Friday, May 23, 2008

Brazilian Ethanol; into new heights

As the debate and controversy over ethanol production and its effects on global food supply and prices rages on, just last month BP announced its first foray -- and the largest to date by a multinational oil company -- into Brazil's sugar cane-based ethanol industry.

The company announced that it will purchase a 50% stake in Tropical BioEnergia SA, a joint venture established by Brazil's second-largest sugar cane and ethanol producer, Santelisa Vale and Maeda Group, one of the world's largest cotton producers. The joint venture (JV) is building a 435 million liter per year (US 115 million gallon/year) ethanol refinery in Edeia, a town in Brazil's Goias State, and planning a second.

BP plans to make an initial investment of some $100 million reais (US $59.8 million) in return for its 50% equity stake, assuming all required approvals are obtained, and provide additional funding that will bring the total to approximately R $1.66 billion (US $1 billion).

Brazil's President Luiz Inacio Lula da Silva and his administration have been busy countering claims that growing sugar cane to produce ethanol is a big factor in the recent surge in food prices around the world, as well as being a net contributor to greenhouse gas emissions as a result of forest clearing. Addressing the media recently he dismissed such claims as an "absurd distortion."

BP's environmental record and contention that it is moving "Beyond Petroleum" has also come under attack of late. Its plans to invest some US $5.5 billion over 15 years with Husky Oil in an oil sands project in Alberta wipes out any credit the company can claim in terms of advancing efforts to promote renewable energy sources and reduce greenhouse gas emissions, one critic maintained.

Sugar Cane: The Preferred Choice for Producing Ethanol

Tropical BioEnergia's first refinery is expected to begin production around mid-year and reach full capacity by the middle of 2010. The ethanol produced is mainly destined for the Brazilian market, where rapid growth is forecast and a distribution infrastructure is already in place, though the partners intend to explore opportunities to export to the U.S., Europe and Asia as well.

Sugar cane is the most efficient means of producing ethanol available at present and has the potential to reduce greenhouse gas emissions by as much as 80% compared to alternative fuel sources and production methods, according to the JV partners.
The JV's ethanol refineries will make use of bagasse — the fiber left over after the juice has been squeezed out of sugarcane stalks — for co-generation of electricity to power the two refineries and feed its expected 30 megawatts (MW) of surplus electricity into Brazil's electricity grid.
While scientists and other industry experts disagree on actual yields, it's clear that one acre of sugar cane grown in Brazil yields double or perhaps even triple the ethanol that one acre of corn yields. Made up of relatively simple molecules, producing ethanol from sugar cane is also more efficient and friendlier environmentally, as less energy and potentially toxic polluting chemicals are used in the refining process.

"Sugar from sugar cane is an easily available carbohydrate that can be directly fermented without many of the processing steps required for corn-based ethanol," explained Hans P. Blaschek, Director of the Center for Advanced Bioenergy Research at the University of Illinois and Assistant Dean in the College of ACES Office of Research.

"The Brazilians use the bagasse as an energy source. This is the reason that they are able to produce a gallon of ethanol for US $0.81 cents. Corn ethanol requires some additional steps to convert the starch to free sugars and normally an external energy source is required to run the plant. This is the reason for the cost differential between corn ethanol and sugar ethanol."

First and Second Generation Biofuels

In addition to growing sugar cane and processing it to produce ethanol and electricity, Tropical BioEnergia will focus on marketing conventional ethanol, its associated agricultural assets and co-generation plants, as well as make use of the data and experience gained to contribute to research aimed at developing next generation biofuels.

Further supporting the latter aim, BP last year invested US $500 million to launch the Advanced Energy Institute, a biofuels research program that is being carried out at the University of California, Berkeley, the University of Illinois, Urbana-Champaign and Lawrence Berkeley National Laboratory, and where research is under way aimed at producing ethanol from plant waste and woody biomass — lignocellulosics — and biobutanol, as well as other advanced biofuels.

"By using the bagasse as an energy source, the lifecycle of the process looks considerably better than corn ethanol produced today where natural gas is used to power the plant. This makes a huge difference. Better yet would be for them to use the entire sugar cane plant - the cellulosic portion - to produce additional liquid fuels," Prof. Blaschek told
"Cellulosic ethanol — second generation biofuel — offers the advantage of disconnecting the substrate— biomass — from the food supply; however the technology for doing this on a commercial scale is still a number of years away. This approach has a better lifecycle and carbon footprint than does corn ethanol. Other possibilities include sugar corn, which can be grown in the Midwest and also has the advantage of not requiring deconstruction of the plant cell wall to produce free sugars. Right now, sugar-based biofuels look pretty good."

