Shell, Cosan launch sugarcane ethanol JV in Brazil
Shell and Cosan on Thursday officially launched their $12 billion joint venture that they say will become a leading producer of ethanol made from sugarcane.
Named Raizen, the retail and commercial fuels company will operate in Brazil. The venture was initially announced in February 2010.
In one of the biggest biofuels deals to date, Shell is combining its retail experience, global network and research in advanced biofuels with Cosan's technical knowledge of producing biofuels on a large scale.
Raizen will produce and sell over 2 billion liters/year of the lowest-carbon biofuel commercially available - ethanol made from Brazilian sugarcane.
Shell is already one of the largest distributors of sustainable biofuels, and is now moving for the first time into production. The deal with Cosan is a major development in Shell's strategy of investing for selective growth in its fuels business, it said.
Raizen will distribute biofuels and over 20 billion liters/year of other industrial and transport fuels through a combined network of nearly 4,500 Shell-branded service stations, it said.
In Brazil, it becomes the third largest fuels company. Plans would extend the company's reach in future years to export more ethanol to other key markets, officials noted.
Low-carbon biofuels will be the most practical and commercially realistic way to take carbon dioxide (CO2) out of transport fuel in the coming years and will be a vital part of the future energy mix, the companies argued.
The joint venture also combines Shell's expertise and technology partnerships in advanced biofuels with Cosan's experience in the commercial production of low-carbon biofuels. This has the potential to accelerate the commercial production of biofuels from crop waste and inedible plants, officials said.
Raizen's 24 mills can process up to 62 million metric tons of cane into sugar or ethanol each year, with the flexibility to adapt to market demand, the companies said.
"We are building a leading position in the most efficient ethanol-producing country in the world," said Peter Voser, Shell CEO. "Low-carbon, sustainable biofuels will be increasingly important in the global transport fuel mix."
"This is a turning point in the search for alternative energy sources," said Rubens Ometto Silveira Mello, Cosan's board chairman. "Raizen is one of Brazil's largest companies and is ready to offer international markets a clean, renewable and economically viable solution."
Meeting demand
New energy policies in Europe and the US are calling for more renewable, lower-carbon fuels for transport. Biofuels make up around 4% of transport fuel in Europe, and 3% in the US. Globally, biofuels currently meet around 3% of road-transport fuel demand. Shell expects this to rise to about 9% by 2030, it said.
Brazil leads the world in the use of biofuels for transport. They are likely to make up more than 40% of the country's transport fuel mix by 2030, double the modern proportion. Raizen's current annual production capacity will be enough to meet nearly 9% of Brazil's current ethanol demand, it said.
At the pump, Brazilian motorists are offered the choice of pure ethanol or a blend of petrol (gasoline) and ethanol. Around 90% of the country's new cars can run on either fuel type.
"The Raizen business model, which combines Shell and Cosan assets and has direct access to consumers, is a breakthrough in the biofuels sector," said Marcos Marinho Lutz, Cosan CEO.
The sugarcane-to-ethanol process used by Raizen is the most efficient in turning biomass into fuel, the companies said.
Brazilian sugarcane yields 7,000 litres of ethanol per hectare of cane, compared to 3,800 litres for a hectare of corn in the US and 2,500 litres for a hectare of wheat in Europe, according to Unica, the Brazilian sugarcane industry association.
Better biofuels
Turning sugarcane into ethanol offers a number of environmental benefits over other biofuel production processes, the companies said. As it grows, sugarcane generally absorbs CO2 at a greater rate than other biofuel crops such as soy.
Ethanol made from Brazilian sugarcane produces around 70% less CO2 than petrol, when the cultivation and production processes are taken into account. Since 2003, the use of ethanol in Brazil has avoided over 103 million tonnes of the CO2 that the petrol it replaced would have produced, according to Unica.
By-products from turning sugarcane into ethanol are recycled as organic fertiliser. Plant waste, called bagasse, is burned to produce power for the processing mills and surplus energy is supplied to the national grid.
To further improve productivity, Raizen will use its own advanced geographical information system to monitor its land. This allows its scientists to make accurate predictions about crop yields and adjust fertiliser or pest control, for example, to help boost production.
"Brazilian sugarcane ethanol is one of the most sustainable and lowest-CO2 biofuels available," said Mark Gainsborough, Shell’s executive vice president for alternative energies.
"We expect the development of advanced biofuels to benefit from Cosan's feedstock and its expertise in large-scale biofuels production. This has the potential to accelerate the future commercial viability of cellulosic ethanol,” he added.
The deal includes part of Shell's interest in the firm Iogen, which uses enzymes to break down plant waste into ethanol, as well as Shell's interest in Codexis, developers of "super-enzymes" for the faster conversion of plant waste into transport fuels.
Sustainable production
Raizen will work to improve the sustainability of its operations, it said. Sugarcane for ethanol requires little water to be added because Brazil's tropical rainfall provides natural irrigation. In the industrial process, Raizen has been introducing a system that recycles up to 90% of water used.
Raizen said it supports the development of varieties of sugarcane to suit regional climate and resist disease. To protect cane from pests, it breeds and releases natural predators, further reducing the use of chemical pesticides.
As a member of Bonsucro, formerly the Better Sugarcane Initiative, Raizen has joined with other producers, non-governmental organizations and other experts to establish an EU-approved certificate for sustainable sugarcane production. This covers areas such as human rights and the impact of activities on biodiversity.
Raizen said it is also working towards achieving certification for all ethanol produced by its own operations over coming years. It also plans to have certified all ethanol produced from suppliers' cane.
Current sugarcane production in Brazil takes up 8.1 million hectares, around 0.9% of the country's land. Government legislation forbids industries from entering sensitive areas such as rainforests or land needed for other food crops, and from displacing food crops into other sensitive areas.
National laws also recognize the rights of indigenous communities and their claims to land ownership. The main sugar-growing areas are hundreds of kilometres from the Amazon rainforest.
Raizen is well-advanced in phasing in mechanised harvesting, ahead of requirements due to come into force in the main Brazilian sugarcane growing state of Sao Paulo in 2014, it said. It already uses machines on around 64% of its suitable land (with a slope of less than 12%).
CO2 emissions can be reduced because it avoids the need to burn the hard straw, a necessary step in manual cutting.
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