Brazilian biofuel deals should spark hazardous area investment

Author : Paul Gay

23 February 2010

There’s some very good news for international suppliers to the hazardous area industries this week with the announcement that two major Brazilian companies have agreed to merge to create the country’s biggest biofuels company. The resulting group will have increased assets by $4bn on completion in 2012 and will undoubedly have some serious investment plans for explosion protected procesing plant.

Sugarcane for ethanol

And this agreement comes hot on the heels of news from Royal Dutch Shell and Brizilian company Cosan of a $12bn deal to develop ethanol production in Latin America. Brazil is currently the second-biggest producer of fuel ethanol in the world after the USA and it appears that the country has strong ambitions to better this position, especially as its sugar cane-based industry is thought to be more efficient than the US process which is based on maize.
The Brazilian deal is between ETH Bioenergia, part of the Odebrecht group, a Brazilian conglomerate involved in construction and engineering, and Brenco. The latter company is also Brazilian and is a renewable energy group whose backers include Ashmore Energy of Houston, Texas, an investor in energy projects in emerging markets.
According to the Financial Times, the merged group will retain the name ETH Bioenergia and its ownership will be split between ETH’s shareholders, with 65% of the consolidated company, and Brenco’s, with 35%. It aims to process 40m tonnes of sugar cane by 2012, producing 3bn litres of ethanol and 2,700 GWhr of electricity from co-generation plants.
The two groups have already invested $2 bn in sugar cane production and processing and have projects underway that will absorb a further $1.9 bn by 2012.
Brazil’s market consumes about 3bn litres of fuel ethanol a year. By far the majority of new road vehicles sold in the country have engines able to run on gasoline or ethanol or any mixture of the two. And almost all petrol stations in Brazil sell fuel ethanol, a legacy of a government programme dating back to the 1970s. Gasoline sold in Brazil contains ethanol at 25% by volume.
Cosan, which is working on the $12 bn deal with Shell will challenge ETH Bioenergia for market leadership, currently producing 2bn litres of ethanol a year.
This month the US Environmental Protection Agency (EPA) recognised sugar cane as a low carbon renewable fuel, reinforcing hopes that subsidies and tariffs that deter Brazilian ethanol exports could begin to fall in markets such as the US, Japan and Europe. The EPA’s decision should lead to a removal of barriers in the US and Japan, followed later by Europe.