RIO DE JANEIRO (Kyodo) Brazil is nearly ready to kick off a giant entrepreneurial project that will produce billions of liters of fuel alcohol bound for Japan.
The ethanol project is a joint effort between Brazilian oil monopoly Petroleo Brasileiro SA (Petrobras) and trading house Mitsui & Co., with financial support from the Japan Bank for International Cooperation.
Japan will use the ethanol to reduce its use of gasoline by mixing the two fuels. In the near future, all of Japan’s gasoline is expected to be at least 3 percent ethanol.
Brazil is the world’s top ethanol exporter, while domestically all of its gasoline has an ethanol content of 25 percent.
The program kicked off in the 1970s, when economies throughout the world were hit by the devastating oil shocks. Brazil was able to reduce oil imports by 500 million barrels between 1975 and 2000, saving at least $11.5 billion and reducing carbon gas emissions by 110 million tons.
Petrobras, Mitsui and JBIC are analyzing their participation in 40 projects evaluated at $8 billion for building 40 new “usinas,” or processing plants, which produce alcohol and sugar from sugar cane. Brazil has 335 processing plants throughout the country.
“Our target is to produce ethanol to be exported only to Japan,” said Paulo Roberto Costa, who heads Petrobras’ supply division, in his office at the imposing building that houses the Petrobras administration center in central Rio de Janeiro.
The cost of building a processing plant is $250 million, and Costa said Petrobras and Mitsui are still deciding which projects to take part in. Both intend to take a stake of 20 percent or 30 percent in their chosen enterprises and let the rest of the capital come from private investors, Costa said.
“We are solely interested in the production and distribution of ethanol, while usina owners will guarantee the sugar cane crops,” he said.
Within two or three months, Petrobras will sign a pioneer contract to produce 1 billion liters of alcohol annually at five processing plants in the states of Mato Grosso and Goias in western Brazil, and in the southeastern state of Minas Gerais. The contract will be part of a pilot project, Costa said.
“Each of these five usinas will produce 200 million liters of ethanol within 2 1/2 years, and the whole production will be exported to Japan,” he said.
Petrobras Strategic Plan estimates the company will export 3.5 billion liters of ethanol in 2011, with 90 percent of that expected to be shipped to Japan for mixing with gasoline.
Brazil exports about 3 billion liters of ethanol a year and expects to more than double that to 7 billion liters in 2012, according to the Sao Paulo Sugarcane Agroindustry Union (Unica), a private body representing firms that produce more than 60 percent of Brazil’s ethanol.
There is an authentic ethanol rush in the country, chiefly a consequence of Brazil’s booming sales of “carros flex” (flex-fuel) vehicles that run on gasoline, ethanol or any combination of the two. International interest in the renewable fuel is also booming.
Economists estimate this “alcohol fever” will attract some $100 billion in investment that will lead to the construction of some 100 new distilleries by 2012, when national ethanol production will double to 17 billion liters annually.
Experts say ethanol’s major environmental claim is its renewable origin. Another key advantage is that cultivation of sugar cane absorbs the equivalent of almost a fifth of the total carbon emitted from using fossil fuels in Brazil. This means a reduction of 39 million tons of carbon dioxide annually.
“Most of the oil Japan imports comes from regions often struck with conflicts and political difficulties, so it is a matter of national security for Japan to diversity its sources of energy supply,” Costa said.
Petrobras has adopted a peculiar strategy to convince Japan that its ethanol supply will be continuous and that processing plant owners will not turn to sugar production when prices of the commodity become more attractive than ethanol in the future.
“The usinas we will build will not be able to produce sugar. Only alcohol,” he said, adding that the cooperation of two giant corporations like Petrobras and Mitsui is a guarantee in itself.
But Costa also said Petrobras and Mitsui will produce more ethanol than the designated export volume as a hedge against bad weather or other risks to the plantation areas.
He vehemently discredits those who fear that the expansion of sugar cane plantations will harm food production or efforts to preserve the Amazon rain forest.
“The areas that will be used for the expansion of sugar cane crops do not have natural vegetation and are mostly grazing pastures,” Costa said, adding that those areas targeted for the expansion are at least 1,500 km from the world’s largest tropical forest.
He said the rainy weather and type of soil in northern Brazil, where the Amazon rain forest sits, are not beneficial to sugar cane plantations.
Costa disputed the idea that Brazilians are irritated with the slow-paced manner in which Japan has been studying the adoption of ethanol. “The whole decision-making process is normal,” he said.
But Brazil is also targeting other markets in Asia. Petrobras, according to Costa, is talking with both China and South Korea and the negotiations “have been progressing fast.”
“We do not have all the time in the world,” Costa said, his fingers drumming nervously on the table. He stressed that he expects the ethanol-gasoline blend to catch on much faster in South Korea than in Japan.
Brazil’s ambition appears limitless at a time when the world is on the brink of embracing ethanol, which could generate a market worth billions of dollars.