Ricardo de Gusmão DornellesDirector - Renewable Fuels Department
THE BRAZILIAN EXPERIENCE WITH BIOFUELS
Ministry of Mines and Energy
Panama, 06.01.2007
Brazil Biofuels Experience: Summary
1. Introduction
2. Ethanol
3. Biodiesel
4. H-Bio: a New Brazilian Technology
5. Final Remarks
WORLD ENERGY CONTEXT
World economy growth
Demand growth
Climate change reality
High prices for energy
Refining capacity in the limit
Geopolitical instability and conflict at important energy supplier countries
Strong dependency on non-renewable energy sources
THE CHALLENGE FOR ENERGY POLICY
Long term energy supply security
Cheaper prices for energy sources
Keeping the local energy competitiveness
Dealing with climate change and environment
BIOFUELSBIOFUELS
Brazilian Energy PolicyLaw nº 9.478/1997
Objectives established by Law:
To increase the share of biofuels in the national energy matrix;
To protect the environment;
To promote energy security with lesser external dependency;
To protect the consumer best interests through regulation mechanisms and surveillance at the Regulatory Agencies;
To promote free competition.
RENEWABLESOURCES
44.5 %
218.7 MILLION
TOE
Hydroelectricity14.8%
Uranium1.2%
Natural Gas9.4%
Petroleum and Derivatives
38.7%
Other Renewables
Sources2.9%
Sugarcane13.8%Wood and other
Biomass13.0%
Coal6.3%
BRAZILIAN ENERGY MIX - 2006
Source: Brazilian Energy Balance (BEN,2007)
Ministry of Mines and Energy (MME)
RENEWABLENON-RENEWABLE
Brazil0
20406080
100
World
14
86
45 55
%
(1)Production Consumption Net Imports Net Exports
Thousand m3 % of demand % of production
GASOLINE A 21,325 18,656 - 2,668 13%
DIESEL 38,660 41,604 2,943 - 7%
ETHANOL 17,764 14,445 - 3,319 19%
FUEL OIL 15,220 8,680 - 6,541 43%
JET KEROSEN 3,748 4,449 701 - 16%
NATURAL GAS (million m³/day) 21.5 47.8 26.3 - 55%
FuelThousand m3 Thousand m3 Thousand m3
Net Imports Net Exports
Fuel Production and Dependency - 2006
Source: ANP, MAPA e MDIC ( Elaborated by MME – Fev/07)
Self-SuficiencyDependency
(1) Apparent Consumption = production + net imports.
CURRENT MATRIX OF VEHICLE FUELS - 2006
54,5% (2005)
2.9% (2005)
8.4% (2005)8.5% (2005)
25.6% (2005)
0% (2005)
Gasoline C 27.2 + 7.3 = 34.5%
34.1% (2005)
Ethanol (Total)7.3 + 9.9 = 17.2%
16.9% (2005)
VNG3.2%
Diesel48.9%
B23.3%
9.9%7.3%
Gasoline A27.2%
Diesel (Total)48.9 + 3.3 = 52.2%
54.5% (2005)
Anhydrous Ethanol Hydrated Ethanol
*
♦
* Pure Gasoline – Before blending with ethanol♦ Diesel blended with 2% of Biodiesel
CURRENT MATRIX OF VEHICLE FUELS - 2006
57.0%
15.3%
20.8%
6.9%
VNGHydrated EthanolAnhydrous EthanolGasoline A
Ethanol (Total)36.1%
LIGHT VEHICLES(OTTO-CYCLE)
6%
94% Diesel
B2
HEAVY-DUTYVEHICLES
VNG3.2%
Diesel48.9%
B23.3%
9.9%7.3%
Gasoline A27.2%
*
* Pure Gasoline – Before blending with ethanol
♦
♦ Diesel blended with 2% of Biodiesel
ETHANOL
1925: First tests using ethanol blends with gasoline
2006: Sustainability and environmental benefits
Two types of ethanol used, produced and tested in Brazil:
1975: National Alcohol Program (Proalcool)
anhydroushydrated
Main goals at that time:1. To introduce in the market the mixture gasoline-ethanol2. To stimulate the development of pure ethanol motors
Mixed with pure gasoline (20 a 25%)
Directly used in Otto-cycle motors (100%)
1979: Manufacturers begin to sell 100% Ethanol Vehicle
The only remaining incentive nowadays
Incentives established by the Pro-Alcohol in 1975
Alcohol price lower than gasoline price
Guaranteed remuneration to the producer
Tax reduction for hydrous alcohol cars
Loans for alcohol producers to increase their capacity
Gas stations were obligated to sell alcohol
Maintenance of strategical alcohol stocks
The Deregulation of Fuel Market and the Ethanol Fuel
19901991
Maximum Prices at the Gas Stations (Jul/90)
