Mar 14, 2019
Operator
Hello, and welcome to the Aemetis Fourth Quarter and Year 2018 Earnings Review Conference Call. At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of Aemetis, Inc.
Mr. Waltz, you may begin.
Todd Waltz
Thank you, Kevin. Welcome to the Aemetis fourth quarter and year 2018 earnings review conference call.
We suggest visiting our website at aemetis.com to review today’s earnings press release, updated corporate presentations, filing with the Security and Exchange Commission, recent press releases and previous earning conference calls. This presentation is available for review or download on the aemetis.com homepage.
Before we begin our presentation today, I’d like to read the following disclaimer statement. During today’s call, we’ll be making forward-looking statements, including without limitations statements with respect to our future stock performance, plans, opportunities and expectations with respect to financing activities and the execution of our business plan.
These statements must be considered in conjunction with the disclosure and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements made on this call involve risk and uncertainty and that future events may differ materially from the statements made.
For additional information, please refer to the Company’s Security and Exchange Commission filings, which are posted on our website and are available from the Company without charge. Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results, based on GAAP.
A reconciliation of the non-GAAP measures to the most recent directly comparable GAAP measures is included in our earnings release for the quarter ended on December 30, 2018, which is available on our website. Adjusted EBITDA is defined as net income or loss plus to the extent deduced in calculating such net income.
Interest expense, loss on extinguishment, income tax expense in tangible and other amortization expense, depreciation expense and share-based compensation expense. Now, I’d like to review the financial results for the fourth quarter of 2018.
Revenues were $38.8 for the fourth quarter of 2018, compared to $38.9 million for the fourth quarter of 2017. Gross loss for the three months ended December 31, 2018 was $1.9 million, compared to gross profit of $3 million (sic) [$0.3 million] during the same period in 2017.
Gross profit decline was attributable to softening prices for ethanol from $1.65 per gallon during the three months ended December 31, 2017 to $1.57 per gallon during the three months ended December 31, 2018 in a market where the cost of delivered corn rose from $4.58 per ton to -- per bushel to $4.89 per bushel during the same respective periods. Selling, general and administrative expenses were $4.8 million during the fourth quarter of 2018, compared to $3.5 million during the fourth quarter of 2017, primarily attributable to non-recurring legal fees.
Operating loss was $6.7 million for the fourth quarter of 2018, compared to operating loss of $3.4 million during the fourth quarter of 2017. Net loss attributable to Aemetis was $11.4 million for the fourth quarter of 2018 with an additional $0.9 million attributed to non-controlling interest for a total net loss of $12.3 million, compared to net loss attributable to Aemetis of $8.3 million for the fourth quarter of 2017 with an additional $0.8 million attributed to non-controlling interest for a total net loss of $9.0 million.
Cash at the end of the fourth quarter of 2018 was $1.2 million, compared to $0.4 million at the end of the fourth quarter of 2017. Moving on to the results for the year-ended December 31, 2018.
Revenue increased 14% to $171.5 million for the 12 months ended December 31, 2018, compared to $150.2 million for the same period in 2017. The increase in revenue was primarily attributable to increase in the production of ethanol and wet distillers grain as well as price increase for our distillers grains in North America, and overall volume growth in India.
Gross profit for the 12 months ended December 31, 2018 was $5.4 million, compared to $3.4 million during the same period in 2017. Gross profit increase was attributable to an $11 per ton increase in the price of wet distillers gain for the year ended December 31, 2018 compared to 2017.
Selling, general and administrative expenses were $16.1 million during the 12 months ended December 31, 2018, compared to $13.2 million during the same period in 2017. The increase in selling, general and administrative expenses was primarily attributable to professional fees related to closing the CO2 land purchase, financing the Biogas project and litigation.
Operating loss was $10.9 million for the 12 months ended December 31, 2018, compared to an operating loss of $12.2 million for the same period in 2017. Net loss attributable to Aemetis was $33.0 million for the 12 months ended December 31, 2018 compared to a net loss of $30.3 million during the same period in 2017.
That completes our financial review. Now, I would like to introduce the founder, Chairman and Chief Executive Officer of Aemetis, Eric McAfee, for a business update.
Eric?
Eric McAfee
Thank you, Todd. For those of you who may be new to our Company, let me take a moment to provide some brief background information.