BP and DuPont, as well as other companies including GEVO, Cobalt Biofuels and TetraVitae Bioscience — a company that Prof. Blaschek co-founded — are trying to produce butanol, another second generation biofuel.

"Butanol is a 4-carbon alcohol with considerable advantages over ethanol," Blaschek said. "Having the sugar directly available to produce butanol is certainly an advantage as it is for fermentative production of ethanol.

"The ‘Holy Grail' of this ultimately would be cellulosic butanol — which gives you a very practical fuel with characteristics that are consistent with existing infrastructure, pipelines, etc. — and blendability characteristics that are superb," said Blaschek.

BP & Biofuels

Critics claim that BP's efforts to move "Beyond Petroleum" are on the whole superficial, disingenuous and self-serving. Maintaining its share of the global oil market and ensuring that petroleum will continue to be the primary source of fuel for the world's economies for as long as possible is where its only real interests lie, they contend. As Chevron Vice President Peter Robertson told the Congressional Select Committee on Energy Independence and Global Warming last month, "the enormous scale of the energy system means that we must continue to bring traditional energy supplies to the market."

Greenpeace equated the BP-Husky joint venture to a crime against the environment and pledged to take action against it. Mike Hudema, a climate campaigner with Greenpeace in Edmonton said that, "not only will these developments produce 100 million tons of greenhouse gases annually by 2012 but [they will] also kill off 147,000 sq km [56,000 sq miles] of forest that is the greatest carbon sink in the world."

BP disputes these claims. According to company statistics, BP's biofuels sales accounted for some 10% of the global market in 2007, a year in which it blended and distributed 763 million US gallons of ethanol and about 1 million US gallons of biodiesel. In Europe, the multinational energy major sold 344 million liters of ethanol and 847 million liters of biodiesel in 2007.

There are two fundamental, guiding principles underlying all BP's investments in the biofuels sector, explained spokesperson Wendy Silcock: they must be truly sustainable, meaning that they will not displace crops or cropland used to produce food; and they will not involve deforestation. "The Brazilian joint venture starts out with land previously used for grazing and growing cotton,"

Emphasizing the point, Phi New, who heads up BP Biofuels stated in the company's media release, "This investment, the largest made by an international oil company in the Brazilian ethanol industry, represents a significant step in delivering BP's strategy for biofuels which centers around sustainable feedstocks that do not impact on food supplies, and investing in research work to develop the technologies required to produce advanced biofuels."

Brazil, Ethanol & the Global Market

Worldwide biofuel production rose around 20%, to an estimated 54 billion liters in 2007, accounting for 1-1/2 percent of global liquid fuel supply, according to the Worldwatch Institute.
Fuel ethanol production from sugar or starch crops rose 18 percent to 46 billion liters last year, the sixth consecutive year of double-digit growth. Brazil and the US accounted for 95% of the total, with the US producing just over half of it after ramping up production some 33%, to 24.5 billion liters.

Brazilian agriculture ministry officials late last month forecast a record sugar cane crop and ethanol production for 2008. Ethanol production is expected to rise between 15 and 19%, reaching as high as 27.4 billion liters. Exports are forecast to rise more than 23%, to 4.2 billion liters, in spite of restrictive tariffs in major export markets, including the U.S. and the EU.

The US levies a $0.54 per gallon tariff on Brazilian ethanol imports and the EU, as well as China, impose similar tariffs, raising trade tensions at a time when the U.S. and other developed nations push free trade rhetoric and Free Trade Agreements.

Tropical BioEnergia partner Santelisa Vale expects to crush 18 million tons of sugar cane, produce 25 million bags of sugar and 770 million liters of ethanol in 2008. The company also expects to generate and sell 420,000 MWh of surplus electricity from sugar cane bagasse — enough to supply enough electricity for one million people.

BP isn't the first prominent multinational to invest in Santelisa Vale's ethanol business, which ranks in size only behind Cosan, Brazil's largest ethanol producer. New York-based investment bank Goldman Sachs' commodities trading arm last summer announced that it would invest US $210 million (B $400 million) in the company.


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