Monday, July 11, 2011

Shell to focus on exporting ethanol to US

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Fonte: Financial Times

By Samantha Pearson in São Paulo

Royal Dutch Shell is gearing up to become the biggest exporter of ethanol to the US, investing heavily in its joint venture in Brazil as global oil companies battle for control of the Latin American country’s sugarcane fields.

Under pressure to reduce the US deficit, lawmakers in Washington are preparing to scrap ethanol subsidies and tariffs - a move that would open up the country o cheaper imports while putting the spotlight on Brazil as the world’s only other leading producer of the biofuel.

Raízen, Shell’s new joint venture in Brazil, plans to invest $7bn over the next five years to more than double its annual production of ethanol from 2.2bn to 5bn litres in a bid to meet this growing US demand.

“The tariffs will be lifted; it’s just a question of when. That’s why we need to increase production of ethanol quickly,” Vasco Dias, Raízen’s chief executive said in an interview with the Financial Times.

“Our main priority now is to supply the internal market but our ambition is to become a big exporter of ethanol to the US when the time comes, and also to Europe.”

Created from a 50:50 joint venture between Shell and local group Cosan , Raízen began operations last month and is already Brazil’s biggest ethanol and sugar producer with about 10 per cent of the market and expected revenues this year of $35bn.

However, Raízen is facing growing competition from Brazil’s state-run oil company, Petrobras, other international energy giants such as BP, which made a $680m acquisition in March, and agricultural companies which are snapping up Brazilian mills to meet rising sugar demand.

The company also faces the challenge of revamping an industry that is still suffering from the effects of the global financial crisis. A lack of investment in new cane crops has pushed up sugar prices and made domestic ethanol so expensive that Brazil had to import 70m litres of corn-based ethanol from the US last year.

Raízen plans to increase its sugar production from 4.5m tonnes currently to 6m tonnes by 2016, but it will gradually shift its focus to ethanol, Mr Dias said.

The biofuel is highly popular in Brazil where about 90 per cent of all new cars are built with “flex-fuel” engines that can run on gasoline or ethanol or any mixture of the two.

Although cars in Europe and the US can generally only run on ethanol if it is mixed with large amounts of gasoline, the percentage of ethanol in that blend is likely to grow because of environmental pressure to reduce fossil fuel use, Mr Dias said.

“Even if the US only increased to E15 or E20 (gasoline mixed with 15 and 20 per cent of ethanol respectively), we are still talking about unbelievable amounts of ethanol.”