Aemetis was founded in 2006, and we own and operate production facilities with more than 110 million gallons per year of renewable fuel capacity in the U.S. and India.
Included in our production portfolio is a 60 million gallon per year capacity ethanol, distillers grain and corn oil plant located in Keyes, California near Modesto. We also built, own and operate a 50 million gallon per year capacity distilled biodiesel and refined glycerin biorefinery on the East Coast of India near the port city of the Kakinada.
Last year, we funded and launched a $30 million dairy digester pipeline and gas conditioning project in central California, and we are in the late stages of developing a $175 million advanced ethanol production facility to convert waste orchard wood and other waste biomass into cellulosic ethanol. Aemetis made excellent progress on each of our four core businesses during 2018 and early 2019.
Let's first review our biodiesel business in India. During the past few years, the tax and regulatory structure for biofuels in India has been developed and we believe it is now being implemented to support the biodiesel industry.
In 2017, India adopted a Goods and Services Tax for biodiesel at 18%, which has subsequently been reduced to 12% in early 2018. In mid-2018, the India government updated the national biofuels policy to set a target of a 5% blend of biodiesel with diesel and instituted a high tariff to block the importation of biodiesel into India in order to support the expansion of domestic biodiesel production.
The national biofuels lending target requires more than 1 billion gallons of new biodiesel production in India. As one of only about five large India biodiesel producers, we believe that the expansion of the India domestic market will directly benefit our company.
After two years of investment and construction, in early 2019, we completed the upgrade of our India plant to about 50 million gallons per year of biodiesel capacity. The plant is now fully operating.
The new feedstock pretreatment unit, the new boiler unit and other upgrades that now enable plant operations at full plant capacity. During the 2018 construction period, the India biodiesel plant increased revenues 60% to $21.5 million, including shipping about 6 million gallons of biodiesel.
However, this increased sales revenue represents less than 15% of the 50 million gallons of biodiesel production capacity that is now in place. We are making excellent headway in ramping up production and revenues by adding new customers in truck fleet, retail stations and government sectors.
Though we are fully approved to sell distilled biodiesel without blending with diesel in India, the colder weather during the two coldest months of winter requires distilled biodiesel to be blended with diesel, whereas during the 10 warmer months we sell distilled biodiesel without blending. We are now ramping up shipments of biodiesel to existing and new truck fleet customers as well as began retail stations sales of biodiesel in India under the Universal Biofuels brand for the first time this month.
Prior to late 2018, the sale of biodiesel at retail stations was not legal, but an India Supreme Court decision opened the retail channel, and we developed a branded franchising model for retail distribution. Our retail sales strategy in India includes franchising the Universal Biofuels name to local operators to sell our premium biodiesel branded biodiesel, similar to retail gas stations, franchise our large oil companies in U.S.
High volume potential new biodiesel customers in India include late-stage testing with mining companies for use in very large dump trucks at mines. This heavy mining equipment consumes more than 1 gallon of diesel per mile.
One mining customer now in testing has a potential of requiring more than 50% of our India plant capacity to replace diesel with biodiesel to power their equipment. In addition, the three large government oil marketing companies in India recently issued a 260-million-gallon biodiesel purchase request, which we expect will result in biodiesel shipments from our plant to the government oil marketing companies during the remaining quarters of 2018.
Since biodiesel is not a subsidized product in India, we sell at a discount to petrol and diesel. The environmental benefits of biodiesel and the economic benefits of domestic production are provided for free to our customers, and without funding from the government.
We expect the crude oil prices will be in the $55 to $70 per barrel range, driving an expected price of diesel in India that we believe will support significantly expanded revenues and consistent annual positive cash flow in our India biodiesel and refined glycerin business. We are very pleased with the completion of our India plant upgrades, and we achieved the upgrades without incurring long-term third-party debt on the India plant.
As a result, as cash is created from earnings generated in India, the funds can be used to repay a net of senior debt and provide development funding for our other projects, as well as future expected expansion of the India plant to 100 million gallons to meet increasing demand. In addition to the excellent progress in the India, our three businesses in California are doing very well in the factors that we control.
Achieving major milestones in the Riverbank below zero carbon cellulosic ethanol project, the Aemetis Biogas dairy digester and pipeline project, and new production records at the Keyes ethanol point. Now, let’s review our California traditional ethanol business.
