Shell and Brazil’s Cosan to form $12 billion biofuels JV

Royal Dutch Shell Plc and Cosan S.A., Brazil's second largest and the world's fifth-largest producer of ethanol, yesterday announced plans for a massive $12-billion joint venture to produce and sell ethanol, betting heavily on an alternate transportation fuel.

Brazil's 30-year-old ethanol fuel programme is the world's first initiative for a sustainable biofuels economy with the most successful alternative fuel policy since the government made it mandatory in1976 for all light vehicles to run on a blend of ethanol with gasoline.

This will be Shell's first serious step into the biofuels sector and the biggest investment by a Western oil major in the production and sale of ethanol.

It overshadows British Petroleum's acquisition of a 50 per cent stake in 2008 for $59.8 million in Brazil's Tropical Bioenergia, SA, a $1 billion joint venture between Brazil's Santelisa Vale and Maeda Group to build a 115 million gallon a year ethanol refinery in Brazil. (See: BP takes 50 per cent stake in $1 billion Brazilian bio fuel venture, Tropical BioEnergia SA)

Under the terms of the deal, both companies would contribute certain existing Brazilian assets to the JV, where the Anglo-Dutch oil major will bring in its Brazilian downstream assets, including 2,740 branded retail sites, supply and distribution assets, and the aviation fuel business, and $1.625 billion in cash, paid over two years.

Cosan will contribute its sugarcane crushing capacity of 60 million tonnes per annum from 23 mills, ethanol production capacity of 2 billion litres annually, seven existing plants, two under construction and a further three to be built in the next three-to-four years.