Teréos Sees Opportunities Despite Wheat and Sugar Prices

Production costs: Energy and Feedstock
Of course, feedstock costs are not the whole picture. The 57% increase in oil prices throughout 2007 must have had an impact on the energy costs of Teréos’ production facilities. Surprisingly though, Mr. Chaud sees plant energy consumption as an opportunity for cost reduction. “Thanks to the recent use of membranes and molecular sieves, we can achieve a 40% reduction in energy consumption in our plants” he said. “In the past 20 years, very few ethanol plants were build in Europe. Therefore, all our new plants are fully or partially integrated plants regarding energy, so they all are in this ratio of 40 or even 50% of energy reduction”. Considering that energy cost amount to 16.5% of the total production costs, that indeed represents a significant cost reduction over the next few years.

Agricultural yields
During the interview however, Mr. Chaud emphasized the importance of continuously improving the yields of agricultural products. “I’ve made a calculation,” he said, “In 1970, just before the first oil shock, you could buy 50 kilos of wheat with the value of one barrel of oil. If you take November values for one barrel of oil, you can now buy more than 250 kilos of wheat. That means that agriculture has been 5 times more efficient than oil over this period of time. The potential of agricultural products is much bigger, the challenge is to continue this kind of improvement without endangering the environment. For that, we need an international framework for sustainable development of agricultural yields."

Eastern-Europe
According to Mr. Chaud, Eastern-European countries “present a tremendous potential for agricultural products in terms of availability of land and increase in agricultural yields. Subsequently, their role will probably increase in all outlets of agriculture if there is a stimulating demand.” Teréos is currently active in the Czech Republic with its subsidiary Agroetanol TTD. According to Mr. Chaud, that subsidiary is in charge of exploring other opportunities in the region, but at the moment there are no specific plans for expansion.

Logistics as a bottleneck for growth in Europe
Considering that its main market will remain in the western part of Europe, Teréos is concerned about logistics and distribution of biofuels. “We can see in north and south America that this represents a bottleneck which results in reduced growth of production,” he says, adding “to avoid oversupply, this is one of the most important challenges in the short term.”

The potential in Europe
While discussing long term developments, Mr. Chaud shared his expectations regarding ethanol use in Europe. The European Commission recently concluded that a 14% market share was feasible in 2020. “I believe it is a realistic target for ethanol in the gasoline market in Europe. At a world level, as far as gasoline consumption is higher than in Europe, a 10% market share may be targeted. In my opinion the maximum amount of ethanol that can be produced with European feedstock in 2030 is about 30 Million tons/year, which corresponds to 20% of today’s gasoline consumption and would include both firs and second generation.” Considering the availability of second generation ethanol in 2030, growing from 14 to 20% in 10 years doesn’t seem very ambitious. “That 14% in 2020 is feasible, but 10% is probably the maximum percentage that will be achieved. Going from 10% in 2020 to 20% in 2030 is a more ambitious target I think.” That time frame between 2020 and 2030 will probably not be fully focussed on second generation ethanol, according to Mr. Chaud. Although he emphasized that it’s highly uncertain, “cellulosic ethanol will probably account for 50% of the increase in production capacity between 2020 and 2030. It depends on yields per year and the availability of cheap biomass. When you start producing ethanol from biomass, prices will go up. Most likely, you will therefore see cycles, and depending on the year either one can be a good feedstock.”