19921993199419951996199719981999200020012002
Liberalization of Consumer Prices: Alcohol and Gasoline (Apr/96)Liberalization of Anhydrous Alcohol prices at the producer (May/97)Petroleum Law defines the transition period for deregulation (Aug/97)
Liberalization of Hydrated Alcohol prices at the producer with the subsidy reduction (Feb/99)End of subsidies for Hydrated Alcohol (Nov/99)
Complete Liberalization of Fuel Prices (Jan/02)
Maximum Prices at the Fuel Distributors (Nov/91)
Constitutional Amendment Nº 09: petroleum monopoly made flexible (Nov/05)
Federal Law n° 10.336/01: Creates the "CIDE" from 2002 on (Dec/01)
Free prices in the whole chain of production and commercialization
Economic Agents of Sugar Cane IndustrySugar and Alcohol Industrial Phase
Fuel Distributors
Gas Stations
Exporters
Sugar Cane Agriculture Phase
Regulatory Domain: Ministry of Agriculture
• 1.000.000 jobs in the countryside• 367 Industrial Plants
• 92% of total gas stations in Brazil have an ethanol pump.
• Free Prices Market
• 160 Operating Distributors• Only distributors may blend ethanol with motor gasoline
• 3,42 Billion litters exported in 2006
Source = MAPA – MME – MDIC - 2006
Regulatory Domain: Ministry of Mines and Energy / ANP (National Petroleum Agency)
Ethanol Figures (2006):Production: 18 million m3
Production Capacity: 20 million m3
Cropped Area for ethanol Production: 3 million hectaresExports in 2006: 3,4 million m3
Exports infrastructure: 4 million m3/yearAs of 2010:
Investments* that will amount US$ 8.6 billion in 77 plantsIncrease in the ethanol production (in comparison with 2006): 6 million m3
Expansion in the sugarcane cropped area: 2 million hectaresExpansion in exports infrastructure: to reach a capacity of 8 million m3/year
BRAZIL (Territorial Extension): 851Total Agriculture Area: 383
of which:Fertile and free areas for agriculture: 91Present cropped area for ethanol: 3
(in million hectares)
SUGARCANE AGRO-INDUSTRY
Source: Ministry of Mines and Energy;Ministry of Agriculture, Livestock and Food Supply - 2007
* Agricultural and Industrial phases
Ethanol in Brazil – Sugar Mills Location - 2007
Source: Ministry of Mines and Energy – Ministry of Agriculture, Livestock and Food Supply - 2007
Production in 2006:
17,8 billion liters
NORTH-NORTHEAST REGION 79 INDUSTRIAL UNITS:
• SUGAR MILLS 8• ETHANOL PLANTS 19• ETHANOL AND SUGAR 52
91% of the ethanol production
9% of the ethanol production
Operating Sugarcane MillsSugarcane Mills under construction
↑ 11% (2005)
SOUTH-CENTRE REGION 288 INDUSTRIAL UNITS:
• SUGAR MILLS 8• ETHANOL PLANTS 59• ETHANOL AND SUGAR 221
Amazon Forest
Pantanal
Atlantic Forest of Brazil
Sugarcane CropsCANASAT Project
Source: IBGE (Preservation Areas) and CTC (Sugarcane Crops)
Center-South Region Crops Location – 2005/2006
A Region that growssugarcane crops for more than 30 years
More than 1,300 miles far fromthe Amazon Forest boundaries
9 multinational automotive manufacturers settled in Brazil are producing nearly 100 different models of Total FFV
2006: Total FFV – a Brazilian reality
Source: Ministry of Development, Industry and Foreign Trade;Brazilian Association of Automotive Vehicle Manufacturers - 2007
Any mixture of gasoline and ethanol can be used, from 0 to 100%; In 2006: The domestic flex-fuel vehicle sales represented 78% of all 1,824,266 light vehicles sold in the same period (imports included);
Total domestic flex-fuel vehicle sales (2003-2006): 2.67 million units)
Source: Ministry of Mines and Energy - Brazilian Energy Balance – 2006and Laura Tetti – USP – 2002
Ethanol in Brazil: Oil economy and environmental benefits
+ Total economy of 1,194 billion boe or 23 months of the present Brazilian petroleum production..
