Oil giant Royal Dutch Shell has signed an agreement with the Brazilian industrial group Cosan to form a new ethanol-producing joint venture.
Cosan, the worldÔÇÖs largest sugar processor, will commit $5 billion (Ôé¼3.5 billion) of its assetsÔÇöincluding its production facilities and an ethanol-trading unitÔÇöinto the joint venture; while Shell will contribute $2 billion (Ôé¼1.4 billion) in cash, 2,740 service stations and stakes in two green technology businesses.
Netherlands-based Shell already deals in six billion litres of ethanol every yearÔÇömost of it as an additive for its US petrol retailing business.
By combining Shell's global distribution network with Cosan's production capacity, the two companies hope to increase annual ethanol production at CosanÔÇÖs mills from two billion to around five billion litres, with the eventual aim of exporting the fuel beyond BrazilÔÇÖs relatively mature market.
However, the joint venture will initially focus on Brazil, since Cosan's and Shell's retail fuel network in Brazil demands three billion litres of ethanol annually, while Cosan's production capacity is only two billion litres.
Ethanol accounts for about half of BrazilÔÇÖs road fuel demand, with over 90 per cent of cars being equipped with flex-fuel technology, which means they can adapt to changing mixes of petrol and ethanol.
Commenting on the deal, Mark Williams, ShellÔÇÖs Downstream director, said: ÔÇ£We see joining with Cosan as a way to grow the role of low-carbon, sustainable biofuels in the global transportation fuel mix.┬áThe joint venture would also enable Shell to set up a material and profitable bio-fuels business, with the potential to deploy next generation technologies.ÔÇØ
Rubens Ometto Silveira Mello, CosanÔÇÖs chairman added: ÔÇ£CosanÔÇÖs vision is to become a global leader in clean and renewable energy. Our size, degree of sophistication and stage of development means we need a partner that not only shares our vision, but also has access to international markets to help us deliver our growth potential.
ÔÇ£We believe this JV would play an impactful role for the sustainability of our planet by increasing the worldwide supply and distribution of ethanol-based biofuels.┬áIt would also consolidate BrazilÔÇÖs leading position in a world looking for sustainable, efficient and reliable alternatives to satisfy energy demand.ÔÇØ
BrazilÔÇÖs ethanol industry has become increasingly attractive to foreign energy companies seeking a solution to their search for greener fuel.
In October last year, Paris-based Louis Dreyfus agreed to buy Santelisa Vale, BrazilÔÇÖs second biggest sugar cane ethanol producer. Two months later, New York-based Bunge paid $452 million (Ôé¼324 million) for Moema, another sugar cane company. In 2008, UK energy giant BP invested $560 million (Ôé¼402 million) in an ethanol joint venture involving Santelisa.
Shell has pledged to concentrate on developing biofuels and clean coal as part of its commitment to reducing its carbon dioxide emissions. Brazilian sugar cane ethanol is the greenest commercially viable biofuel available on the market today.
The move by Shell could indicate that ethanol and other green fuels may become mandatory in the developed world over the coming years.
According to the two companies, biofuel made from ethanol emits more than 70 per cent less carbon dioxide than traditional fuels. Not all vehicles are able to run purely on ethanol however, so the net reduction would be closer to 18 per cent for a typical biofuel/petrol blend.
Shell has also contributed to the joint venture its stakes in Codexis and Iogen, two biotechnology companies exploring how to make second-generation ethanol products commercially viable.
As a result of the deal, Cosan is left with less than a quarter of its original assets under its direct control.
