1. Living Management Consulting
Project
FULL-TIME MBA CLASS OF 2013
Team B9
Chi-Yang Liu
Alexey Nikolaev
Hugo van Oort
Nishit Tanna
Hugo Valdivia
7/10/2012 1

2. Business Strategy - Proposed
Produce Ethanol
and Butanol in
China
Preference of
Ethanol and
Why China Business model Future plans
Butanol over
others
7/10/2012 2

3. Selection Criteria
Supply and demand in major countries
Types of industries/companies to target
Current market size and growth scope of these
industries
Competitor overview in various countries
Infrastructural development of country
Government support and concessions
7/10/2012 3

4. Ethanol
Global market
 Market size: 22 bio gal/year (2010)
 Product average price: 2.4 USD/gal
 Annual growth rate: 9% (future 5 years)
Forecast
 2015: 29 bio gal/year
World largest manufacturers Production capacity (bio gal/year)
Archer Daniels Midland 1.7
POET 1.6
Valero Energy Corp 1.1
7/10/2012 4

5. Ethanol – Focus on China
China
16
13.9 (43% self sufficiency)
14 13.1
1.6 1.50
12
1.4
10
bio gal/year
1.2
8 6.9 1
bio ga/year
6.3
6 0.8
0.65
0.6
4
0.4
2 1.5 1.1
0.65 0.24 0.2
0 0
China India USA Brazil Production Consumption
Production Consumption
China’s largest manufacturers Production capacity (mil gal/year)
Jilin Fuel Ethanol Co. 163
Henan Tian Guan Fuel Ethanol Co. 146
7/10/2012 5

6. Ethanol - Prospects in China
Currently China and India using E10 blend (90% fuel, 10% Ethanol)
Blend rate of Ethanol expected to increase in future
• Brazil using E25
• US working on implementing E15
• India & China working on implementing E20
Increase in crude oil consumption
• China consumes 105 bio gal/year growing @ 9% yearly
• India consumes 36 bio gal/year growing @ 8% yearly
Less competition compared to US, Brazil, as not many market leaders
No competition using cyanobacteria, hence could provide market edge
Government subsidies expected in India & China
China government initiative to work on non food crop ethanol production
No shortage of raw materials as plenty of CO2 and sunlight available
7/10/2012 6

7. Butanol
Global market
 Market size: 960 mil gal/year (2010)
 Product average price: 4.5 USD/gal
 Annual growth rate: 4.8% (future 5 years)
Forecast
 2015 – 1,247 mil gal/year
 2020 – 1,381 mil gal/year
World largest manufacturers Production capacity (mil gal/year)
BASF 212
Dow Chemical Company 172
Oxea Group 91
7/10/2012 7

8. Butanol - Advantages as Fuel
Can be upgraded to aviation jet biofuel – 94 bio gal/year (by 2020)
Can be blended with diesel or biodiesel up to 40%
Can be blended with gasoline
Has an energy value of 110,000 BTU/gal, similar to gasoline (114,000) and much
higher than Ethanol (76,100)
Has lower emissions: reduces hydrocarbon emissions by 95%; carbon monoxide to
0.01%; and oxides of nitrogen by 37%
Can be shipped via existing fuel pipelines rather than by tanker truck or rail because
it is non-corrosive and less susceptible to separation in water
Can be used in existing automotive engine technologies with less need for
modification, replacing gasoline
7/10/2012 8

9. Butanol – Focus on China
China
60%
53%
(45% self sufficiency)
50%
400 372
40% 38%
31% 300
30%
22% 200
20% 18%19% 168
13%
100
10%
3%
0% 0
China N.A. W.E. Other Production Consumption (39% of global
market)
Production Consumption
China’s largest manufacturers Production capacity (mil gal/year)
PetroChina 64
Sinopec 55
7/10/2012 9

10. Butanol - Supply and Demand in China*
* OXO Market Supply and Demand Forecast & Investment Economic Analysis
Average annual growth rate
in 2000-2010
Production: 7% Consumption: 12%
7/10/2012 10