FUEL DEMAND FOR LIGHT VEHICLES IN BRAZIL
0
20
40
60
80
100
120
140
160
180
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
YEAR
106 BEP
This curve shows how much gasoline would be necessary to satisfy the fuel demand for
light vehicles.
Total economy of 813 millions boeor 16 months of the present Brazilian
petroleum production.
TOTAL DEMAND FOR LIGHT VEHICLES (GNV INCLUDED)
GASOLINE PRODUCTIONGASOLINE CONSUMPTION
TOTAL DEMAND FOR LIGHT VEHICLES (WITHOUT GNV)
Accumulated economy of 8 years of pure gasoline national consumption.
+ US$ 61billions
+ US$ 16 billions
IN THIS PERIOD, WITH THE ETHANOL USAGE, THE EMISSION OF 675 MILLION TONNES OF CO2 WAS AVOIDED
Source: DATAGRO (in “New trends to the ethanol supply chain in Brazil”, Simoes, R.B., Master Thesis, Universiteit Van Tilburg, Holanda, Jul-2006)
Cost of Ethanol Production
154
75
324651
0,00
0,20
0,40
0,60
0,80
1,00
1,20
UE (Cereais) EUA (Milho) Austrália(Cana-de-Açúcar)
Tailândia(Cana-de-Açúcar)
Brasil (Cana-de-Açúcar)
US$
/ lit
ro
US$ / barril
US$ / barril
US$ / barril
US$ / barril US$ / barril
Production Durin
g the Year
Season Productio
n
EU - Wheat USA - Corn AustraliaSugarcane
ThailandSugarcane
BrazilSugarcane
US$ /
Lite
r
0 1 2 3 4 5 6 7 8
T rig o
M ilh o (E U A )
B e te rra b a
C a n a -d e -A ç ú c a r (B ra s il)
Source: F.O.Licht (in “New trends to the ethanol supply chain in Brazil”, Simoes, R.B., Master Thesis, Universiteit Van Tilburg, Holanda, Jul-2006)
Another Competitive Advantage of Brazilian Ethanol
Wheat
Corn
Beet
BrazilSugarcane
Energy Balance of Ethanol Production
Energy Output / Energy Input
Ethanol Perspectives: Aviation Industry
• Brazilian Aviation Industry sells the first 100% ethanol aircraft, the Ipanema (EMB-202) a single-seat agricultural utility .
• Embraer, in partnership with an Italiancompany, announces the development of thefirst aircraft with Flex-Fuel technology.
The EMB-202 wasawarded with the prizes
"Flight InternationalAerospace Industry
Award" General Aviationcategory (June /2005) in Paris and The Scientific
American 50 (December/2005) as oneof the best inventions of
the year in the world.
Ethanol Contribution to Hydrogen Economy
+
and ... =
+
One step towardHydrogen Economy!
