Bio-fuels

Brazil Energy investments increasingly mix oil, bio-fuels

Posted on June 16, 2009 by sugarcaneblog

Brazil may be rich in oil opportunities, but even traditional energy companies are betting on cleaner, less volatile biofuels. “Oil is the fuel of the 20th century; renewables will dominate the 21st,” said Plinio Nastari, president of Sao Paulo-based consulting group Datagro.

Oil companies that invest in biofuels will benefit from a significant increase in global demand, driven by the desire for energy security and lower greenhouse-gas emissions, oil executives and biofuels experts said at a Sao Paulo alternative-fuels conference this week. As for Brazil, oil companies are increasingly investing in the country’s sugarcane-based ethanol industry, which experts cited as the world’s best example of sustainable fuel production.

The oil industry didn’t always view biofuels as a compatible product but instead often as competition. In Brazil, that idea is changing rapidly.

Government-controlled energy giant Petrobras (PBR) made the strategic decision to enter the biofuels market in March 2008 with the creation of a biofuels subsidiary, Petrobras Biocombustivel.

“We are now in a period of energy transition. Petrobras is preparing for higher demand for biofuels,” said Miguel Rosseto, president of Petrobras Biocombustivel.

Petrobras produces biodiesel, but won’t start ethanol production until late 2009 or early 2010, said Rosseto.

Petrobras’ biofuels investment comes despite the huge presalt oil finds that created a stir of excitement in November 2007, when Petrobras said offshore fields held recoverable reserves of between five billion and eight billion barrels of oil equivalent–the Western Hemisphere’s largest oil discovery in 30 years.

In January, Petrobras announced a $174.4 billion five-year investment plan, of which $2.8 billion will go to biofuels. Even though biofuels represent only a small portion of total investments, Petrobras President Jose Sergio Gabrielli said the company was responsible for 16% of all Brazilian investments in ethanol production and development on the boards.

Nastari noted that Petrobras has long played an important role in the Brazilian ethanol industry. “Petrobras handles 35-40% of the distribution market through its retail stations. Distribution is a key factor that is missing in pretty much every other country,” Nastari said.

International companies are also investing in Brazilian ethanol

British oil major BP PLC (BP) has announced investments of around $1 billion in ethanol- expansion efforts in Brazil. BP acquired a 50% stake in sugarcane ethanol company Tropical Bioenergia for 100 million Brazilian reals ($49 million) in April 2008.

The $1 billion in investment will go to increasing ethanol production at Tropical, according to BP Biofuels Brasil Chief Executive Mario Lindenhayn.

Lindenhayn said two trends driving investment in biofuels are energy security and climate change. “Energy security is caused by limited oil supplies, and climate change is occurring because of increasing energy demand,” he said.

Lindenhayn stressed that 70% of the world’s oil is produced in only seven countries and that climate change is causing irreparable damage that must be stopped. “Biofuels represent the only practical path to deal with these issues,” he said.

More than just oil companies are investing in biofuels

Brazil’s largest sugar and ethanol group, Cosan Industria e Comercio SA (CSAN3.BR), acquired Esso, Exxon Mobil Corp.’s (XOM) distribution and service station business in Brazil last December.

With the acquisition, Cosan expanded its business model to become a fully integrated renewable- energy company, with operations ranging from sugarcane cultivation to fuel distribution and retail sales.

Marcos M. Lutz, Cosan’s marketing vice president, differentiated Cosan from the oil industry by noting that his company entered the energy market from the opposite direction and is driven by different factors than traditional oil companies.

“Oil companies need to reduce their carbon footprints, and ethanol would be a good option,” he said. “They have good financials and could be more active in reducing greenhouse gas emissions.”

Lutz said Brazil is the best example in the world of partnerships between oil companies and the ethanol industry: “Oil companies in Brazil have entirely incorporated ethanol into their businesses.”

Brazil is the world’s largest exporter of ethanol.

SOURCE: By Daniel McCleary, DOW JONES NEWSWIRES