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How Brazil’s Northeast Fits into Plan of Fueling World with Ethanol

Brazil sugar cane Brazil's plans of introducing ethanol into the global market are bold. And very bold, at that. The aim is to replace 10% of all gasoline consumed on the planet within a 20-year period. A survey conducted by the State University of Campinas (Unicamp) shows that a US$ 20 billion investment in production and logistics is required in order to ensure Brazil's lead in the process.

And two actors will play major roles in the plot: the northeastern Brazilian region, and state-owned oil company Petrobras.

According to the survey by Unicamp, this billion-dollar investment would be split in half between the private sector and the government – counting on the participation of the Brazilian Development Bank (BNDES) and of Transpetro, the logistics arm of Petrobras.

Brazilian ethanol exports would be catapulted from the current 2.8 billion liters to 200 billion liters, by 2025. The area planted with sugar cane destined for alcohol fuel would need to be increased from 5.6 million up to 30 million hectares. This is where the Northeast comes into play.

The Southeast region will not be able to contribute much to that expansion. "The survey does not include (the southeastern state of) São Paulo, because the state already has a high density of plants," says professor Rogério Cerqueira Leite, who coordinated the Unicamp survey, commissioned by the Brazilian Ministry of Science and Technology.

In addition to the fact mentioned by the researcher, there is also pressure from developed countries for cane planting area not to invade areas of the Amazon forest. An international certificate is required to prove that ethanol production in Brazil does not harm the environment.

The Northeast has been in a disadvantageous position compared with the Southeast in sugarcane productivity, mostly due to the fact that the sugar and alcohol activity is concentrated along the region's coastline, where the uneven topography renders mechanization impossible.

The solution will be to take the production to the interior of the state. The main project along these lines has already been agreed upon by Petrobras and Japanese company Itochu – the leading distributor of fuel in the Japanese market. It is Canal do Sertão ("Dryland Canal"), a 150,000 hectare irrigation work (70% located in the state of Pernambuco, and the remainder in Bahia). The investment is US$ 2 billion.

The president of the Sugar and Alcohol Industry Union in the State of Pernambuco (Sindaçúcar-PE), Renato Cunha, claims that the sector is eager for the project to come to fruition. "But investments are still on demand in logistics and workforce training for the sector, including electrical engineers and other professionals," says Cunha.

According to Plí­nio Nastari, president of the country's leading ethanol consultancy company, Datagro, the Dryland Canal will also mean the independence of sugar cane producers, whose crops used to depend on the region's climate.

"With this irrigation project, cane production in northeastern Brazil will no longer depend so much on the climate in the region, constantly plagued by long periods of drought. Furthermore, the project encourages alcohol production in the São Francisco River Valley." According to estimates, with irrigation, the region might reach an output of an additional 20 million tons of cane per year.

But other initiatives are already starting to be implemented. Grupo Farias should be the first Brazilian company to export ethanol through Ethyl Tert-Butyl Ether (ETBE). According to Eduardo Farias, president of the group, the company will export around 300 million liters of ethanol per year to Japan.

"Provided that we have the necessary support from the government, we will surely be able to bring an ETBE refinery to the state of Pernambuco," he claimed.

Grupo Farias should also soon establish a partnership with the Chinese state-owned company BBCA Biochemicals, based in the province of Anhui, to establish two new alcohol plants in Brazil. The two plants should be built in the state of Maranhão (NE) and become operational in 2009 or 2010.

The initial production should be 800 million liters of ethanol per crop, with potential to reach 1 billion liters per crop. A total of US$ 200 million will be invested, and each operation will have a processing capacity for five million tons of sugarcane, at a production of 400 to 500 million liters of ethanol per crop.

Anba

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  • Show Comments (7)

  • João da Silva

    ConceiÀƒ§Àƒ£o
    [quote]Joao, just read how Rio Doce is having trouble siting an aluminum smelter in Brasil primarily due to infrastructure and permitting issues. Seems to underscore again the
    notion that Brasil has everything it needs in terms of capital, technology and people in strategic areas of the economy where the only thing holding progress back is an
    unresponsive public sector.[/quote]

    If Rio Doce is having such problems, imagine the plight of small and medium sized businesses! The public sector is in ICU and unlikely to respond anytime soon!!

