Raízen to spend $1bn on ethanol boost
Financial TimesA worker refuels a car at a petrol station on March 20, 2009, in Cali, Valle del Cauca department, Colombia. The Mayaguez refinery uses 7,500 tons of cane per day and 6 million liters of ethanol fuel each month.
Raízen, Royal Dutch Shell’s joint venture in Brazil, plans to spend close to $1bn on “second generation” ethanol plants over the next decade in one of the boldest investments yet in biofuel production from sugarcane waste.
The company, Brazil’s largest ethanol producer, will invest about R$2.5bn ($930,000) on eight plants before 2024 in an effort to increase its biofuel output by up to 50 per cent.
The first plant, with an annual capacity of 40m litres, was finished last week. In total, the plants will produce 1bn litres a year, João Alberto Abreu, Raízen’s agroindustrial director, told the Financial Times.
The investment comes as many Brazilian ethanol producers are struggling to stay afloat and represents a critical vote of confidence in the commercial prospects of second generation or cellulosic ethanol following decades of research and failed attempts.
Only in 2012, BP cancelled plans for a $300m cellulosic ethanol plant in Florida, saying it believed it could make better returns elsewhere.
However, companies including the US chemicals group DuPont have since piled into the industry, investing in plants that produce biofuel from agricultural waste such as corn husks or the bagasse left over from sugar cane and conventional ethanol production.
The manufacture of commercially-viable biofuel from waste rather than food crops has long been considered the holy grail of the industry as it promises to curb demand for arable land and reduce pressure on global food prices.
For producers such as Raízen, the result of a 2010 tie-up between Shell and Brazil’s Cosan, it also promises to boost productivity and, potentially, profits.
“We need to extract more value from the land area we have,” said Mr Abreu.
He also pointed to the fuel’s environmental benefits, especially in Brazil where sugarcane ethanol needs less energy to be produced than its US-based corn equivalent.
While the production of cellulosic ethanol is still more expensive than conventional ethanol, Mr Abreu said he expected costs to fall as the enzymes needed in the production process become more widely available.
However, in Brazil it is a gamble that few companies are able to take. While the country has one of the most advanced biofuel industries in the world — most of its new cars are capable of running on pure ethanol as well as petrol — one in six producers are currently under bankruptcy protection, according to the industry association Unica.
Many mills were hit by the global financial crisis and have struggled to recover since the Brazilian government started subsidising petrol prices in 2010.
However, domestic ethanol demand is expected to continue rising, said Mr Abreu, adding that Raízen also sees promising export opportunities in Europe and Asia.