence are usually much bigger than dry mill plants in order to
achieve economies of scale.

In 2004, practically all of the proposed plants in the USA were dry mills.

2
 ETHANOL PRODUCTION FROM GRAIN

2. TOTAL COST OF PRODUCTION

The total cost of ethanol production is the sum of the capital cost, the capital related charges
or financial costs, and the production cash cost.

2.1 Capital and financial costs

The estimated capital costs of various dry mills in Australia are shown in Table 1. Dalby
Bio-Refinery Limited will commence Stage One construction of an ethanol plant during the
first half of 2006. The companies responsible for the Dalby ethanol plant are the Queensland
Fuel Group, and Petrol Fuels and Lubricants. The first stage of the project will produce 40
million litres of ethanol while the full project will have annual production of 82 million litres.
The Dalby Bio-Refinery will be the first dry mill ethanol plant constructed in Australia and the
first plant built specifically for the production of ethanol for fuel since World War II.

Table 1 shows the capital cost for dry mills using grain as feedstock in Australia and Canada.

Table 1. Capital cost for dry mills using grain as feedstock in Australia and Canada

kg of grain
Production Grain tonnage
Cost of mill required per
Location capacity processed
L ethanol
mL/year AU$ ‘000 t/year kg/L
Dalby 40 then 82 Cost of first stage 214 2.68 kg wheat
Queensland 2005 $54 million
Husky Loydminster, 130 $103.65 million 350 2.69 kg wheat
Canada 2004
Coleambally, 90 $82.44 million 250 2.78 kg corn
Riverina NSW 2005
Swan Hill, 90 $82.44 million 250 2.78 kg corn
Victoria 2005
Source 2005: Dalby Bio-Refinery, Husky Energy Inc. and Australian Ethanol Ltd.

The capital cost above does not include capital related charges or financial costs which
depend on the facility’s outstanding debt and loan structure.

The Dalby Bio-Refinery is on the record as costing $80 million with 82 million litres capacity.
After adjusting for the government capital subsidy that is capped at $10 million, the total
capital cost, which includes financial costs, was imputed using a real rate of return of 7 per
cent and a plant life of 20 years. This translates to a total capital cost, after subsidy, of 0.084
AU$/L (Centre for International Economics, August 2005).

3
MAY 2006

2.2 Production cash cost

Ethanol production cash costs for two dry mills in USA, using corn as feedstock, are
illustrated in Table 2 and Table 3.
Table 2. Production cash cost for two dry mills in USA using corn as feedstock

Colorado mill Illinois mill

Item Colorado mill Illinois mill
189.2 M L/year 189.2 M L/year
AU$/L AU$/L % of % of
OPERATING COSTS
ethanol ethanol total cost total cost
Feedstock costs $0.353 $0.307 70% 64%
Electricity $0.011 $0.011 2% 2%
Natural gas $0.067 $0.097 13% 20%
Waste management $0.001 $0.001
Water $0.001 $0.001
Chemicals, enzymes and yeast $0.024 $0.024 5% 5%
Denaturant $0.018 $0.018 4% 4%
Labour $0.008 $0.008 2% 2%
Administration costs $0.013 $0.014 3% 3%
Other costs $0.007 $0.000 1% 0%
Total operating cost (a) $0.503 $0.481 100% 100%
AU$/L AU$/L
REVENUE FROM BY-PRODUCTS
ethanol ethanol
DDGS $0.000 $0.092
DWG $0.111 $0.010
Carbon dioxide $0.011 $0.000
Small producer tax credits $0.011 $0.011
Total by-product revenue (b) $0.133 $0.113
Ethanol production cash cost (a)-(b) $0.370 $0.368 AU$/L ethanol
Source: BBI International, 19 October 2005.
Exchange rate used: USc72.

