Brazil-Japan ethanol investment could hit U.S.$8 billion
By Alan Clendenning
ASSOCIATED PRESS
12:57 p.m. March 3, 2007
SAO PAULO, Brazil – A partnership to help supply Brazilian ethanol to the Japanese market could cost $8 billion, Brazil's largest newspaper reported Saturday.
The money would be used to buy minority stakes in 40 ethanol distilleries across Brazil, ensuring Japan a stable supply as it prepares to mandate an obligatory mix of ethanol in gasoline, the Folha de S. Paulo newspaper said.
Brazilian state-run oil company Petroleo Brasileiro SA had already confirmed it was negotiating a partnership with Japan's Mitsui & Co. Ltd. on the stakes, but the report quoting Petrobras executive Paulo Roberto Costa was the first time that an investment amount was disclosed. A Petrobras spokesman did not immediately respond to a telephone message left Saturday seeking comment.
According to Petrobras estimates, Japan could require 500 million to 1.5 billion gallons of ethanol per year, depending on the ethanol mix required – between 3 percent and 10 percent.
That is significantly more than Japan has imported from Brazil in the past. Brazil exported a total of 900 million gallons of ethanol in 2006, of which Japan received less than 7 percent, or 60 million gallons, according Brazil's Agriculture Ministry.
Aiming to ensure fuel supply for 15 years, Petrobras and Mitsui would set up a Brazil-based subsidiary.
Japan's National Development Bank would help in financing the distilleries aimed exclusively for the Japanese market, which would be built or purchased, Folha reported. Costa told the newspaper that the investment in each distillery could total $200 million.
Petrobras also announced earlier this week that it signed a memorandum of interest with Mitsui and a Brazilian construction firm to study the construction of a pipeline in Brazil that would be used to help export ethanol to Japan. No amount was disclosed on how much the pipeline could cost.
The United States is the world's largest ethanol producer, but Brazil is in the No. 2 spot and is the largest exporter. While Brazil makes ethanol from sugarcane, U.S. ethanol is produced more expensively from corn.
Brazil's ethanol industry is making large profits amid heavy foreign investment. There is also huge domestic demand in the country, where eight out of every 10 new cars are “flex fuel” models that can run on gasoline, pure ethanol or any combination of the two. Most drivers choose ethanol, because it costs almost half as much as gas.
Last week Brazilian and U.S. officials announced the creation of the International Biofuel Forum, which plans to meet regularly for a year to draft global standards for production, find ways to open markets and encourage worldwide investment to develop the industry.
President Bush will meet Friday in Sao Paulo with Brazilian President Luiz Inacio Lula da Silva, and biofuels will top the agenda. They are expected to sign an agreement to share scientific and technological research for the industry.
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