Carnival: BP doubles down in Brazil as the advanced biofuels frenzy continues

March 11, 2011 | admin

Though Carnival has ended, the Brazilian biofuels frenzy continues to accelerate. We look at BP’s latest acquisition, and opportunities for the exotic parade of microbes heading for the Deep South.

When traveling to Brazil, it is useful and respectful to pick up as much of the elegant Brazilian Portuguese language as possible.

Bom dia – Good morning.
Prazer em conhecê-la! – Pleasure to meet you.
Gostaria de comprar uma fábrica etanol – I would like to buy an ethanol plant.

Then there is the phrase which, apparently, every oil and biofuels executive has learned.

Nós faremos muito dinheiro aqui – We are going to make a lot of money here.

Though Carnival is over, the carnival-like atmosphere is intensifying in the dizzying array of biofuels executives beating a path down to the deep south with their exotic microbes. They might as well put Carnival costumes on them and put on a Microbial Parade.

Fast-rising sugar prices, which have made the Brazilian ethanol business a whole lot less appealing (why not simply distribute sugar at 32 cents a pound, instead of processing into ethanol and making less?), haven’t dimmed the trend one bit.

Because it is only in the short term about the sugar. In the mid-term, there’s all that bagasse. Farther down the road, there’s the expanded Agro-Ecological Zoning of Sugarcane, which could add millions of acres of new cultivation. And there’s the liquid waste streams of vinasse, full of opportunities for algae or other advanced biofuels.

The news from Brazil

In Brazil, BP announced that it has agreed to acquire majority control of the Brazilian ethanol and sugar producer Companhia Nacional de Açúcar e Álcool (CNAA), from Açúcar e Álcool Fundo de Investimento em Participações and Açúcar e Álcool II Fundo de Investimento em Participações.

When CNAA’s assets are fully developed, this is expected to increase BP’s overall annual Brazilian production capacity to 370 million gallons (1.4 billion litres of ethanol equivalent per year, nine million barrels).

The agricultural land used for sugar cane cultivation related to these projects is within the areas permitted under

The deal terms

BP has agreed to pay approximately US$680 million to acquire 83 per cent of the shares of CNAA and to refinance 100 per cent of CNAA’s existing long term debt. After the acquisition, which is subject to regulatory approval and agreed closing conditions, BP will become the operator of two producing ethanol mills, located in Goiás and Minas Gerais states. A third CNAA mill is currently under development in Minas Gerais state. Around 2,500 people are employed across the three mills.

The capacity

The total planned combined crushing capacity of all three mills, when fully developed, is expected to be 15 million tonnes of sugar cane per year. At full capacity, each mill will have a annual production capacity of 125 million gallons (480 million litres of ethanol equivalent per year).

Each mill will also have the capacity to supply approximately 340GWh of electricity per year to the grid.

BP’s other Brazilian assets

Since 2008, BP has held a 50% share in Tropical BioEnergia S.A., which operates an ethanol mill in Goiás state with a production capacity of 435 million litres of ethanol per year. The ownership and operation of this mill is not impacted by this acquisition.

Comments from BP

“Low carbon energy will play an increasingly significant role in meeting world energy demand. BP is committed to producing biofuels to help meet this demand. Today’s transaction also fits BP’s strategy of increasing our exposure to growing energy markets,” said Carl-Henric Svanberg, Chairman of BP.

“This strategic acquisition underlines BP’s commitment to building material businesses in growing economies and continued expansion in Brazil through exploration and production, as well as biofuels investments”, said Bob Dudley, BP Group Chief Executive. “This is the biggest acquisition to date for BP Alternative Energy as we continue to build a leading low carbon fuels business.”

Philip New, Vice President of BP Biofuels, added, “This acquisition is a key milestone in our strategy of building a leading position in sustainable and scalable biofuels. It will provide a solid growth platform for our business. As operators, we are focused on safe, reliable, sustainable and profitable activities. We will bring investment, technologies and capabilities which complement the existing knowledge and expertise.”

The Digest’s Take

The Battle for Brazil is on. What is BP chasing? Low-cost sugars and the upside opportunities of bagasse. Not only the immediate capacity for converting sugar cane juices to a 370 million gallons ethanol stream, but control of the bagasse and for opportunities in biobutanol.

How much energy is there in bagasse, though less concentrated, about 15 percent more than in the sucrose extracted from the pressing process. Right now, all that energy is directed towards the generation of electric power for the grid. In BP’s recent acquisition, 340 GWh of it. At ten cents per KWh, that’s $34 million.

There’s about 2 million tons of dry bagasse in those 15 million tons of sugar cane. With an advanced biofuels process, there are up to 100 gallons of ethanol per ton available. That’s 200 million gallons of ethanol (756 million liters, 4.76 million barrels), worth about $480 million.

That’s a lot of upside.

Brazilian market consolidation

In recent months, we have seen continued consolidation of the Brazilian ethanol market, despite record prices for sugar and the obvious strong profit environment within the Brazilian cane market. Total, Amyris, and Shell have increased their Brazilian presence, while Petrobras has sharply increased its biofuels activities and outlined a $3 billion program of investment in the sector.

What does BP have in its quiver, in terms of bagasse. Well, there are the Verenium intellectual assets, acquired last year for just under $100 million, and the biobutanol process which it jointly owns with Dupont – that’s the Butamax brand.