The ethanol operating costs breakdown of an Australian dry mill using wheat as feedstock is
similar to a dry mill in USA using corn as feedstock when both sell their by-product as DWG.
Dry mills selling their by-product as DDGS have higher energy costs. The total cash cost of
production of ethanol in USA is around AU$0.36-0.37 per litre (October 2005). In June 2004,
Australian Ethanol Ltd (then known as Australian Biofuels), had projected its fuel ethanol
production cash cost, after crediting back the distillers grain and carbon offsets (and before
financing the facility), at about AU$0.30-0.34 per litre in Australia.
Table 3. Grain ethanol plant typical operating costs breakdown (Australia and USA)

Australia Dry mill Dry mill

Items dry milling Colorado Illinois
(wheat) (corn) (corn)

Grain feedstock 72% 70% 64%

Utilities (electricity, gas) 17% 17% 23%
Consumables 4% 8% 9%
Labour 4% 2% 2%
Maintenance 1% 0% 0%
Administration and expenses 2% 3% 3%
Source: BBI International, October 19, 2005 and Australian Ethanol Ltd 2005.

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 ETHANOL PRODUCTION FROM GRAIN

3. EXPENSES
Tables 2 and 3 demonstrate that the major expenses for ethanol production are feedstock
and energy.

3.1 Feedstock
The type, availability, and price of grain all factor into the profitability of producing ethanol.
Any type of grain containing starch can be used to produce ethanol. Grains such as wheat,
barley, corn, sorghum and other cereals typically contain 55-70 per cent starch. A typical
grain analysis for varieties grown in Australia is contained in Table 4.

The important factor is not so much the cost of the grain but the cost of starch. One tonne of
starch will produce around 620 litres of ethanol. This translates to:
• 1 tonne of grain at 60 per cent starch producing 360 litres of ethanol;
• 1 tonne of grain at 70 per cent starch will produce 420 litres of ethanol (an increase of
17 per cent).

Table 4. Typical feedstock analysis (%db)

Typical analyses Wheat Barley Corn Sorghum

Moisture (%db) 12.5 10.0 14.0 14.0
Starch (%db) 65.3 60.0 70.0 74.6
Protein (%db) 13.0 10.0 9.5 8.0
Fibre (%db) 9.0 10.2 11.5 10.0
Fat (%db) 2.0 3.0 3.9 3.1
Ash (%db) 2.5 2.5 1.6 1.0
Other sol. (%db) 8.7 14.3 3.5 3.3
Total (%db) 100.0 100.0 100.0 100.0
Source: GRDC.

Ethanol mills buy grain for its starch. Starch typically accounts for around 61-65 per cent of
wheat grain weight when 100 per cent dry. The higher the starch percentage content the
higher the grain price that can be accommodated. Average Western Australian Wheat Pool
prices for downgraded wheat or feed grain are given in Table 5. Feedstock represents
72 per cent of the operating costs (Table 3) and, based on target costs for the starch only at
AU$230-AU$280 per tonne (2005), the effect of wheat price on the cash cost of ethanol
production is shown below (Table 6).

Table 5. WA wheat pool price (AU$/t) for feed grain (moisture content: 10.5 per cent)

2001 2001/02 2002/03 2003/04 2004/05 5 yr average

Grade
$ $ $ $ $ $
Feed Grain 184.98 188.77 238.22 204.97 170.00 197.39
Source: J. Henderson, DAFWA 2006.

Table 6. Wheat prices and estimated cash cost of ethanol production

Wheat pool price FOB (AU$ per tone) $164.33 $172.39 $180.45
Estimated net cash cost of ethanol production (AU$/L)* $0.30 $0.33 $0.36
* Assuming an income from the Distillers Wet Grain (DWG) of 20 cents per litre of ethanol produced.

5
MAY 2006

Availability of grain is also very important particularly since many ethanol processing facilities
have only three production days of storage.

3.2 Energy costs

In the USA, the critical energy cost for ethanol production is the price of natural gas, which is
used both to heat the mashed grain to produce ethanol and to dry the co-product distillers
grain to produce DDGS.

In Australia, energy costs for a dry mill accounts for about 10 per cent of operating expenses.
This means that price variation doesn’t impact on profitability as much as grain price
variation, but it is still important.