BIODIESEL
Castor Beans Sunflower Palm Oil CottonSoy
BRAZIL: Raw material diversity for production of Biodiesel
0
10
20
30
40
50
60
70
80
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
JAN-
JUL/
06
US$
/ ba
rrel
Oil - Brent Dated
Biodiesel versus Ethanol: Different ReasonsEthanol (1975): basically economics. Reasons for biodiesel (today):
Economic: high crude oil prices again, but Brazilian dependence is now very low
Social: needs for jobs and permanent settlement of families in countryside
Environmental: to introduce another renewable and friendly fuel
1975: Pro-Alcohol is launched
Crude Oil Prices
2003: Biodiesel Program
Law 11.097/2005: Establishes minimum percentages to mix biodiesel to diesel, besides the monitoring on the introduction of this new fuel into the market.
Biodiesel: Regulatory Framework
2005to
2007
Authorized
Potential Market: 840 million Liters/year
2%
2008to
2012
Mandatory
Sound Market:1 billion Liters/year
2%
From 2013on
Mandatory
Sound Market:2,4 billion Liters/year
5%
SOCIAL FUEL CERTIFICATE: How it works?
If the biodiesel producer wants to have the Social Fuel Certificate, it must:
1) Buy regularly a minimum amount of raw material that comes from the household agriculture (small farmers, according to
previously defined criteria); and …
2) Provide the appropriate technical assistance: certificated seeds, rural technicians, best practices etc.; and …
3) Sign a contract with each small farmers in terms that must be regarded as proper by a rural workers’ union.
BIODIESEL: FEDERAL TAXATION POLICYLaw n° 11.116/ 2005
50 100 150 200 250
70General Household Agriculture Aliquot
151Agribusiness: Castor Oil
or Palm Oil + North, Northeast ans Semi-arid
218General Aliquot
0Household Agriculture +
Castor Oil or Palm + North,Northeast and Semi-arid
BIOD
IESE
L
DIESEL 218CIDE + CIDE + Pis/PasepPis/Pasep and and CofinsCofins
R$ / m3
-31%
-68%
-100%
Biodiesel: CIDE is not present + Tax on Industrialized Products has zero aliquot
CIDE: A Federal Tax that is present on fuels. It is an abbreviation form of “Contribution of Intervention in the Economic Domain”PIS/PASEP and Cofins: A Federal Tax for social security
Social Fuel CertificateBenefits (Detaxation)
BIODIESEL: Producers in Commercial Operation and Projects Forecast (As of Dec/2007)
Source: Survey by MME/SPG (Jan/2007)
CREATED JOBS = 1 MILLION(Household Agriculture = 205 THOUSAND FAMILIES)
Nowadays more than 4,900 gas stations are selling biodiesel in Brazil
3,03865TOTAL94819• NEW PROJECTS
2885• UNDER CONSTRUCTION
1,13722• IN AUTHORIZATION PROCESS (ANP)
66419• AUTHORIZED BY ANP
Installed Capacity
(MM L/year)
Number of Plants
In Authorization Process (ANP/RF))Under Construction
Key to Symbols:In Commercial Operation
New Projects
Biodiesel Auctions
The Federal Government has established:
• The mandatory B2 mixture is now anticipated for January of 2006, only for biodiesel produced by industries that have the so-called Social Fuel Certificate and commercialized in public auctions promoted by the National Agency of Petroleum – ANP.
• The biodiesel with certificate acquired in the auctions must beacquired by producers and importers of petroleum diesel.