In mid-2018, the EPA issued about 2.25 billion gallons of hardship waivers to 48 oil refineries, allowing these refineries to avoid purchasing biofuels credits. The Renewable Fuel Standard mandates 15 billion gallons per year of ethanol, but the waivers have had a serious impact at both volumes and positive cash flow by allowing billions of gallons of biofuels blending to be avoided by oil refiners.
As a direct result of these hardship waivers issued to highly profitable oil refiners, there is now 1 billion gallons of ethanol inventory in the U.S., which is about 500 million gallons more inventory than needed. As a result, lower ethanol prices and low margins have been putting downward price pressure on corn and other feedstocks.
The Keyes ethanol plant continues to operate significantly above nameplate capacity, with production increasing by about 5 million gallons in 2018, compared to 2017. The Keyes plant operations team continues to achieve high ethanol yields and plant uptime.
To increase our profit margins in the traditional ethanol business despite the hardship waivers issued by EPA, we are designing and constructing upgrades to the Keyes plant to decrease natural gas usage and thereby decrease the carbon intensity for ethanol, resulting in a reduction of our petroleum natural gas costs, while increasing the price of our ethanol by creating more credits under the California Low Carbon Fuel Standard. Such projects at the Keyes plant include the $5 million Mitsubishi membrane dehydration unit, upgrade to replace the energy-intensive molecular sieves.
This upgrade is expected to reduce our carbon intensity score and improve profitability at the Keyes plant with full operation expected to occur in Q4 2019. We are fully financed, acquired 5 acres of industrial land and now we are in the construction of a carbon dioxide compression plant adjacent to the Keyes plant to convert the highly purified renewable CO2 produced by our Keyes plant into good quality liquid CO2.
This project is being funded with $3 million of nondilutive debt financing for the land purchase and the Keyes plant upgrades, as well as more than $20 million of nondiluted funding of the CO2 producer to build the plant. The recent federal tax changes included tax credit for the reuse of CO2 in new projects.
We are working on the process of monetizing this tax credit, which could be worth several million dollars per year in addition to the $1.5 million per year we expect to receive from the CO2 sales revenues. Next, let's discuss the Aemetis Biogas dairy digester and pipeline project, and then the below zero carbon cellulosic ethanol project.
With the exception of the Low Carbon Fuel Standard in California to year 2030 and the resulting increase in the price of California Low Carbon Fuel Standard credits from $62 in mid-2017 to more than $190 per credit today, we have targeted our biofuels expansion projects to the production of valuable below zero carbon biofuels through the use of technologies that convert waste feedstocks into biofuels to create sustainable competitive advantages. Methane, commonly known as natural gas is a potent greenhouse gas that is up to 34 times more powerful than carbon dioxide at capturing earth's heat.
About 25% of California's methane emissions are from the waste farms on dairy farms. To reduce damaging methane emissions, in late 2016, California passed a law known as Senate Bill 1383 that mandates the capture of biogas from dairies in order to reduce methane emissions.
Along with the mandate, California has funded about $75 million [ph] of annual matching grants to dairies to build biogas digesters and related systems. Biogas is a blend of methane along with CO2 and other impurities that can be captured from dairies, landfills and other sources.
After a gas cleanup and compression process, biogas becomes biomethane, which is a direct replacement of petroleum natural gas and can be transported in the existing natural gas pipelines. Biomethane can be used to replace gasoline or diesel fuel in modified cars, trucks and buses to significantly reduce carbon emissions and air pollution.
After more than a year of project development and financing work, we recently announced a fully financed $30 million project to capture biogas from dairies and on-site digesters, deliver the biogas to our ethanol plant via a new pipeline, then either use a biogas in our existing boilers or convert the biogas into biomethane, commonly known as renewable natural gas or RNG. The biomethane can either be sold directly to trucks at the Keyes plant, or injected into the utility pipeline for delivery anywhere in California to be used in trucks to displace petroleum diesel.
On a scale of the carbon intensity of different fuels, the carbon intensity of biomethane captured from dairies is approximately negative 275. Since the carbon intensity of gasoline and conventional diesel is about a positive 100, biomethane is about 375 carbon intensity points lower than gasoline or diesel as a transportation fuel.