Since deregulation began in 1999 gas prices in WA have fallen substantially - around
one-half. Gas prices of around US$1.50 per gigajoule (or MMBtu) are believed to be capable
of negotiation with the gas producers in WA. Meanwhile, in the USA, natural gas has
significantly increased in price since 2002 and was more than US$10.00 per gigajoule in
2005 in Illinois, one of the States with the lowest natural gas prices (Tables 7).

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 ETHANOL PRODUCTION FROM GRAIN

4. INCOME
Three products are produced from ethanol dry mills: ethanol, distillers’ grain and carbon
dioxide.

4.1 Ethanol
The price of ethanol is the most important factor when considering the profitability of an
ethanol production facility. As it relates to income and profits, ethanol sales account for
70-80 per cent of the revenue from an ethanol plant. A change of four cents per litre of
ethanol changes income by over $3 million for an 80 million litre plant.

Since ethanol is a close substitute for gasoline, the ethanol price in the USA reflects the
wholesale gasoline price. Studies have confirmed the strong positive correlation between
ethanol prices and petrol prices. The paper Risk Factors in Ethanol Production analyses the
relationship between prices of inputs and outputs associated with ethanol production. In that
paper, the statistical tool of correlation coefficient is used to compare price series to each
other to see how closely related they are. If the correlation between two price series is equal
to one, then the two price series are said to be perfectly positively correlated, which means
the two prices rise together and fall together. If the correlation between two price series is
equal to negative one, the two price series are said to be perfectly negatively correlated,
which means that as the price of one rises the other falls. If the correlation is zero, the two
are said to have no relationship with each other.

Table 8 lists the correlation co-efficient between major economic factors in ethanol
production. The relationship of ethanol price to unleaded petrol price of 0.58 shows that the
prices of ethanol and unleaded petrol are relatively highly correlated as expected since they
are substitutes.

Table 8. Correlation between selected monthly price series, USA, from 1992-2003

Unleaded Grain Natural

DDGS Corn Electricity
petrol sorghum gas
Ethanol 0.58 0.26 0.14 0.17 0.49 0.09
Unleaded -0.15 -0.11 -0.05 0.64 -0.11
DDGS 0.77 0.74 -0.25 0.25
Corn 0.97 -0.21 0.19
Sorghum -0.17 0.17
Natural gas -0.26
Source: USDA, Energy Information Administration (EIA), and Nebraska Ethanol Board (September 2004).

A chart comparing ethanol prices (not including the US$0.52/gallon government subsidy) and
unleaded petrol prices in Omaha, Nebraska are displayed in Figure 3. Note how the two
price series move fairly close together over the time period. The correlation of 0.58 from
Table 8 above shows that the prices of ethanol and unleaded gasoline are relatively highly
correlated, but not perfectly so, as some people believe. Sometimes the price of ethanol is
higher than unleaded gas because the relative supply and demand for each are big drivers in
the price pattern.

7
MAY 2006

Figure 3. Omaha Ethanol (Nebraska) and unleaded wholesale price for 1992-2003.
Source: Nebraska Ethanol Board.

Since the price of ethanol is related to the price of petrol, it is therefore important to make the
right assumptions and projections about petrol or crude oil prices when assessing the long-
term viability of ethanol production.

Although grain represents 60-70 per cent of the operating costs (Table 2), the data in Table 9
demonstrates that ethanol and grain feedstock prices have almost no correlation which
substantiates that the price of ethanol rarely responds to the price of grain as illustrated in
Figure 4.

Figure 4. Variation in ethanol and corn prices.

Source: Ethanol Spot Price Data: Oil Price Information Service.

8
 ETHANOL PRODUCTION FROM GRAIN

4.2 Distillers grain

A large quantity of distillers’ grain is produced as a co-product in ethanol production.
Distillers face the challenge of having to move this co-product into the market at whatever the
prevailing price is in order to minimise the cost of storing and managing the products on site.
Distillers grain can be sold as a wet product – mash and syrup (30 per cent solids), or as a
dry feed (92 per cent solids). Drying is costly, as it requires the input of further energy.

Dry distillers’ grain has a shelf life of 12 months or more and, in the USA, is packaged and
traded as a commodity product.