H-BIO: A NEW BRAZILIAN TECHNOLOGY
THE EFFICIENCY OF H-BIO PROCESS
100 liters of any vegetable oil
96 liters of diesel oil
2,2 Nm3 of propane
BiodieselBiodiesel
Glycerin Glycerin OthersOthers
Refinery
Hydrogen Fractions of diesel
Gas Station
Distributors
Agribusiness
Plantation Oil Crushing
Grains
RefinedOil
DieselDiesel
H-BIO
B2 or B5mixture
DieselOR
TransesterificationUnitEthanol Ethanol
or
MethanolMethanol
OROR
BIOFUELS PRODUCTION
FINAL REMARKS
ENERGY PRODUCTION
X
FOOD PRODUCTION
GLOBAL CHALLENGE
ANDAND
ENERGY PRODUCTIONX
FOOD PRODUCTION
GLOBAL CHALLENGE
0,2 to 0,47%(0,4% to 1% of arable
area)
1,7 to 4,0OILSEED CROPS FOR B2 and B5
0,35%(0,8% of arable area)
3SUGARCANE AREA FOR ETHANOL
11%(24% of arable area)
91AVAILABLE FOR EXPANSION
45%383ARABLE AREA
100%851BRAZIL (TOTAL)
PERCENTAGEAREA
(EXTENSION)
In millions of hectares
AND BRAZIL
EVOLUTION OF ETHANOL PRODUCTIVITYSUGARCANE PRODUCTIVITY
(tonnes of sugarcane / ha)
746247
01020304050607080
1975 1990 2005Sugarcane Production 2006 = 457 106 t
33% of the world productionWorld Average = 69 t/ha
ETHANOL PRODUCTIVITY (liters / tonnes of sugarcane)
867469
30
40
50
60
70
80
90
1975 1990 2005
ETHANOL PRODUCTIVITY(m³ / ha)
3,24,6 6,6
0123
4567
1975 1990 2005
NECESSARY LAND AREA FOR TOTAL SUBSTITUTION (IN VOLUME) OF OIL CONSUMPTION
Source: Data for oil consumption - British PetroleumData for land areas - FAO
(*) Average biofuels production: 3 thousand liters per hectare
Necessary Land Area for Biofuels (*)
103
Barrels/DayBillion
Liters/Year 103 hectars
Total North America 24.874,6 1.443,6 481.200 Total S. & Cent. America 4.775,9 277,2 92.390
Total Europe & Eurasia 20.350 1.181,0 393.676 Total Middle East 5.739 333,0 111.012
Total Africa 2.763 160,3 53.445 Total Asia Pacific 23.957 1.390,4 463.456 TOTAL WORLD 82.459 4.785,5 1.595.179
REGIONConsumption
Land Area for Agriculture
% of the agriculture land
area necessary for biofuels
Total Land Area of the
Region
% of the total land area necessary for
biofuels
103 hectars % 103 hectars %
Total North America 591.707 81% 2.016.412 24%Total S. & Cent. America 614.147 15% 1.834.172 5%
Total Europe & Eurasia 813.973 48% 2.738.369 14%Total Middle East 297.968 37% 391.390 28%
Total Africa 1.135.372 5% 2.786.664 2%Total Asia Pacific 1.528.715 30% 2.909.449 16%TOTAL WORLD 4.981.881 32% 12.676.457 13%
REGION
AMERICA
NECESSARY LAND AREA FOR TOTAL SUBSTITUTION (IN VOLUME) OF OIL CONSUMED
Source: Data for oil consumption - British PetroleumData for land areas - FAO
(*) Average biofuels production: 3 thousand liters per hectare
Necessary Land Area for Biofuels (*)
Country Land Area
for Agriculture
% of the agriculture land area
necessary for biofuels
Total Land Area of the
Country
% of the total land area
necessary for biofuels
103 Barrels/
Day
Billion Liters/ Year
103 hectars 103 hectars % 103 hectars %
USA 20.655,5 1.198,7 399.580 416.902 96% 916.192 44%Canada 2.241,3 130,1 43.359 67.505 64% 909.351 5%Mexico 1.977,8 114,8 38.261 107.300 36% 190.869 20%Total North America 24.874,6 1.443,6 481.200 591.707 81% 2.016.412 24%Argentina 421,3 24,4 8.150 128.747 6% 273.669 3%Brazil 1.818,5 105,5 35.180 263.600 13% 845.942 4%Chile 257,5 14,9 4.981 15.242 33% 74.880 7%Colombia 230,4 13,4 4.457 42.051 11% 110.950 4%Ecuador 148,2 8,6 2.866 7.250 40% 27.684 10%Peru 138,8 8,1 2.685 21.210 13% 128.000 2%Venezuela 553,2 32,1 10.701 21.640 49% 88.205 12%Other S. & Cent. America 1.208,0 70,1 23.369 114.407 20% 284.842 8%Total S. & Cent. America 4.775,9 277,2 92.390 614.147 15% 1.834.172 5%
COUNTRY
CONSUMPTION
NECESSITY OF AGRICULTURAL LAND AREA ACCORDING PRODUCTIVITY OF DIFERENT RAW MATERIALS
SUBSTITUIÇÃO TOTAL DO PETRÓLEO, 50%, 25% e 5 %
MUNDO
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
600 1.000 2.000 3.000 4.000 5.000 6.000 7.000
Produção (litros/hectare)
% d
a ár
ea a
gric
ola
nece
ssár
ia p
ara
bioc
ombu
stív
eis
5%20%50%100%
Different sceneries for oil substitution (5%, 20%, 50%, 100%)
SUNFLOWER (880 l/ha)PEANUTS (866 l/ha)
JATROPHA (2.000l/ha)
SOYA (600 l/ha)
CASTOR OIL(500-1.000 l/ha)
SUGARCANE (*) (5.000 l/ha)
PALM OIL(5.000 l/ha)
CELULOSIC ETHANOL (*) (7.000 l/ha)
Production (l/ha)
(%) P
ropo
rtio
n of
nec
essa
ry
agric
ultu
ral l
and
area
for b
iofu
els
13,7 %
HEY! WHAT ARE WE WAITING FOR?
