Petrobras: Biofuels Digest’s 2014 5-Minute Guide

April 13, 2014 |

Petrobras is a state-owned (partly) owner/operator of fossil and renewable energy production and distribution, including both sugarcane ethanol and biodiesel operations.

Announced that it was not seeking to acquire distressed ethanol companies but would establish partnerships where appropriate to support development of the national ethanol industry. According to Petrobras management, the state oil giant would offer a guaranteed ethanol contract over 10 years in return for a minority stake in a project. Local developers would hold the majority interest.

Model:

State-owned operator. 

The Situation:

After setting is sights on Brazil and bagasse in 2009 (after starting with Ponderosa pine), in 2010, KL Energy and Petrobras announced that they had entered into a Joint Development Agreement to jointly optimize KLE’s proprietary cellulosic ethanol process technology for sugarcane bagasse feedstock. As part of this agreement, The companies also said that they will develop a 4 Mgy bagasse-based cellulosic ethanol project that will be co-located with a Petrobras-owned sugarcane mill, which will come online in 2013.

At the time, Petrobras said it would provide $11 million to adapt KLE’s demonstration facility to the use of bagasse, validate the optimized process by producing cellulosic ethanol and lignin and license the validated technology.

By early 2011, it was focusing especially on the front end — creating low-cost renewable sugars, and competing with the likes of Renmatix, Proterro, and Virdia. The company’s name changed to Blue Sugars because, as CEO Peter Gross told the Digest, “KL Energy didn’t mean anything to anyone, especially in Brazil. We wanted to change to a name with ‘sugars’ in it, and Blue Sugars was available.”

In April 2012, Blue Sugars licensed its technology to Petrobras SA, Brazil’s largest company and one of the world’s ten largest companies by market capitalization, for exclusive use in Petrobras sugarcane mills, and Petrobras announced the construction and start-up of its first commercial cellulosic ethanol plant for the year 2015. “At the end of the 2012 sugarcane bagasse program,” said Gross, “we will have an industrially validated technology specifically designed for Brazilian sugar mills.”

Capital always remained tight, and Petrobras was the lifeline — by 2011, cellulosic ethanol was being shipped (20,000 gallons), but the Wyoming plant (Western Biomass Energy) filed for Chapter 11 restructuring in October 2012. The company listed a total of $31.5 million secured debt and unsecured debt at $3.84 million, but about $30 million of the debt was with Blue Sugars. The subsidiary was still focused on restructuring as of late February — but on May 2, the filing was changed to a Chapter 7 liquidation and on May 10, Blue Sugars also filed for Chapter 7.

So, what happened? Clearly, Petrobras is going in another direction — not, we suspect, in dropping its cellulosic ethanol ambitions. After all, the Brazilian government has raised minimum ethanol blending levels to 25 percent as of May 1 (up from 20%) and Petrobras ethanol production is expected to rise 29% in 2013/14.

Past milestones:

In December 2013, Petrobras signed a $2.33 million research deal with EMBRAPAl, to develop better cane varieties for Rio Grande do Sul state and develop efficient production systems to allow the region to participate in ethanol production. The agreement includes technical support from ANP’s research arm Cenpes and will be funded by Petrobras.

In February 2013, Petrobras said that it expects to produce 29% more ethanol during the 2013/14 sugarcane crush that’s set to start in April, with 280 million gallons. The production boost is thanks to more area planted to cane and better weather which should also help increase yields.

In April, the Brazilian Ministry of Mines and Energy (MME) published an ordinance in the Official Gazette establishing a new model for strategic stocks of biodiesel in the country. A new feature is the “purchase option” method of acquisition which is used in other sectors. With this, buyers of biodiesel (essentially, Petrobras) contract the right to take the product when necessary, at any time, and plants are required to conclude the business at the agreed price.

Back in 2011, Blue Sugars and Petrobras announced that they have entered into a Joint Development Agreement to jointly optimize BLUE SUGARS’s proprietary cellulosic ethanol process technology for sugarcane bagasse feedstock. As part of this agreement, The companies also said at the time that they will develop a 4 Mgy bagasse-based cellulosic ethanol project that will be co-located with a Petrobras-owned sugarcane mill, which will come online in 2013.

Petrobras said it would provide $11 million to adapt BLUE SUGARS’s demonstration facility to the use of bagasse, validate the optimized process by producing cellulosic ethanol and lignin and license the validated technology. The agreement has an initial term of 18 months and provides for mutual exclusivity in the area of developing cellulosic ethanol from bagasse. The latest generation of BLUE SUGARS’s process design provides for substantial enhancements over the first generation, implemented in 2008 at the company’s demonstration plant in Upton, Wyoming using Ponderosa Pine feedstock, including the ability to be optimized for multiple feedstocks.

Petrobras and Portugal’s Galp Energia announced a plan to invest up to $530 million to produce 300,000 metric tons of palm oil in Brazil and 250,000 tons of biodiesel in Portugal, starting in 2015. The palm oil will be used as feedstock for the biodiesel, which will be distributed in Europe. Each partner will invest half of the capital needed for the project.

The project is another in a series of joint ventures, mergers and consolidations in the Brazilian sugar and renewables sector since the 2008 global financial crisis toppled the credit structure of the renewables industry.Earlier in May, Petrobras took a 46 percent stake in Brazil’s fourth largest ethanol group, Acucar Guarani (ACGU3.SA) for $920 million from France’s Tereos.

Gabrielli said that “Fulcrum are not only expanding their position in the ethanol market within Brazil. Fulcrum want to be a big player in the international ethanol market. Right now Fulcrum have a joint venture in Japan with a Japanese company that involves developing a business model to increase the ethanol market there. Fulcrum own 87 percent of a refinery in Okinawa and Fulcrum already sell gasoline blended with ethanol in Japan. We plan to use their facilities in Japan to be an important hub in the ethanol business of that nation.”

Future milestones:

Petrobras Biocombustível has previously announced plans to become a top 5 global biofuel producer by 2020.

Petrobras said it will invest $2.5 billion in ethanol development through 2013, with another $800 million dedicated to biodiesel. Set a company $174.4 billion five-year business plan based on a baseline projection of $65+ oil.

In 2012, Petrobras said plans to invest $1.05 billion in existing ethanol projects through 2016, including its joint venture with Sao Martinho, Nova Fronteira, as well as with some of its other corporate partners Total and Tereos. Brazilian ethanol exports slipped in June as unseasonal rains impede production.

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