With investments of US$85 millions, Brazilian state controlled Petrobras starts producing ethanol from sugar cane this month. It is the first time the oil giant invests in a domestic ethanol plant, which is located in the state of Minas Gerais, one of the largest producer of sugar cane in Brazil. The plant is part of Petrobras’ Strategic Plan to produce biodiesel and ethanol by 2013, totalling US$ 2.8 billion. With the investment, the plant’s production capacity is going to rise from 100 million litres to 204 million litres per year, by 2012. Brazil is the second largest producer of ethanol in the world, after the US, which makes the product using mainly corn. Ethanol use in the country has grown, with government support, for more than 30 years. Recently, there two big deals in the sector: agribusiness giant Bunge Ltd’s (BG) purchase of Brazilian producer Moema for about $452 million and British oil giant BP plc’s (BP) $1 billion investment in a Brazilian biofuel maker. The country produced about 23.4 billion liters of ethanol in 2009 and has more than 10 million cars running with a blend of gasoline and ethanol.

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Major fuel companies are continuing to work on partnerships in Brazil to produce ethanol. Following the recent announcement that Shell and Cosan are in negociations to form a joint venture, ETH Bioenergy, a large Brazilian producer in the country, has just announced it was acquiring its rival Brenco. The merger of the two companies operations is to create one of the world’s largest renewable fuel makers, with capacity to produce 3 billion liters of the biofuel  and 2,700 gigawatts of electricity by 2012. Other big-name companies have announced plans to build pipelines to transport ethanol. Petrobras, the Brazilian oil producer, formed a corporation with Japan´s Mitsui Co. and real estate developer Camargo Correa S.A. This month, Uniduto, a Brazilian pipeline developer, planned to start a campaign to raise $1 billion for a proposed pipeline.

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The interest from the oil companies in Brazilian ethanol, both in production and distribution, is growing. Following British oil company BP PLC, which announced in 2008 investments of US$1 billion in a Brazilian biofuel project, Royal Dutch Shell PLC is striking a deal with Brazil´s sugar and biofuel giant Cosan to create a $21 billion a year ethanol joint venture.  Shell would contribute $1.63 billion in cash to the venture over two years. It would be the Anglo-Dutch major’s first significant foray into biofuels and the largest move by a Western energy company so far into ethanol production and distribution.

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Brazilian President Lula da Silva in the inauguration of the green power plant

Brazil has just inaugurated world’s first ethanol-fuelled power plant. The ethanol used in the plant comes from sugarcane, but other biofuels being researched for ecologically friendly attributes or all-weather use are using huge quantities of soy, sunflower and other oil seeds. The new power plant is in the state of Minas Gerais, uses a flex-fuel turbine and began its test operations Dec. 31.Petrobras, the state-managed oil company, said the ethanol project gave Brazil a clear lead in the global quest for alternative, ecologically friendly sources of power generation.

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Workers cut down sugar cane in Sao Paulo state.  Photo: Matheus Galvão

From The Economist print edition

SINCE the start of the year the price of sugar futures has almost doubled. This is welcome news for Brazil, the world’s largest producer of the stuff. The price spike is mainly explained by unfavourable weather—too little rain in India and too much in Brazil. India’s sugar production fell by almost half last year, turning the country from the second-biggest producer to the biggest importer. For Brazil’s big sugar companies the timing is perfect: the credit crunch set off a wave of consolidation in an industry that had been resistant to it. The firms that have survived now have more scale and lots of cash.

Louis Dreyfus, a French commodities giant, bought Santelisa Vale, a large processor of sugar cane, in April. Santelisa had expanded fast and taken on too much debt, a common mistake in an industry that had the highest levels of investment of any industry in Brazil before the crunch. Dreyfus, which already trades sugar, soyabeans and other Brazilian agricultural goods, wanted to bolster its position. At the other end of the spectrum is Copersucar, a giant co-operative that unites lots of small growers in São Paulo state.

The biggest of the lot is Cosan, which alone produces 2.5% of the world’s sugar. Last year it bought Exxon Mobil’s distribution and retailing business in Brazil to help it sell its ethanol. This year it bought Nova America, a smaller sugar company. Like many of Brazil’s big companies Cosan mixes family ownership with capital from BNDES, Brazil’s government-owned development bank. And like many other Brazilian giants, it has suffered a vicious feud within the founding family over who should run the business.

Rubens Ometto Silveira Mello fought the other members of his family for ten years in Brazil’s courts before winning control of Cosan. In 2007 he strengthened his grip by setting up Cosan Limited, a company with a dual share structure that accords some of Mr Mello’s shares ten times the voting weight of ordinary ones. To do this, he listed Cosan Limited on the New York Stock Exchange, since Brazil’s Novo Mercado, where Cosan was listed at the time, does not allow such arrangements.

