Petrobras boosts ethanol investment to increase capacity

By Kris Bevill | August 16, 2011

Petrobras announced recently that its biofuels division will invest heavily in the expansion of its ethanol and biodiesel production capabilities in order to meet growing domestic demand. The firm has earmarked a total of $4.1 billion for biofuels over the next five years, according to its 2011-‘15 business plan, with $2.5 billion dedicated to increased ethanol and biodiesel production, $1.3 billion allocated to ethanol logistics and $300 million for cellulosic ethanol research. The updated investment plans represent a $600 million increase in Petobras’ commitment to biofuels over its previous plan, which called for $3.5 billion to be invested in the sector between 2010 and 2014.

According to Petrobras, establishing new ethanol plants is a priority of its five-year plan, and most of the money dedicated for biofuels will be used for that purpose. The firm has committed 76 percent of the $2.5 billion production investment to ethanol; 70 percent of which will be used to establish new plants, increase sugarcane crushing capacity and renew plantations. “Together with partners, the goal is to reach a volume of 5.6 billion liters [approximately 1.4 billion gallons] in 2015, or a 12 percent national market share,” Petrobras said in a statement. “This will ensure the company the leading position in the domestic market.”

Petrobras, which is a state-controlled integrated energy firm, currently holds ownership stakes in 10 ethanol plants with a total annual capacity of just 900 million liters (about 237 MMgy), according to its website. Its move to dramatically increase production capacity illustrates well Brazil’s need to ramp up supplies of domestic ethanol in response to growing domestic and international demand. Last year, Brazilian sugarcane producers harvested 620 million metric tons of sugarcane, which was used to produce about 38 million tons of sugar and 27.4 billion liters of ethanol, according to UNICA, the Brazilian Sugarcane Industry Association. But high sugar prices combined with two consecutive years of small sugarcane harvests and increasing consumer demand for ethanol have resulted in a supply shortage that has left Brazil’s government with little choice but to reduce the national E25 blending mandate periodically and import U.S. ethanol at times when supply is the shortest. UNICA CEO Marcos Jank told EPM recently that 130 new sugarcane mills need to be established in Brazil by 2020 in order to meet the growing demand for ethanol and that in order to achieve that level of expansion, partnerships between industry stakeholders will be required. Petrobras said it will carry out its capacity expansion plans through its existing partners Guarani, Nova Fronteira and Total Agroindustria Canavieira.