What’s Up in Brazilian Biofuels? The 10-Minute Guide

May 18, 2012 |

The top 20 trends and stories from biofuels’ most advanced commercial market, and its most intriguing focal point for expansion.

It was just around the end of 2009′s Summer of Algae, when attention in advanced biofuels shifted decisively to Brazil, and it seemed that the best place to carry on an industry dialogue was the Adrmirals Club lounge at Sao Paulo’s Guarulhos international airport. The opening of numerous offices and establishment of JVs has never seemed to slow in Sao Paulo state ever since.

Last year, we looked at Brazil and its biofuels policies in a three-part series, “Attitude before Altitude”,  which traced the rise of biofuels to a stable national policy that focused on economic development of the country’s biomass resources, the energy security and prosperity that has flowed in Brazil due to a favorable balance of trade in energy, and how the country has targeted substantial carbon emissions reductions, as well as improvement of working conditions, through mechanization of the sugarcane harvest.

But what’s up in the land of biofuels biggest success story? In today’s Digest, we pull together the strands in a 10-Minute Guide that looks at the 20 top stories this year out of Brazil, and adds context.

The trends

Overall, we see 3 key trends.

First, the rise of advanced biofuels and bio-based chemicals and products – long mooted, now actively underway with projects like the Solazyme-Bunge JV. There’s even some algae-based biofuels development underway, sponsored by Petrobras. Unsurprisingly, a focal point in chemicals is a Dow-Mitsui project to produce ethylene from sugarcane ethanol. Even aviation biofuels development is gaining traction, with the opening of Boeing Research & Technology-Brazil later this year, which will serve as a hub for collaboration between Boeing and Brazilian R&D organizations, including a focus on fuels.

Second, first-generation ethanol production is beginning a recovery after a devastating drought took a toll on the sugarcane harvest. For a time in the past year, a hot trend has been the import of US ethanol into Brazil (and perversely, California has been importing Brazilian ethanol because of its superior carbon performance, while Brazilians have imported US ethanol because of better prices). Even investment is beginning to recover, after being down for some time owing in part of there global financial crisis — now, companies like Vinema Multióleos Vegetais said that it plans to build six 300,000 liter per day grain-to-ethanol facilities in Rio Grande do Sul state by 2020. And BP has announced plans to quadruple its sugarcane harvest by 2017.

But even if the economic weather is improving, the physical weather is still so-so. As of March, Sao Paolo and Parana states—which account for about 60% of the country’s sugarcane production—had only received about half of the rain usually expected during the intercrop season which could lead to reduced sugar content during the upcoming harvest. To boost production capacity, some millers are starting to work with corn, especially to boost production during the intercrop season.

Third, Brazilian policy continues to drive the market. In February, the Brazilian Agriculture Ministry released a “Strategic Plan” for the sugar-energy industry, includes a series of measures involving credit and financing via government funds being made available to the sugarcane industry, at market rates. In a related move, in January, the Brazilian development arm, BNDES, created a new program to encourage the production of sugarcane by financing the renovation of old sugarcane farms and the expansion of the cultivated area, with a budget of R$ 4 billion. Elsewhere on the policy front, the government decided to keep ethanol blending at 20 percent, rather than returning to 25 percent baseline blends, owing to concerns over ethanol shortfalls.

Advanced Biofuels in Brazil

In April, Solazyme and Bunge Global Innovation announced a joint venture to build, own and operate a commercial-scale renewable tailored oils production facility adjacent to Bunge’s Moema sugarcane mill in Brazil. The JV, which will operate under the name Solazyme Bunge Produtos Renováveis Ltda., will have an expected annual production capacity of 100,000 metric tons of oil.

The facility will utilize Solazyme’s renewable tailored oil production technology, coupled with Bunge’s sugarcane supply and processing capabilities, to produce sustainable tailored triglyceride oils for use in oleochemical and fuel applications in the Brazilian domestic market. Financial terms of the agreements were not disclosed. The facility, which will be equally financed by Solazyme and Bunge, has been designed to integrate with a new cogeneration unit at the Moema mill, and can be expanded for further production in line with market demand. Startup is expected in the second half of 2013.

