Breakeven prices for crude oil and selected feedstocks in 2005. (Image courtesy of Petrobras)

Petrobras Biocombustível, a recently formed branch of Petrobras, today is managing all of company’s biofuel production projects, including, among other products, biodiesel and ethanol.

Petrobras Biocombustível intends to be the domestic biodiesel production leader in Brazil. As one of its primary objectives, the company will also pursue international business. Petrobras says the creation of this new company reflects its commitment to biofuels, a business segment in which it expects to invest $1.5 billion through 2012.

Petrobras Biocombustível operates the Candeias biodiesel plant (inaugurated in late July, 2008) and also is in charge of the Quixadá plant and a third facility, called Montes Claros, which is to be inaugurated later this year. Total biodiesel production from these plants is expected to reach 170 million liters per year.

In mid-September, 2008, Petrobras Biocombustível announced plans to construct a fourth biodiesel plant. The company says the new unit, which is scheduled to go online in 2011 or 2012, will be capable of producing 300 million liters per year. The goal, the company said, is to achieve a domestic production level of 4.75 billion liters of ethanol by 2012.

The first ethanol project, called Bioenergetic Complexes (CBios), calls on Brazil’s Itarumã Participações to implement a complex in the municipality of Itarumã, in Goiás, with annual production capacity of 200 million liters of ethanol. Japan’s Mitsui is a partner in the project, which was announced at Rio Oil & Gas in September, 2008, by Alan Kardec, president of Petrobras Biocombustível.

“While national companies have the expertise, the foreign ones will guarantee the market,” Kardec said. “We are speeding the partnership process up to become faster and leaner.”

Another alternative fuel project was announced in early October, when Petrobras and Portugal’s state-owned Galp Energia signed an investment agreement to create a joint venture that will develop a biofuel production and marketing project.

According to Petrobras, the agreement foresees the production of 600,000 tons of vegetable oil per year in Brazil, which will be used to produce 500,000 tons of second generation biodiesel per year. Half of this volume will be produced in Portugal, and the product will be marketed in Europe, primarily in the Iberian market.

Additional new projects will be defined in the launch of Petrobras’ new 2009/2020 strategic plan, which will be released in the coming months. Projects in the plan will, of course, include deepwater projects and the newly discovered sub-salt fields. Many others will include the production and export of ethanol, a product Petrobas refers to as the “green effect of Brazilian exports.”

Ethanol has long been a big business in Brazil. Petrobras manufactured ethanol for use in automobiles in 1979, and today more than half of the cars in the country use ethanol. At present, 85% of the company’s production is used domestically, but that is about to change.

According to Fernando Cunha, director of business partnership for Petrobras biofuels, who spoke with journalists at a press conference held at the Biofuels Houston Summit III, organized by the Brazil-Texas Chamber of Commerce and the Brazilian Oil, Gas and Biofuels Institute, “The future is brilliant as far as ethanol is concerned.”

Asia is opening up, Cunha said, not only for transportation, but for energy, and the US will also be a key consumer.

“The United States is going to need overseas ethanol, no doubt about it,” Cunha said. “We believe the United States is going to be a big buyer for sugar-based ethanol.”

The demand for ethanol in the US will lead not only to commercial agreements, but to technology transfer as well. Cunha sees an opportunity for exporting the expertise the company has been honing for the last several decades.

José Sergio Gabrielli de Azevedo, president and CEO of Petrobras, discussed the company’s performance and perspectives regarding ethanol at a luncheon presentation at the Biofuels Houston Summit III.

Gabrielli explained some of the advantages Petrobras has identified in manufacturing and marketing ethanol created from sugarcane. The breakeven price for sugarcane, the feedstock used to make ethanol in Brazil, is much lower than maize or mixed feedstock, which are used in other parts of the world. Furthermore, as the price per barrel of oil goes higher, opportunities expand for biofuels, unconventional oil, and enhanced oil recovery technology, and new frontiers open, he said.

What is particularly appealing about sugarcane based ethanol is that the cost per gallon compares very favorably with the cost of gasoline. And sugarcane ethanol provides the best payback time ratio for carbon emission. As the search for hydrocarbon alternatives continues, fuels like ethanol will become significantly more important, Gabrielli said.

Petrobras, which has been in the vanguard of ethanol development, is committed to investing in technologies that will improve production of sugarcane ethanol, while funding research that targets other alternative fuels. The company allocates 1% of gross sales to finance new technologies and is among the top companies in the world in terms of investing in research and development.