We believe that capturing biogas from dairies and converting it into renewable natural gas to generate negative carbon intensity biofuels is an excellent way to reduce climate change and create value for dairies and diesel vehicles. With the need for conversion to a transportation fuel to maximize value of biogas, we believe that Aemetis is uniquely positioned as one of the only three ethanol companies in California.
Recently, another ethanol company in California, Calgren Renewable Fuels completed the launch of a $40 million project to build biogas digesters at approximately 15 dairies near their ethanol plant, south of Fresno, constructed biogas pipeline to bring the biogas to the ethanol plant, and then clean up and compress the gas used by the ethanol plants to replace petroleum natural gas for production of renewable biofuels, or since they recently completed this, inject biomethane into the common carrier pipeline. The success of this Calgren project provided a successful template for Aemetis to aggressively pursue our own biogas digesters, pipeline, gas cleanup and compression systems from diaries located in the area near the Keyes plant.
During 2018, Aemetis launched the biogas education and marketing program to local dairies, many of whom are already customers of the distillers grain produced by the Aemetis ethanol plant. As a result of this effort, exclusive participation agreements have now been signed with about 15 diaries, exceeding our original goal of a cluster of 11 dairies.
We expect to continue sign participation agreements with dairies in order to obtain state grant funding in a timely manner, then build on-site biogas digesters and extend the pipeline as needed to add dairies to our project. The capital budget for the first round of dairy digesters pipeline and gas cleanup system is expected to be $30 million.
To allow a rapid deployment of the project, Aemetis recently announced a $30 million preferred equity financing by the new Aemetis biogas subsidiary with investments from our portfolio company of our senior lender, Third Eye Capital. We are very-pleased that the funding was accomplished with no dilution to the shareholders of the Aemetis, parent company and the equity is structured to automatically repurchase the preferred stock from biomethane operational cash flow.
Prior to the full redemption of the preferred stock, Aemetis receives 25% of free cash flow with the remaining 75% of free cash flow used to redeem preferred stock. After redemption of the preferred stock, Aemetis will receive a 100% of ownership and ongoing cash flow.
The full redemption of preferred equity is currently expected to occur within less than 60 months after commissioning of the full biomethane project. Construction of the first two dairy digesters and related pipeline system is expected to be completed this year, followed by the completion of the remaining digesters and systems in the first phase within the next year.
We plan to continue to sign biogas supply agreements with additional dairies in order to file permits and begin engineering for the expansion of the Aemetis biogas project from about a dozen dairies to potentially more than three dozen diaries. In addition, we plan to deploy dairy digesters, our pipeline system and gas cleanup and gas compression at the Aemetis ethanol plant with the capacity to collect and process biogas from additional dairies near our plant, seek and anticipate and the economic benefits of renewable natural gas transportation fuel.
For those seeking to do the calculation of the economic value of the biofuels project to Aemetis shareholders, we expect that the Aemetis Biogas business to scale-up to generating more than $2 per share of recurring annual positive cash flow, after completing the expanded planned project of 3 dozen dairies and redeeming the preferred stock. As Aemetis is fully funding the installation and operation of dairy digesters, the pipeline system, the biogas cleanup and gas compression systems, we have a significant first-mover advantage compared to other potential biogas developers.
The most significant advantage however is the physical capability of our 60 million gallon Keyes plant to immediately utilize biomethane as a replacement of petroleum natural gas in our production process, thereby generating LCFS and RFS credits on day one of biogas production. Without an ethanol plant, other biogas developers elect to develop access to markets for sales to CNG truck fleets or to seek utility pipeline injection approvals.
Utility pipeline injection approvals have been extremely long and costly process in California with only a small handful of approvals having been granted by utilities and regulators in the past. Let's finish with an update on our below zero carbon cellulosic ethanol project in Riverbank, California.
A key factor in our plant upgrade and expansion decisions has been the strong market for California low carbon fuel standard credits and the high price of D3 renewable identification numbers, for both, cellulosic biofuels and biogas that is set by law. We believe that the production of lower carbon corn ethanol, below zero carbon cellulosic ethanol from waste wood and other low carbon products that generate LCFS credits and D3 RINs are direct opportunities to meet the goals of regulations that seek to create a lower carbon economy.