  • conceicao

    Joao, just read how Rio Doce is having trouble siting an aluminum smelter in Brasil primarily due to infrastructure and permitting issues. Seems to underscore again the
    notion that Brasil has everything it needs in terms of capital, technology and people in strategic areas of the economy where the only thing holding progress back is an
    unresponsive public sector. Similarly read that Brasil ranks dead last in a survey of 178 countries in terms of time required for tax code compliance by businesses – 2600
    hours on average – same problem I guess.

  • João da Silva

    Ch.C
    [quote]Under this scenario, it looks like everything could be done with limited foreign input even using Ch.c’s
    numbers.[/quote]

    What do you think, Ch.C ? Give us a feed back, please.

    ConceiÀƒ§Àƒ£o, the problem is not the money needed to build our infrastructure, but the misuse of the cash generated. If we put our act to gether, there will be plenty of investors from U.S. and Europe, like in the late 60À‚´s and the 70À‚´s.

  • conceicao

    If the tariff were dropped and Brasilian ethanol exports ramped to 10 billion gallons annually with a 25% profit margin on sales at the current U.S. price of around $1.65 per
    gallon, Brasil would have $4 billion U.S. annually to reinvest in the industry. Under this scenario, it looks like everything could be done with limited foreign input even using Ch.c’s
    numbers. Feel free to improve upon these numbers or provide better data. I have a 4/17/07 Wall Street Journal article projecting 2007 Brasilian ethanol exports a 2 billion
    gallons, while the article above seems to contemplate a much lower level of current exports – around 700 million gallons I think.

  • João da Silva

    Ch.c
    [quote]no one in Brazil knows how to use a basic spread sheet…to do some forward predictions.

    [/quote]

    I disagree. I used to know how to use it (and still do) 😀

  • João da Silva

    Ch.c
    [quote]Whatever way you look at it, whatever original Brazilian official source it comes from, one thing is sure, it is that no one in Brazil knows how to use a basic spread sheet…to do some forward predictions.
    [/quote]

    I am very curious. Are you an Economist or an Engineer? You dont have to confess, if you dont want to 🙁

  • ch.c.

    What a joke these brazilians…what a joke !
    Another similar Brazilian article :
    “Brazil will need to invest US$ 5 billion per year over the next 20 years to meet the expected world demand for Ethanol. The hypothesis was raised in a study by researcher Cortez Luiz of the University of Campinas (Unicamp), which was presented today in a seminar on agribusiness held at the headquarters of BNDES (Brazilian Development Bank).
    According to the National Energy Information Center (NEIC) by 2025 1,7 trillion of liters (447 billion gals) of gasoline will be consumed yearly. If 10% of this total is substituted with Ethanol, this will require 204 billion liters (53.6 billion gals) of Ethanol per year. If Brazil were to meet this demand, it would require 615 new plants, which would total US$ 31 billion in exports per year and create 5.3 million jobs”

    NOW lets do some basic maths :
    5,3 millions jobs producing US$ 31 billion….EQUALS TO AROUND…..US$ 6000.- per job…per year !
    RIGHT OR NOT ????????

    Ohhhhhh but these US$ 6000.- annual GROSS REVENUE per worker, doesnt include the input costs, such as machinery, trucks, pipeline, mills, acquiring land prices, administration costs, social costs, interests…etc etc…… !!!!!
    And doesntt neither include the transportation,infrastructure, port costs.
    End results ?
    By 2025 these 5,3 millions NEW workers should earn around US$ 200.- per month…AT BEST……to generate US$ 31 billion in exports !!!!!!!!

    Brazil has truly a great future….in more….POVERTY…for milions and millions of its citizens !!!!!!!!

    Viva Brazil, Viva Bin Lula and his 4000 thieves, Viva Ethanol the only product GUARANTEING more poverty by 2025….in Brazil !!!!

    And as you can see….it is not US$ 20 billion that would be needed by 2025 as today above article mentions, but US$ 5 billion per year for the next 20 years….or US$ 100 billion.

    Whatever way you look at it, whatever original Brazilian official source it comes from, one thing is sure, it is that no one in Brazil knows how to use a basic spread sheet…to do some forward predictions.

    Brazilians just goof, goof, goof, cheat, and lie !
    They dont even know what they are talking about.
    They cant even realize that their equations are full of bugs, contradictions and errors !

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