Wet distillers’ grain has a shelf life of 4-5 days and involves the transport of 70 per cent water
by weight of total product. Wet distillers’ grain supply transport is economically viable usually
within a 200 km radius from the ethanol production facility.

These facts are important as they affect both profitability and logistics.

The variety of decisions regarding the production and marketing of distillers’ grains are very
important for ethanol-producing plants. Next to ethanol, DDGS accounts for the second
largest source of income for the plant. In the USA, DDGS typically makes up 10-20 per cent
of total income depending on inputs and outputs prices, federal and state incentives, plant
size and whether a plant has income from CO2.

A typical feed analysis for the wet distillers’ grain is shown in Table 9.

Table 9. Wet distillers grain typical analysis

Moisture % of total product 70%

Dry solid matter % of total product 30%
Protein % of dry matter 27%
Digestibility % digestible of dry matter 69.9%
Fat (ether extract) % of dry matter 4.6%
Metabolisable energy MJ/kg of dry matter 10.6%
Source: Australian Ethanol Ltd and GRDC.

The Chairman of Australian Ethanol Ltd stated that: “The future of ethanol in Australia is in
grain alcohol adopting the USA model where the fuel ethanol revenue pays the bills and the
profit comes from the distillers’ grain by-product. With a strong cattle industry and
continuous demand for Australian red meat; fuel ethanol from grain is the future”.

In 2004/05, Australian beef exports to Japan increased by 27 per cent and half of this beef
was grain-fed, representing an increase in lot-fed product of 45 per cent over the previous
financial year. As demand in Japan has grown, Australia’s lot feeding capacity has
expanded, allowing the industry to better supply the type and quality of beef required to meet
the gap left by the absence of US product. A similar story applies to beef exports to Korea,
up by 123 per cent on last year. Figure 5 below shows the increasing trend in cattle feeding
nationally, and in Western Australia. The trend is generally upward as demand for lot-fed
cattle grows. The spike in 2001/02 is an aberration due to increased drought feeding across
Australia. Although the Japanese and Korean markets will eventually reopen their markets
to US product, Australian grain-fed beef producers, including Western Australian, have
always had a strong presence in those markets and they are confident to retain that strong
presence as well as some of the newly gained markets.

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MAY 2006

Lot Fed Cattle % of Total Turn-off

40.0
35.0
30.0
25.0
20.0 Aust

15.0 WA

10.0
5.0
0.0
00/01 01/02 02/03 03/04 04/05

Figure 5. Trend in cattle feeding nationally, and in Western Australia.

Source: ABS, ALFA, DAFWA.

4.3 Carbon dioxide

The third product produced in ethanol plants is carbon dioxide and it contributes very little
towards profitability. The profitability of capturing and marketing the carbon dioxide is very
low.

Australian Ethanol Ltd anticipates revenues from the carbon offsets equivalent to 1-2 cents
per litre of ethanol produced.

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 ETHANOL PRODUCTION FROM GRAIN

5. ANALYSIS OF PROFITABILITY
Ethanol, biodiesel, petrol and diesel producers all currently pay fuel excise at 38.1 cents per
litre, but ethanol and biodiesel producers receive a production grant of AU$ 0.381 cents per
litre which, in effect, fully offsets the excise paid by producers (Table 10).

The Government’s policy for biofuels has altered considerably over the past two years.
Ethanol will increasingly be subject to fuel excise, from an effective rate of zero until 2011 to
a maximum of 12.5¢/L by 2015; reflecting its energy content while retaining a net tax and
outlays advantage over traditional petrol (Table 10).

Table 10. Effective fuel tax rates for ethanol at 1 July 2003 to 2015 (cents/L)

Ethanol production
Year Fuel tax Effective tax
grant
2003 38.143 38.143 0.0
2004 38.143 38.143 0.0
2005 38.143 38.143 0.0
2006 38.143 38.143 0.0
2007 38.143 38.143 0.0
2008 38.143 38.143 0.0
2009 38.143 38.143 0.0
2010 38.143 38.143 0.0
2011 38.143 35.643 2.5
2012 38.143 33.143 5.0
2013 38.143 30.643 7.5
2014 38.143 28.143 10.0
2015 onwards 38.143 25.643 12.5
Source: Treasury.