We were pleased to announce this summer that the Aemetis advanced biorefinery under development of Riverbank, California near Modesto, was named as the Number 1 Waste-to-Value Project in the World by Biofuels Digest, the world's largest daily biofuels publisher. The Aemetis projects earned its number one ranking as a result of our fixed price, low-cost almond and walnut wood waste contracts for 20 years with a fixed price of about $20 per ton for the first half of the contract period.
Planned production of high-value cellulosic ethanol worth more than $5 per gallon, including valuable fishmeal and other bio products, and our use of the heavily patented LanzaTech, consuming microbe ethanol production technology, which is in full commercial operation at a 16 million gallon per year capacity plant in Northern China, using waste gases from a steel plant to produce ethanol. Recently, we have announced three significant financings related to the Riverbank project, a $5 million California Energy Commission grant to fund engineering and equipment; a $12.5 million tax waiver that offsets equity funding required to the project; and the signing of $125 million USDA conditional commitment letter for a 20-year debt financing under the 9003 Biorefinery program.
The USDA is providing $100 million of loan guarantee to a syndicate of banks to support the funding of the $125 million loan to the Riverbank project. Now that the USDA loan guarantee has been signed, we are focused on completing the EPC contract that will include a bonded, maximum construction cost as required by the USDA conditional commitment letter.
The Riverbank cellulosic ethanol plant is expected to generate more than $80 million of revenue and more than $50 million per year of positive cash flow by producing cellulosic ethanol from low-cost, waste orchard, vineyard, forest and construction demolition wood as feedstock. The financial closing to begin construction of the Riverbank plant is expected this summer in order to open the plant in late 2020.
In summary, we believe that the strong growth occurring at our India plant which has no long-term debt, the strengthening industry fundamentals and increased profit margins from plant upgrades related to the Keyes biorefinery, the fully funded Aemetis Biogas dairy digesters and pipeline project, as well as our deployment of the patented LanzaTech cellulosic ethanol technology at the Riverbank site position Aemetis to rapidly expand our positive cash flow for the production of low-carbon, clean burning, high performance renewable fuels from abundant low-cost waste feedstocks. Now, let's take a few questions from our call participants.
Kevin?
Operator
Thank you, Mr. McAfee.
We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Ed Woo from Ascendiant Capital.
Your line is now live.
Ed Woo
Yes. Thank you for taking my question and congratulations on all your projects.
My question is specifically on India. What is holding you guys back from ramping up to capacity [ph] new production, is it the sales process or are you guys just still working your way upto the capacity?
Eric McAfee
Hey, Ed, that’s a very good question. We are very-pleased that unlike previous earnings calls each quarter, we now do not have production capacity as our constraint.
We are now ramping up as we come out of winter in India. The winter season requires blending by our customers.
So, if they don’t have blending capacity, they tend to decrease their purchasing in the winter time. And India warms up rapidly during the March time period.
And so, we are rapidly increasing our shipments. But, the plant is now in full production and we have feedstock on hand and we are now just ramping up the customer list.
And as I mentioned in the commentary, we have been expanding our breadth of customers. Historically, our customers are the fleet, primarily truck fleet but also bus fleet customer base.
But we've recently expanded into three additional marketplaces. First was the retail stations.
As you can imagine with 25 billion gallons a year of consumption of diesel in India, there is a very-large market of retail sales of diesel. And so, in the just the past few weeks, we have announced that we opened up the retail gas stations, or I should say, diesel stations to sell our product under our Universal Biofuels brand name.
We actually have our product branded as Premium Biodiesel. So, you have a little logo et cetera for Premium Biodiesel.
So, our India market also is expanding into mining. We have very, very significant cost reduction for mining companies that can use our distilled biodiesel instead of petroleum diesel.
And as I think we all know, price of crude oil is moving up internationally, that means the price of diesel in India is moving up. And so, these large consumers of diesel that consume more than 1 gallon per mile in running their large mining trucks can -- see the significant financial benefit from buying biodiesel from us.
And then, lastly is the government. So, we are in the middle of a government’s purchase process where the government’s came out, sought to buy 260 million gallons of biodiesel, the entire production in the entire country or for biodiesel is about 260 million gallon.
And so, we are working to complete our government tender process, which would allow us to continue production in the other markets, we wouldn’t be excluding those markets but to add the government as a customer, and of course they are seeking to have more fuel than we can produce, but we did not allocate our entire production to them. So, you should expect that as we complete the paperwork and get that announced, the volumes will be disclosed at that time.