In January, Abengoa announced that they have been selected by BNDES and FINEP to adapt its second generation ethanol technology to produce ethanol from sugar cane biomass. The project, which forms part of the Industrial Innovation Program for the Sugar Energy Sector, will enable Abengoa to produce bioethanol and biobutanol from sugar cane straw and bagasse.

Abengoa will be responsible for implementing the technology required for the project, as well as undertaking the engineering work to develop a plant with the capacity to generate 100 million liters of ethanol per annum.

In California this month, Codexis indicated that it has started cellulosic ethanol talks with Raizen, the path to commercial biofuels remains unclear. Piper Jaffray energy analyst Mike Ritzenthaler wrote, “Management disclosed that they have started discussions with Raizen on the potential use of cellulosic enzymes for use with bagasse – but it is unclear whether Shell will ultimately bless such an arrangement, though Shell is aware of the talks. Maintain Underweight rating, price target goes to $3.”

Algae-based biofuels

Last month, Petrobras, along with Universidade Federal do Rio Grande do Norte, inaugurated their joint pilot plant to produce biodiesel from microalgae in Extremoz. Prepatory studies for the project have identified about 10 different species that could be viable for use in the project.

Renewable chemicals

This month, Rhodia and the National Bioethanol Science and Technology Laboratory in Brazil have signed an agreement to develop chemical routes and processes to obtain molecules of a high added value from sugarcane biomass, in what is known as bio-based chemistry.Under the agreement, research will be conducted at CTBE, backed by researchers from both parties, who will work together on the development of chemical blocks currently used in different applications and markets that the Solvay Group operates in, with a view to replacing non-renewable sources with biomass in these substances’ production processes.

In April, Camera Agroalimentos SA is planning an $11 million factory that will produce 15,000 metric tons of sodium methylate a year, a catalyst needed to produce biodiesel. The plant, which will open next year, anticipates the ethanol blending requirements in Brazil to rise to 10% by 2020. Camera is one of Brazil’s largest biodiesel producers and may be issuing an IPO in 2014, says Bloomberg.

In March, Dow Chemical and Mitsui said that they expect to finalize a 50/50 joint venture to produce polyethylene from sugarcane ethanol by year’s end. Mitsui will hold 50% of Dow’s operation in Santa Vitoria, Minas Gerais with ethanol production eventually leading to PE production by 2015. The deal was announced in August 2011.

New capacity in first-generation ethanol

In April, Vinema Multióleos Vegetais said that it plans to build six 300,000 liter per day grain-to-ethanol facilities in Rio Grande do Sul state by 2020 using rice deemed unfit for human consumption as the feedstock for a total consumption of 1.5 million metric tons of waste rice annually. The first facility should come online in 2014. Over production of rice in the country means there’s a 2.5 million ton surplus that must be stored but is of no use.

In March, the Santa Terezinha sugar company said that it plans to invest $283 million in a new mill and ethanol production facility in Mato Grosso do Sul by 2015, as well as expand cane production at its eight other facilities. The project was originally shelved back in 2008 but will be brought back to life this year in response to the government’s moves to boost financing and ethanol production.

Overall, Bloomberg Finance estimated in March that Brazilian sugarcane producers only invested $700 million in new plantations last year, compared to $7.84 billion in 2008. They put the blame on the government, saying that taxes are still too high, keeping producers indebted and unable to invest in increased production that would secure the country’s ethanol supply.

In March, ethanol production from corn began at traditional sugarcane ethanol producer Usimat Destilaria de Alcohol in Mato Grosso state in an attempt to boost ethanol supply during the sugarcane intercrop season. The $11 million facility produces 90,000 liters of ethanol per day and will eventually reach 120 million liters per day from 300 metric tons of corn. The facility expects to produce up to 40 million liters per intercrop season by 2013.