11. Porter’s 5 forces analysis
Competition from substitutes
Low risk – for Chemical application
High risk – for Fuel application As chemical – probably no substitutes
As fuel –price sensitivity
High risk – commodity product
Bargaining power of buyers
Competition within an industry
Bargaining power of Price sensitivity – commodity
suppliers Few powerful companies product
Excess capacity and This risk can be mitigated by:
Cyanobacteria supplier exit barriers Vertical integration with
External supplier CO2 Cost conditions - profitability issue consumers
risk Differentiation (e.g. high
quality)
Low risk – many CO2 Quite high risk – powerful competitors
external suppliers
Treat of new entrants
This risk can be mitigated by barriers:
Economies of scale
Absolute cost advantages
Middle level of risk – different
Capital requirements
barriers
Product differentiation
Access to distribution channels
Government and legal barriers
Retaliation by established producers
7/10/2012 11

12. Critical Reasoning Business Model
Sell technology Build own plant(s)
Short term 1. No investment needed 1. Big investments needed
2. Easy to target potential 2. Need to find partner
customers 3. Need for a lot of market
3. Differentiation from research and sales to find
other producers all possible clients
4. No set-up time 4. Longer set-up time
5. Less revenue possibilities 5. High cost, revenue slowly
increases
Long term 1. Risk of copycats 1. Possibility to sell company
2. Expiration of patents 2. Create long term
3. Technology may become sustainable growth
obsolete 3. Possibility of diversification
4. Possibility for scaling up
7/10/2012 12

13. Plan of Action
Ethanol Butanol
1600 1500 850 400 372 204
1400 350
1200 300
millions of gallons
millions of gallons
1000 250
800 200
650 168
600 150
400 100
200 50
0 0
China's demand China's production Potential 'free' China's demand China's production Potential 'free'
market market
Start to success
Target capacity Ethanol: Target capacity Butanol:
6.5 mil gal 3.2 mil gal
7/10/2012 13

14. Location
 Plant location: Huangdao
 Why?
– Industrial companies
– Oil pipeline network
– Railway network
– Close to seaport
– SPR: “Strategic Petroleum Reserve”
– Chinese Petroleum University
– Possible Government
subsidies: “economic
development zone”
7/10/2012 14

15. Ethanol – Profit Projection
Ethanol Profit Projection per gallon
3
2.65 1.8
2.5
2
USD/gallon
1.5
0.85
1
0.5
0
Current sales price Approx cost Operating profit
Total operating profit: 6.5 mil gal*1.8 USD/gal = 11.7 mil USD
7/10/2012 15

16. Butanol – Project Prediction
Butanol Profit Projection per gallon
3.8 2.6
4
3.5
3
2.5
2
1.5
1.2
1
0.5
0
Current sales price Approx cost Operating profit
Operating profit: 3.2 mil gal*2.6 USD/gal = 8.3 mil USD
Butanol market: US$1 billion market in China
7/10/2012 16

17. Profit per year / Investment Costs
Total Operating Profit
25
8.3
20.0
20
15
Millions
11.7
10
5
0
Profit Ethanol Profit Butanol Total Profit
Capital Expenditure: between 4 and 6 USD/gal (benchmark)
9.5 mil gal*4USD/gal = 38.1 mil USD
9.5 mil gal*6USD/gal = 57.1 mil USD
Pay back period: between 2 and 3 years
7/10/2012 17

18. How to start?
Partnerships
7/10/2012 18

19. Partnerships Benefits
Entering Chinese market efficiently
Learning know-how's of business in China
Intermediary to communicate with Government
Potential funding for initial plant set-up
7/10/2012 19

20. Long term options
 On the long term there are
different options:
1. Upgrade production China
2. Diversify to other countries
with same concept
– India for Ethanol
3. Sell company if there is “not
to refuse” offer
7/10/2012 20

21. Upgrade production China
2013 2018
Ethanol 6.5 mil gal 14.9 mil gal
Market share 1% 1.5% (expected)
Butanol 3.2 mil gal 5.2 mil gal
Market share 2% 2.4% (expected)
Overall market growth China
Ethanol 9%
Butanol 5%
7/10/2012 21

22. Thanks for your attention
Team B9
Chi-Yang Liu
Alexey Nikolaev
Hugo van Oort
Nishit Tanna
Hugo Valdivia
7/10/2012 22