Ed Woo
Great. And then, moving onto the Riverbank project, congratulations on getting the USDA loan approval.
You expect closing to occur this summer with I guess construction start shortly thereafter that the plant to open by late 2020?
Eric McAfee
That is correct. We are currently in the first phase of the plant development, which is the engineering and permitting phase, and we are basically expecting to wrap that up as we get into the third quarter.
And that will result in a financial close, which I do expect would be a third quarter event. And then, construction, physical movement on on-site et cetera would then start with completion in the end of 2020.
Ed Woo
Is there any risk to the construction phase, or do you feel that the biggest delay was getting that financing?
Eric McAfee
I don't think construction is going to be our area of concern in this particular project. We are building rather standard piece of equipment.
But, the permitting and then the financing has been our primary focus. Frankly, you can finance these things easier by just giving away all the ownership to someone else and take that developer fee and essentially not have very much value for shareholders.
In this case, we have a financing that has 100% ownership of all of the common equity by Aemetis. And so, in that structure, we had to get more strategic type investors and investors that are somewhat more sophisticated than usual investors in these kind of projects.
And in doing so, we've come up with something that's extremely attractive to Aemetis shareholders with projected positive cash flow in excess of $50 million per year. By Aemetis owning a 100% of the common stock, we end up with very significant annual positive cash flow from the project.
And we have invested more than $10 million to get to the state. It’s taken us sort over three years to get USDA loan guarantee, et cetera including building a demonstration plant.
But, I think that the ability of Aemetis shareholders to be both the owner and operator of the plant in the medium term is going to prove to be a much wiser approach than traditional structure, which you sell off 80% to 100% of the ownership in order to get it financed.
Ed Woo
And lastly, on your outlook for oil, you mentioned I think $50 to $55 price outlook. Oil is a little bit higher now and a couple of months ago it was significantly lower.
How do you think the volatility is impacting your outlook and how would it affect that ethanol business?
Eric McAfee
Yes. We project $65 [ph] to $70 as the range.
It should -- the higher it moves, it does have a small effect on the ethanol business. A greater effect is whether the EPA is enforcing the federal law or not.
But, we think the pricing pressures on crude oil which are global and largely political, such as the collapse of Venezuela in ethnic conflicts in Nigeria, et cetera, we don’t think those are being resolved in anytime soon in a way that’s going to need dramatically increased supply. But we do know that the demand is increasing at a rate of 1.5 million barrels per day every year.
So, last year we used 1.5 million barrels per day less than we are using this year. This year, we should hit the first 100 million barrel per day global crude oil consumption number.
And that’s driven by 2.5 billion people in India and China who are migrating into the middle class. And I think, that's inexorable trend that is going to consume more crude oil and related natural gas.
So, despite the tremendous success of increases in production and fracking in the U.S., we’ll be at our 12 million barrel per day number here very soon. The rise in demand and then the fall off on other producers has had a very meaningful impact on the amount of crude oil in the market.
Last thing I would point out is that the Saudi Arabians are completely in control of the price of crude oil with more than 10 million barrels per day of production by the very low cost. If they were to take 1 million barrels day out of the market today, just the announcement by Tweet, the market for crude oil could easily be at $80 a barrel.
So, it’s a market that trades on the last barrel sold. And if you have one barrel short, then everybody is willing to pay a whole lot more for the other barrels in marketplace.
I think, the Saudi's are having a lot of budgetary pressures domestically and so all the other members of the OPEC, and that even the current prices are too low for them to not run ongoing systemic annual government deficit in their countries. So, anyone trying to handicap crude oil should basically look at the political positions of those who decide what the crude oil is worth and those are the people that run the Saudi Arabian government.
So, I think we are trending upward toward 70 and that if you read their public announcements, $70 WTI means the $75 to $80 Brent, and that's exactly what they said publicly that they want to do. That is fundamentally very, very bullish for our India subsidiary, which is already a positive cash flow environment.