Mr Mello, who is splendidly forthright, did not let the subsequent controversy bother him overly. “You’re pissing on sludge and you don’t know what’s under your feet,” he once told Dilma Rousseff, one of the front-runners for next year’s presidential election, during a discussion of the government’s energy policy. Marcos Lutz, an executive at Cosan, argues that the fuss about corporate governance is a distraction. The firm is professionally managed, he insists, and it was no surprise to shareholders that Mr Mello wanted to preserve an outsize say in the firm’s strategy.

Brazil’s sugar companies are lucky to have a natural hedge, in that when the sugar price is low many can produce ethanol instead. This can be consumed by motorists in the domestic market or exported for use in alcoholic drinks or other industries.

The market for ethanol has been growing at 17% a year, much faster than that for sugar, points out Luiz Pereira de Araújo of ETH Bioenergia, another fast-growing sugar firm. Such growth is likely to persist, thanks to increased sales of flex-fuel cars, which can run on petrol or ethanol. What is more, the Brazilian sugar-cane growers’ association is optimistic that Europe and America will eventually reduce tariffs on Brazilian ethanol. If that happens, Brazil’s growers, crushers and distillers will be even happier than they are already.
 

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The NREL/Petrobras agreement will help achieve the goals of the United States and Brazil memorandum of understanding to advance cooperation on biofuels signed by the U.S. Secretary of State Condoleezza Rice and Brazil Foreign Minister Celso Amorim on March 9, 2007. “

By bringing Brazilian expertise together with some of the leading U.S. biofuels researchers at NREL, we will increase our knowledge and be able to more quickly commercialize renewable biofuels in the global marketplace,” said NREL Director Dan E. Arvizu.

Petrobras and NREL have common interests in the development of advanced next generation biofuels technologies through biochemical and thermochemical routes from biomass.  NREL conducts R&D related to technoeconomic, environmental and sustainability evaluation of advanced biofuels in support of the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE) and other partners.

Petrobras’ research and development center (CENPES) conducts research on bagasse to ethanol, vegetable oil conversion to diesel oil components (H-Bio) and production of biomass-derived petroleum-like fuels using thermochemical technologies.

“The use of residues can substantially increase ethanol production without a correspondent increase of the planted area, boosting the existing process’ production by using its own residues,” said CENPES Executive Manager, Carlos Tadeu da Costa Fraga.

The agreement identifies four major areas of advanced biofuels research collaboration: biochemical production processes, thermochemical processes, economic and sustainability analysis from lignocellulosic biomass and evaluation of intermediate blends of ethanol and gasoline. (source: National Renewable Energy Laboratory)

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According to a report released in June by the Organization for Economic Cooperation and Development, ethanol from sugar cane is the cleanest fuel in the world, with its production and consumption reducing emissions of greenhouse gases by up to 90 percent compared with gasoline. The process of transforming sugar cane into ethanol requires eight times less energy than corn.

Unlike corn, which accounts for the bulk of U.S. ethanol, sugar cane is also grown in areas where it is less likely to compete with grains such as wheat or other varieties of maize that are vital to global food supplies. Sugar-based ethanol’s negligible impact on world food supplies is one of the major reasons it has been embraced without controversy in Brazil, even as critics in the United States have assailed their domestic corn-based industry for driving up global grain prices.

Sugar ethanol is also more efficient. The cost of producing ethanol from corn is three times the cost of ethanol from sugar cane. An acre of sugar cane can also yield more than twice as much ethanol as an acre of corn.

Read the article in full here.

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Asked about the current global financial meltdown, Brazil President Luiz Inacio Lula da Silva, answered: “What crisis?”. This was not a dismissive response. It was a fact. Brazil rock-solid stability protected the country against the turmoil. As a Reuters news report has rightly remarked, commodity-rich and with $ 200 billion in foreign reserves Brazil has proved it has done its homework.

Brazil is the world’s largest exporter of biofuels, including ethanol. But it is not only the high price of commodities which is sustaining the Brazilian economy. The country’s financial system has lower debt, a respectable fiscal policy and a central bank with more autonomy than many others in West Europe. If this wasn’t enough, Brazil became a net creditor this year a direct consequence from amassing more reserves than foreign debt.

Another proof of Brazil’s economical strength came today with a record jobless rates, published by Bloomberg News:

Unemployment in Brazil’s six largest metropolitan areas fell to 7.6 percent last month, down from down from 8.1 percent in July, the national statistics agency said today. The jobless rate was lower than the median forecast of 8 percent in a Bloomberg survey of 19 economists. Brazil’s companies have been adding jobs at a record pace, fueling a surge in income that contributed to second-quarter economic growth of 6.1 percent.