INTERNATIONAL TENDENCIES (1/3)Social and Environmental Certification demanded by
ImportersCriteria of sustainability Regulation of labor market More rigorous environmental concerns
USA: local production and imports – focus on ethanol33 billion liters from renewables until 2012Goal to reduce 20% of gasoline consumption in 10 years
(potential demand of imports > 400 billion liters from renewables)
Caribbean – exports to USA based on CBITax exemption (ways to export to USA)
Non-tariff barriers?
European Union: solution to the agricultural questionBiofuels faced as an alternative to agricultural subsidies, with focus
on biodieselTendency to local production, even though with raw material imports
(no biofuels)Goal to 2010: 5,75% of consumption from renewables – 16 billion
liters of ethanol and 5,5 billion liters of biodiesel
ChinaGoal to 2020: consumption of 16 billion liters of ethanol and 5,5
billion liters of biodiesel2006 Production: 5,3 billion liters of ethanol
India:E5 mandatory in 10 provinces (0,4 billion liters of ethanol)
INTERNATIONAL TENDENCIES (2/3)
International Tendencies (3/3)Japan:
2030 Target: to reduce oil dependence from 98% to 80%E10 use in 10 years
ArgentinaMandatory B5 and E5 in 2010 (650 million liters)
PeruMandatory B2 in 2009 (56 million liters)Mandatory B5 in 2011 (138 million liters)Mandatory E7,8 in 2010 (107 million liters)
ColombiaMandatory E10Mandatory B10
Biofuels: perspectives in the near future...
World growing demand
More rigorous environmental concerns
Increase in international trade
Improvement on productivity and on energy balance of biofuels:
• Biodiesel: traditional crops (600 L/ha) versus new oilseeds (6.000 L/ha)
• Ethanol: new production methods (bagasse/cellulose hydrolysis)
The achieve of this technology will bring:Energy AND Food Production, not versus!
But it requires to be a common product and negotiated in an international environment
A market to be established itself.
Biofuels = Commodity?Commodities general characteristics:
Patterns in a context of international tradeCompatible Specifications
Possibility of delivery on due dates settled between buyers and sellers
Negotiation with traders
Possibility of storage or sale in standard units of trade
liter, barrel, m3 ...
CONCLUSIONBiofuels do contribute to:
Energy security;
Improvement of environment conditions in urban areas;
Creation of jobs and income in rural areas;
Economic development.
However, in order to achieve this reality, it is required:
Governmental decision with adequate public policies
Global efforts towards creation of biofuels international market
Governmental policies do exert strong influence on climate for investment because they can produce immediate impacts over costs,
risks and barriers to competition.
CONCLUSION
ENVIRONMENTAL MOTIVATION !!!
BIOFUELSBIOFUELS
... A SOLUTION WITH SOCIAL INCLUSION !!!
THIS CHANGE IS POSSIBLE
THANK YOU!
Ricardo de Gusmão DornellesDirector - Renewable Fuels Department