And then, you add 10%, 20% to the prices of commodity without increasing their input price, and it is a tremendous business opportunity in India, and then indirectly in the United States. As consumers get tired of paying so much at the pump and realize that ethanol is being sold for $1.50 a gallon, but it's 114 octane fuel and can be blended at 15%, I think you're going to find a rapid increase in demand in the U.S.
as the market for ethanol continues to expand. And again, we are on the cusp of needing a lot more capacity in U.S.
as you move from 10% to 15%, that's roughly 14.5 billion gallons going to almost 20 billion gallons, little more than 20 billion. So, we could be going into a very bullish cycle in the ethanol and the U.S.
requiring additional production capacity, but the feedstocks are not going to be primarily corn. The feedstocks are going to be the 1.2 billion tons of waste biomass in U.S., according to the Department of Energy.
So, our cellulosic ethanol project taking waste orchard wood and forest wood is leading a trend, which by my math is over 6 billion gallons of additional ethanol would be required in order to satisfy a 15% ethanol market in U.S. And we hope to be over the next say 12 months looking at a very strong regulatory environment, supporting E15 and a requirement for a lot of non-corn biofuels plants of which we are extremely well-positioned to satisfy that need.
Operator
Our next question is coming from Tom Welch, [ph] a private investor. Your line is now live.
Unidentified Analyst
Hi, Eric. Could you shed some more color on the CO2 project?
There has not been much in the quarterly reports as far as what do you think the target date is for getting that up and running and how you think that will impact cash flow.
Eric McAfee
We have received the key permits. We are moving dirt, as we speak.
And we have our financing completed. And the counterparty is -- well it used to be a $60 billion company but they are fully funded.
So, we expect construction to be completed and have operations done fourth quarter this year. And there is two major revenue sources for us.
One is the sale of our CO2, which we ramp up to about a $1.5 million a year of cash as the plant comes on line and expands its delivery of CO2. And then, separately from that, the new tax regime provides a value per ton for either sequestration or for reuse.
And so, when we do the math around the reuse of our product, which is what we're doing and the fact that our project is coming on line in 2018 or later, which is what's required in the tax law, we are ideally positioned to earn more than several, many millions of dollars of value from the roughly 175,000 tons per year of CO2 that we’ll be producing and reusing a large portion of that. So, we will be doing the calculation and hopefully in the next quarterly conference call we will have received our tax accountants’ confirmation of the value to our Company.
But, I think it's going to significantly exceed the $1.5 million that we actually directly get from sale of CO2.
Unidentified Analyst
One last question. Is it true that India is now prohibiting the export of biodiesel?
Eric McAfee
Yes, it is actually, which is very, very interesting, because the India government's rationale for that was that they have a need for 5% of 25 billion gallons, so 1.25 billion gallon of biodiesel would need to be consumed in India. So, in order for them to achieve their consumption goals, they didn't want to have any India produced biodiesel exported from the country.
And that put pressure on them of course then create a domestic market which they did. About six months after that policy was passed in May of 2018, they came out with a 260 million gallon government purchase order, which is essentially what this is.
So, as I described in my comments, they have been thinking about these policies, they then adopted these policies, they then passed the tax regime, reducing our taxes by a third et cetera, and then they came out with a purchase order for all the biofuels in the whole country from biodiesel plants. So, they have been delivering on their policy goals.
And I would give them some commendation for this. There have been many, many governments before them who have talked a lot and not executed, and this government has been executing to encourage the domestic production of biodiesel.
Unidentified Analyst
One last question on the ZEBREX. Are you planning on adding any additional ZEBREX units to the production facility or just this one?
Eric McAfee
We are sizing this unit to handle all of our production capacity because we're taking a molecular sieve system that requires a tremendous amount of energy to operate, and replacing it with a dehydration ceramic system from Mitsubishi, which has dramatic increases -- decreases in the use of natural gas and energy to operate it. But, it will have actually effect of increasing our production capability.
So, the unit actually has a floor production capability of over 70 million gallons a year. So, in essence, we’re debottlenecking our Keyes plant, so we can actually increase production beyond the 65 million gallons we achieved last year, as well as reducing natural gas use.
And the unit is also scalable. So, we decided we didn’t want to do increase production beyond the 70 million plus gallons.
We can literally just install another unit and the ceramic components in it are very scalable. So, we are the global launch customer of Mitsubishi in the corn ethanol business, but they have about 70 of these units already operating at portable ethanol, drinkable ethanol facilities worldwide.