To compare the price of imported petrol with the cost of domestically produced ethanol,
allowance must be made for the different energy densities of ethanol and petrol. The energy
density of ethanol is around 68 per cent of petrol. In a competitive market, ethanol might be
expected to be priced lower than petrol to reflect this energy difference. In January
(12/1/2006), the Terminal Gate Price1 was AU$1.145 per litre and ethanol would have been
priced at AU$0.778 per litre (AU$1.145 * 0.68) to compete on an energy basis with petrol. A
further 10 cent per litre discount, to make ethanol cheaper than unleaded petrol and increase
its competitive edge, brings the ethanol to a threshold price2 of AU$0.698 per litre which is
close to the minimum AU$0.625 cents per litre targeted by Australian Ethanol Ltd.

As stated before, the ethanol price is strongly correlated to the unleaded petrol price. In the
USA, E85 fuel sells at around US$0.25-US$0.30 per gallon less than gasoline or 10
Australian cents per litre less.

1
Terminal Gate Price is the international parity price for fuel sold in Australia and is calculated on a daily basis.
It relates to the Singapore refined fuel price plus freight, handling, margin, excise and GST.
2
Ethanol Threshold Price is the maximum price at which ethanol could be sold and still remain competitive with
unleaded petrol on a price base.

11
MAY 2006

Table 11 and Flowchart 1 show that a strong Australian dollar and a low crude oil price
decrease the profitability of ethanol production.

Assuming a long-term US$/A$ exchange rate of 0.65, with current government assistance,
the required oil price is estimated to be US$25-30 per barrel for viability in 2015 (report of the
Biofuels Taskforce to the Prime Minister, August 2005). Should the long term oil price be
higher and all other things being equal, the commercial viability prospects of biofuels would
improve. This was confirmed by the Definitive Feasibility Study (March 2005) commissioned
by Australian Ethanol Ltd for their Swan Hill Ethanol Project. The outcome of the Definitive
Feasibility Study is that the Swan Hill Ethanol Project met the targeted investors’ return at an
assumed long run oil price of US$30 per barrel at an exchange rate of US$0.70 and ethanol
price of $0.625 per litre delivered into Melbourne. Since completion of both reports, the
medium term oil price has increased to well over US$30 per barrel (Figure 6) and, in the
current situation, the targeted ethanol price of $0.625 per litre delivered into Melbourne by
Australian Ethanol Ltd is realistic and achievable despite a stronger US$/A$ exchange rate of
0.75 (Table 12).

Figure 6. Average monthly spot crude oil prices (US$/barrel).

Source: US Energy Information Administration, Australia Tax Office.

Assuming that ethanol producers are able to sell all they can produce at prevailing market
prices, that is, there are no problems with market barriers or consumer confidence, the
production of ethanol from grain is a commercially viable operation (Flowchart 1):
• Under the current tax rate: When the crude oil price is US$30/bbl or higher.
• After 2015: When the crude oil is above US$55/bbl.

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 ETHANOL PRODUCTION FROM GRAIN

