Royal Dutch Shell, Europe’s second biggest energy company has just signed a memorandum of understanding with Cosan, Brazil’s most powerful bioethanol producer in a joint venture estimated to be worth $12bn. This makes the Anglo-Dutch company the biggest oil major in biofuels as it battles to restore faith in its investors about profitability.
If finalised, the move will cement Brazil’s position as the world’s alternative energy superpower. This will give Brazil the potential to ship large quantities of fuel to the US and Europe. Shell is currently lobbying the US administration to reduce its tariffs on biofuel imports in a move that could transform profitability.
At the moment the company is expected to announce a 40% drop in quarterly profits on Thursday, however the company hopes that their aggressive moves into biofuels it has scheduled for the next two years will signal to investors that it still has growth potential.
Analysts expect the group to report a quarterly profit of $2.9bn. This would take its annual profit to $13.4bn, down on the $31.4bn it made in 2008. There are suggestions the company will make further job losses on top of the 5,000 already announced.
Cosan is Brazil’s leading bioethanol producer in a country where nearly all new cars run on sugar cane. In terms of production Cosan’s existing bioethanol production currently stands at 2bn litres, with this scheme that figure is estimated to double.
The big concern among environmentalists is that as Brazil becomes synonymous with biofuel, agricultural land which is currently being used for food crops could be shifted to fuel crops creating pressure to cut down more rainforest.
Kenneth Richter, who campaigns against biofuels, said: “Massively expanding sugar cane plantations to produce biofuels will significantly threaten Brazil’s rainforest. The biofuels industry is pushing agricultural activity on to forested land where trees are cut down to make space for farming. To be truly green energy companies should invest in clean, renewable and safe forms of energy like wind and solar power.”
Shell’s response is that the sugar cane for ethanol uses approximately 1% of Brazil’s arable land (354m hectares). In addition none of Cosan’s plantations are anywhere near rainforests. Using statistics from the EU Shell pointed out that bioethanol from sugar canes produces 71% less carbon dioxide than conventional fuel. In fact the company is so positive about biofuel that they believe it will become more and more important as an energy source as the number of cars in the world goes up. By 2050 the number of cars in the world is estimated to reach 2bn.
Mark Williams, Royal Dutch Shell’s downstream director, said: “We see joining Cosan as a way to grow the role of low-carbon sustainable biofuels in the global transportation fuel mix.”
A City oil analyst said: “Shell has hitherto focused on the laboratory bench looking at second-generation biofuels. This is the first major big move into biofuels by some way by an oil major.”
Rubens Ometto Silveira Mello, Cosan’s chairman, said: “This new company will be a great force and it will help ethanol to become a real world commodity.”
For more information on investing in Forestry please click here