And it's a known technology. It just has not been used in the corn ethanol business primarily because in corn ethanol and prior to the Low Carbon Fuel Standard credits being worth a tremendous amount of money, you weren't financially incentivized to decrease your natural gas use as much as you are now where that reduces the carbon intensity of our fuel and our fuel is worth a lot more money, while also saving on -- we have more of $5 million or $6 million per year natural gas budget.
If you can save significantly on a natural gas budget as well as sell 65 million gallons of ethanol at a higher price, it is really an attractive environment for this. So, Mitsubishi selected us and we selected them, but they're providing a 100% financing for installation of the unit.
And we are very pleased to be their strategic partner on this initiative.
Unidentified Analyst
I would think that in addition to saving $5 million or $6 million in natural gas costs, it would be a huge impact as far as the increased value of the LCFS?
Eric McAfee
That’s correct. And we spend at roughly $5 million or $6 million on buying natural gas.
This would not displace all of our natural gas but it would be a very meaningful component of that. But you are correct, the real economics is that in California we have an excellent system that is agnostic about how you create carbon reduction.
Oil refineries can reduce their carbon emissions, it just happens to be that they start with crude oil. So, it's difficult to do so.
In our case, we’re able to remove the use of petroleum natural gas as a component of making ethanol. We then have a lower carbon molecule we’re shipping as biofuel.
And that economic value is very, very high. So, I agree with you.
And as we get this implemented, we will put out more numbers. But we’ve I think already publicly disclosed, we expect more than 3 points to CI score reduction here.
So, it's a multimillion dollar increase in profitability.
Operator
Thank you. Our next question is coming from Brain Lukensmeyer [ph] from private investor.
Your line is now live.
Unidentified Analyst
Eric, Brain here. Two questions for you.
One is, the lawsuit on Edeniq. And the second question is, does the plant in India have a capability of doubling in size for production?
Eric McAfee
Sure. Let me answer the second question because it’s easy.
We actually built the plant with a footprint to 100 million gallons of capacity. In today's market, that’s over $300 million of revenue.
And so, we just installed process equipment for a 50 million gallon capacity plant. So, within one year, and we’ve announced a budget of $15 million, we could actually end up with a $300 million revenue business in India.
And we did this anticipating that the India government would see the value of the biofuels industry and then eventually have tax and regulatory structures that would support it. And that's what's come to pass.
So, I'm looking forward to solidifying our first 50 million gallons of production and then I would expect within the next year to then make decision about expansion. But, we are looking at very significant revenue increases from $20 million or $21 million last year to an expected capacity expansion that would get us in excess of $300 million of revenues coming out of India.
And I am looking for that to be a phase we go through over the next 24 to 36 months. Regarding Edeniq, we have a case in which it’s still pending, but there were originally four parties involved us, Edeniq, our financing and their financing.
And of the four parties, Edeniq has dismissed all their claims against Aemetis, they are no longer a cleaning party. Our financing and Edeniq's financing have both signed a settlement agreement that Edeniq and us have agreed to, so they are no longer parties.
So, out of the four parties to the case, three of them of have either voluntarily dismissed all their claims or settled. So, we are the only standing party in the case and we expect sometime this summer to then be moving forward with the appellate process.
So, we have six outstanding claims that have not yet been litigated, and we are moving forward with what I originally described many years ago, as unnecessarily but realistically slow process of litigation. And so, we have not actually litigated any of the claims we filed several years ago.
I am hopeful that the Edeniq company will continue to progress in their EPA approvals and their number of customers in their implementation of the technology, and I'm hopeful they will continue to be as successful as possible. We’ve been a supporter of their company since the beginning.
And frankly, our acquisition was signed with the intention of trying to more rapidly expand our technology. So., we wish them the best and hopefully we will end up with some litigation or I should just say adjudication of this process sometime in the next several years.
Operator
Ladies and gentlemen, we’ve reached the end of our question-and-answer session. I want to turn the floor back over now to management for any further or closing comments.
Eric McAfee
Thank you everyone for joining us today. We look forward to meeting with you and continuing our dialogue about the same growth opportunities at Aemetis.
Todd Waltz
Thank you for attending today's Aemetis earnings conference call. Please visit the Investors section of the Aemetis website where we’ll post a written version and an audio version of this Aemetis earnings review and business update.
Kevin?
Operator
That concludes today’s teleconference. You may disconnect your lines at this time.
Thank you for your participation.