Table 11. Sensitivity of ethanol threshold price** to changes in crude oil price
Crude oil in US$ per barrel US$/bbl 30 40 45 55 60 70 75
Exchange rate US$ US$ 0.75 0.75 0.75 0.75 0.75 0.75 0.75
Crude oil in AU$ per litre AU$/L 0.25 0.34 0.38 0.46 0.50 0.59 0.63
Refiners margin (%) % 6% 6% 6% 6% 6% 6% 6%
Refiners profit (¢/L) AU$/L 0.02 0.02 0.02 0.03 0.03 0.04 0.04
Refined petrol price (from Singapore) AU$/L 0.27 0.36 0.40 0.49 0.53 0.62 0.67
Petrol excise AU$/L 0.38 0.38 0.38 0.38 0.38 0.38 0.38
Petrol GST AU$/L 10% 10% 10% 10% 10% 10% 10%
Retail/wholesale margins and transport % 4% 4% 4% 4% 4% 4% 4%
Terminal gate price* AU$/L 0.74 0.84 0.89 0.100 0.105 0.115 0.120
Equivalent ethanol price (the energy density of ethanol is
around 68 per cent of petrol) AU$/L 0.504 0.573 0.608 0.677 0.711 0.780 0.815
Discount to make ethanol competitive % 10% 10% 10% 10% 10% 10% 10%
Ethanol threshold price** Auc/L 45.3 51.6 54.7 60.9 64.0 70.2 73.4
* Terminal Gate Price is the international parity price for fuel sold in Australia and is calculated on a daily basis. It relates to the Singapore refined fuel price plus freight,
handling, margin, excise and GST.
** Ethanol Threshold Price: Maximum price at which ethanol could be sold and still remain competitive with unleaded petrol on a price base.
Effect of the ethanol threshold price on the commercial viability of the mill, under the present fuel excise schedule
Ethanol at pump (assuming it is equal to threshold price) AU$/L 0.453 0.516 0.547 0.609 0.640 0.702 0.734
Ethanol production cash cost (assumed) AU$/L 0.36 0.36 0.36 0.36 0.36 0.36 0.36
Ethanol Excise AU$/L 0 0 0 0 0 0 0
Ethanol GST AU$/L 10% 10% 10% 10% 10% 10% 10%
Distributor/retailer margins and freight % 6% 6% 6% 6% 6% 6% 6%
Ethanol producer’s margin over production cash cost if ethanol
AU$/L 0.03 0.08 0.11 0.16 0.19 0.24 0.27
price at the bowser is equal to the threshold price
Effect of the ethanol threshold price on the commercial viability of the mill, after 2015
Ethanol at pump (assuming it is equal to threshold price) AU$/L 0.453 0.516 0.547 0.609 0.640 0.702 0.734
Ethanol production cost (assumed) AU$/L 0.36 0.36 0.36 0.36 0.36 0.36 0.36
Ethanol Excise AU$/L 0.125 0.125 0.125 0.125 0.125 0.125 0.125
Ethanol GST AU$/L 10% 10% 10% 10% 10% 10% 10%
Distributor/retailer margins and freight % 6% 6% 6% 6% 6% 6% 6%
Ethanol producer’s margin over production cash cost if ethanol
AU$/L -0.096 -0.043 -0.016 0.037 0.064 0.117 0.144
price at the bowser is equal to the threshold price

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MAY 2006

Crude Oil
US$30/bbl

Exch rate Exch rate

US$0.65 US$0.75
Ethanol Threshold Price Ethanol Threshold Price
0.48 $/L 0.45 $/L

Ethanol Production Cash Cost Ethanol Production Cash Cost Ethanol Production Cash Cost Ethanol Production Cash Cost
0.30 $/L 0.36.$/L 0.30 $/L 0.36 $/L

No No No
Government Government Government Government No Government
Government Government Government
Assistance Assistance Assistance Assistance Assistance
Assistance Assistance Assistance
11 c/L -1 c/L 5 c/L -7 c/L 9 c/L -3.5 c/L 3 c/L --9.5 c/L
Ethanol
producer’s Crude Oil
margin over US$55/bbl
production
cash cost after
Exch rate Exch rate
crediting back
US$ 0.65 US$ 0.75
the distillers
grain and Ethanol Threshold Price Ethanol Threshold Price
carbon offsets 0.66 $/L 0.61 $/L
(and before
financing the
facility) and Ethanol Production Cash Cost Ethanol Production Cash Cost Ethanol Production Cash Cost Ethanol Production Cash Cost
assuming an 0.30 $/L 0.36.$/L 0.30 $/L 0.36 $/L
ethanol price
at the bowser No No No
Government Government Government Government No Government
equal to the Assistance
Government
Assistance
Government
Assistance
Government
Assistance Assistance
threshold price Assistance Assistance Assistance

0.27 $/L 0.14 $/L 0.21 $/L 0.08 $/L 0.22 $/L 0.07 $/L 0.16 $/L 0.37 $/L
Flowchart 1. Sensitivity of ethanol threshold price and producer’s profit margin to changes in crude oil price, exchange rate and cost of production.
Source: J. Bonnardeaux, Department of Agriculture and Food Western Australia 2006.

