Sep 27 2017
Abengoa, was not long ago, one of the really large players in the global ethanol business with production in three continents including a flagship cellulose to ethanol plant. Now all assets are sold and Abengoa has left the ethanol business. The former executive vice president at Abengoa Bioenergy Mr Alberto Carmona Bosch here shares with us what has happened and in what position he will be a speaker at the upcoming Argus Biofuels event in October 2017.
Abengoa Bioenergy is not what it used to be, as it is not a global Ethanol player any more. All the assets the company owned have been sold to different parties — except for the Brazilian ones, which are in the process of being sold.
– All the assets are good, very competitive from the cost structure point of view, and very well maintained and upgraded Alberto Carmona Bosch states.
In the US, assets have been sold to Green Plains and Kaapa Ethanol, and in Europe assets have been sold to Alcogroup and a private equity firm called Trilantic. The plants sold to Trilantic are now operated under the name Vertex Bioenergy, so the name Abengoa is not part of the industry any more.
The future of these plants is directly linked to the future of the industry and not to Abengoa’s financial crisis.
– The ethanol business is healthy and was not the origin of Abengoa’s problems, which stemmed from other businesses where Abengoa was active and which were separate from the ethanol segment.
– I have good expectations for the ethanol industry and expect the assets sold by Abengoa to continue being successful, especially given that the new owners are all very professionally
NixAl a spin of from Abengoa Bioenergy
Now Alberto Carmona Bosch is the CEO of NixAl Commodities based in Sevilla, NixAl for short, a company that was born as a spin off from Abengoa Bioenergy, with the ambition of providing market intelligence, risk management services and engineering services for the sugar and ethanol industries globally.
– We are a small group of experienced traders and engineers, and basically we are doing what we have successfully done for Abengoa for the last 15 years.
– We think the ethanol industry faces some key challenges or possibilities for improvement in three different fields — plant efficiency and competitiveness; increasing the use of market tools; and regulation.
1) Efficiency and competitiveness:
Given the high-margin environment the industry has faced, the last three years have probably been a good moment for profitable capex projects. Given also that we expect lower prices in the near future, lowering your breakeven and therefore being a low-cost producer will ensure that you suffer less in a tough margin environment.
Debottlenecking your facility is probably the cheapest and easiest way to increase efficiency. The project will be different for each plant, but in general it is a way to produce above your nameplate capacity.
On the next level and with relatively low capex, corn oil equipment has a quick pay back, attractive internal rate of return (IRR) and is a source of additional margins that ultimately lowers the breakeven of a producer, something that is key when margins are low. This should be a no-brainer for the European industry, and we have the example of how the US industry has taken advantage of this.
On a larger scale, corn fractionation is also worth a look at, because as well as improving yields for ethanol, dried distiller grain (DDG) and corn oil, you will have new products like corn fibre, which can be used for the food market or as a source for 2G ethanol.
2) Market tools
I see many producers that are not exploiting all the opportunities that derivatives markets give. I know that derivatives have their own language and it involves risk and maybe because of a bad experience, lack of knowledge, or simply fear, many players don ́t use it. But derivatives are tools that have nothing to do with speculation or high risk. And in fact, they provide great opportunities for lower-margin volatility, offer your counterparties what they might be seeking, and secure margins at attractive levels.
A proper knowledge of how derivatives work — it is not difficult at all — and having a proper risk policy in place are essential in order to take advantage of the opportunities derivatives give.
For example, buying grains in Europe indexed to Chicago and seeking to benefit from the lower Chicago values is an interesting option.
The proposal to phase out first generation biofuels post-2020 in Europe is something to work on very hard.
I want to think that the power of reason is on the side of ethanol — food vs. fuel and indirect land-use change (ILUC) are clearly empty debates — the best demonstration of this is that the European Commission has taken this decision on the post-2020 proposal based on public opinion, and not on scientific evidence.
There probably needs to be some investment in educating society about the benefits of ethanol. And then the way might be paved to work with the authorities in Brussels. But letting the industry suffer and maybe fall because of perceived negative impacts is probably the biggest mistake because the benefit will go to fossil fuel.
On top of that, we have the problem of emissions and air quality. Ethanol can solve both immediately — with higher blends and no need to wait for other solutions that will take several years and probably decades. This should be brought to the authorities and the industry has to be willing to educate to make clear that we have the solution and not the problem.
? Outline the trading trends you expect to see in the next six months
The backwardation we have in the ethanol markets at the time of writing is clearly a buy signal for paper traders, although only in Europe. Long ethanol and short grain trades would look attractive to me, especially for the fourth quarter of 2018.
Once the anti-dumping duty for US ethanol expires, I expect the arbitrage to open — a good paper trade would be long Rotterdam and short Chicago, expecting the arbitrage to be favourable. Once the arbitrage is viable we should see physical deals locking margins, by shorting Rotterdam and buying Chicago. This spread should give good opportunities, once the anti-dumping duty expires.