In January, BNDES has created a new program to encourage the production of sugarcane by financing the renovation of old sugarcane farms and the expansion of the cultivated area, with a budget of R$ 4 billion. The program is intended to encourage the renewal and expansion of sugarcane farms.  With the increased availability of raw materials, the expectation is that the production of ethanol will increase between 2 and 4 billion liters from 2013 until 2014, representing growth of over 10% in relation to the current crop.

Ethanol imports and exports

As of last month, it seems that Brazil’s US ethanol importing spree is coming to an end with UNICA only expecting imports to reach 500 million liters this season, down from 1.5 million liters last season. Despite the imports, the country still remained a net exporter by 1.85 billion liters.

Aviation biofuels

Last month, Boeing announced that it will establish Boeing Research & Technology-Brazil, a research and technology center in Sao Paulo that will work with the country’s leading researchers and scientists to develop aerospace technologies. Boeing Research & Technology-Brazil, which will open later this year, will serve as a hub for collaboration between Boeing and Brazilian R&D organizations, including government agencies, private-sector companies and universities.

Policy

In February, the government said that it plans to keep the 20% ethanol blend rather than boost it back to its previous level of 25% when production re-starts in April despite complaints by producers that ethanol prices have gotten too low. The government believes that despite increased production expected in the coming season, demand will also increase so the market will still be tight.

In March, UNICA protested over what it said are misconstrued reports over Brazilian government plans to support the sugarcane and ethanol industries. “Media reports this week have seriously misconstrued an announcement made on Friday, February 24, by the Brazilian Agriculture Ministry,” IUNICA said in a released statement. “The announcement, dubbed a “Strategic Plan” for the sugar-energy industry, includes a series of measures involving credit and financing. Instead, published remarks have attempted to depict these measures as direct subsidies for the Brazilian sugarcane industry.

“Published remarks attempt to describe these investment projections as government funds being made available to the sugarcane industry, which is simply not the case.

“In fact, financing programs described in the government Plan are being offered at market rates, not subsidized rates. Of the various modes of financing contemplated in the government announcement, the only one that is currently available to the industry is for crop renewal. This single program is only available until December 31, 2012, without guarantee that it will be repeated next year. Rates for these loans, once again, are market rates, not subsidized rates. “A loan,” said UNICA, “particularly one that involves market rates, is not a subsidy, and we expect those in the U.S. ethanol industry, who also borrow funds from time to time, to know the difference.”

This month, the process for biodiesel sales has been revamped after regulators found evidence of collusion to keep prices high amongst competitors. Under the previous system, contracts to supply biodiesel were signed with Petrobras, the state-controlled oil giant, and didn’t differentiate producers on the basis of the quality of their products. The new model may lead to a decline in prices over time, said Marco Antonio Martins Almeida, secretary of petroleum, natural gas, and biofuels. The national energy regulator ANP had investigated claims of fraud at a biodiesel auction held last November whose purchase of 650 million liters could mean losses of $675.76 million for Petrobras. The ANP was aware that there could have been price fixing among participants in the auction as early as December but it was decided at the time to go ahead and ratify the auction results.

Crop forecasts and results

In March, Sao Paolo and Parana states—which account for about 60% of the country’s sugarcane production—have only received about half of the rain usually expected during the intercrop season which could lead to reduced sugar content during the upcoming harvest. Some analysts are concerned about the effect of not only fewer rains but also the impact of freezes last winter that re-set the growth cycle of some cane. Others say it’s too early to talk about what damage might be possible and are still expecting crops at the higher end of the 520 million to 540 million metric ton range.

In February, BP says it plans to quadruple its sugarcane production to 30 million metric tons per year by 2017, while it plans to boost its cane area by 35% for the upcoming crush that will start in April. Poor weather in the region meant it only crushed 5 million tons this past season compared to the 7.5 million ton capacity it has.

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