14
 ETHANOL PRODUCTION FROM GRAIN

Table 7. Price of Natural Gas sold to commercial consumers in Illinois (US$ per gigajoule)

Year Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

1989 4.2 4.66 4.77 4.61 4.62 4.84 5.10 5.19 4.88 4.39 4.20 4.38
1990 4.56 4.97 4.83 4.50 4.66 5.00 5.11 4.92 4.37 4.37 4.26 4.56
1991 4.74 4.55 4.39 4.56 5.24 6.41 5.30 5.36 4.58 4.31 4.16 4.23
1992 4.44 4.52 4.11 4.02 4.80 5.94 5.48 5.31 5.28 4.89 4.93 4.88
1993 4.89 4.81 4.63 5.24 5.99 6.78 5.99 6.53 5.80 5.49 5.00 5.03
1994 5.01 5.04 5.28 5.74 6.07 6.12 6.44 6.20 5.77 4.81 4.33 4.63
1995 4.39 4.44 4.53 4.42 5.16 5.16 5.35 5.01 5.23 4.23 4.11 4.00
1996 4.07 4.31 4.75 5.00 6.19 6.68 7.09 7.66 6.25 5.23 4.83 5.20
1997 5.87 5.66 4.95 4.62 4.91 5.52 5.66 6.08 6.22 5.79 5.26 5.21
1998 4.76 4.68 4.72 5.26 6.84 6.25 8.18 6.41 6.10 5.32 4.88 4.69
1999 4.43 4.45 4.40 4.79 6.50 7.07 7.87 8.43 7.15 6.28 6.12 5.34
2000 4.92 5.05 5.38 5.89 7.59 10.33 9.92 9.29 9.06 9.50 8.42 8.63
2001 11.13 10.76 9.02 8.53 8.78 9.04 7.41 7.54 6.30 4.80 5.49 5.15
2002 6.21 6.16 6.40 6.76 8.87 10.74 10.38 9.90 9.33 8.31 8.35 8.14
2003 6.98 7.19 9.47 9.18 9.78 11.05 10.86 10.13 9.11 8.37 8.23 7.82
2004 8.55 8.28 8.17 8.96 10.45 10.97 12.10 11.31 10.64 9.32 9.86 9.44
2005 9.31 9.10 8.77 10.33 11.43 11.86 12.24 12.86 13.69 14.25
Updated on 12 December 2005.
Source: US Energy Information Administration.

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FEBRUARY 2006

6. REFERENCES
Australian Ethanol Limited, Quarterly Report to Shareholders (1/10/2004 to 31/12/2004).
Australian Ethanol Limited, Annual Report 2005, October 2005.
Australian Automobile Association (AAA): Submission to the Biofuels Taskforce (24/2/2005).
Anderton, Peter (June 2005). Australian Ethanol Chairman Updates.
Biofuels Taskforce (August 2005). Report of the Biofuels Taskforce to the Prime Minister,
Australian Government.
Caltex.com.au.
Centre for International Economics (August 2005). Impact of Ethanol policies on feedgrain
users in Australia, MLA.
Coltrain, David (September 2004). Economic Issues with Ethanol, Revisited. Kansas State
University.
Coltrain, D., Barton, D. and Dean, E. (2004). Risk Factors in Ethanol Production.
Stuart Rendell and Australian Biofuels Pty Ltd (2004). Fuel ethanol production in the Murray
and Murrumbidgee River Regions of Australia, Research Updates GRDC.
USDA (1998). Ethanol Cost-of-Production Survey.
Whims, John (May 2002). Corn Based Ethanol Costs and Margins. Kansas State
University.
Yancey, Mark (19 October 2005). Ethanol and Biodiesel Industry Update, BBI International.
Ethanol Producers and Consumers Newsletter, January-February 2005.
Burgraaf, Wim (December 2005). Potential future developments in beef feedlots.
Wylie, Dr Peter (October 2005). Ethanol review. Horizon Rural Management.

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