Brazil races to keep ahead of world ethanol demand

SAO PAULO, Brazil (Reuters) – The cane-based ethanol industry in Brazil, the world’s biggest, is scrambling to invest in port infrastructure to keep ahead of expected growth in world demand for the biofuel.

Medium- to long-term forecasts for Brazilian ethanol exports vary widely, depending on the expert, but most analysts agree Brazil will have to invest in infrastructure if it is to continue to expand ethanol exports beyond 2010.

“Ports will need 800 million reais ($320 million) in investments, if Brazil expects to meet forecasts of shipping 10 billion liters per year,” Fernando Fleury, logistics professor at the Federal University of Rio de Janeiro, said.

The Sao Paulo Cane Agroindustry Union, trading house Coimex and Transpetro, the logistics arm of Brazil’s national oil company, Petrobras, say exports will rise to somewhere between 8 billion and 10 billion liters in the next few years.

Accurately projecting ethanol exports just a year out, however, has proven difficult. Brazil shipped a record 2.6 billion liters last year, surpassing all forecasts and topping the previous year’s exports by more than 135 percent.

But market conditions have now changed drastically. The dollar is much weaker and domestic ethanol prices are higher, making shipments to the United States, the No. 1 importer of Brazilian ethanol in 2004, less likely. India, which suffered from drought last year, is likely to import less as well.

Industry analyst Datagro is more conservative than others in its forecast, which says exports are unlikely to surpass 6 billion liters by 2010 and exports will fall in 2005 to 2.3 billion liters from 2004’s record 2.6 billion.

Outside of Brazil, countries have been slow to embrace ethanol as a fuel additive and many aggressive projections for Brazilian exports depend on countries such as Japan making a 2 percent to 5 percent blend in gasoline mandatory. High petroleum prices and global warming are certainly forcing countries such as the United States, Japan, China, India and Europe to reconsider their energy matrices.

But it is still unclear whether these countries will be able to successfully implement national ethanol programs — or be willing to rely on imports from Brazil while it remains the only major world exporter, one that, in the end, may not be able to meet their needs.

No bottlenecks are seen this year as exports should fall slightly, according to forecasts by Datagro and Unica, the Sao Paulo cane union. And investments in port capacity that are now coming online should keep ahead of export demand expected from Japan, China, India, Europe and Venezuela for the next few years at least. “In a few weeks, the new TEAS ethanol terminal will open at Santos,” said Paulo Costa, head of project development at Crystalsev, Brazil’s biggest ethanol export group. “We think Santos will be the main outlet for Brazilian ethanol in the future.”

Crystalsev has a 38 percent stake in TEAS, while Cosan, Brazil’s largest sugar and ethanol group, the Nova America cane mill and U.S. agribusiness giant Cargill also hold shares. The investors are providing $11.5 million to build 40,000 cubic meters of storage capacity and loading berths. In a final phase, TEAS will be linked by railway to Brazil’s cane-rich center-south region.

“Now only 10 percent of the ethanol leaving Santos comes by train. We want that to rise to 50 percent in three years,” said Costa. “Just to give you an idea, 600 million liters a year would require 20,000 tanker trucks to move it.”

Santos is on the coast of Sao Paulo, Brazil’s main sugar cane state, and Petrobras is studying extending its ethanol pipelines, which now connect the state’s cane region with its Paulinia distribution center, to Santos.

“The terminal will have an initial capacity to ship 1 billion liters per year. By mid-2006, that will be doubled,” said Plinio Nastari, the president of Datagro, which has a 2 percent stake in the TEAS terminal at Santos, Latin America’s largest port. Nastari said Brazil already had the capacity to ship 300 million liters of ethanol per month and shipped nearly 400 million liters per month in mid-2004. The TEAS terminal will boost Brazil’s annual capacity to 4.6 billion liters next month and to more than 5.6 billion next year.

Although Santos is likely to be Brazil’s largest ethanol outlet for some time, it is unlikely to be the only port that will expand Brazil’s export capacity.

Paranagua port in the south is expanding its liquids terminal, which will have a capacity to house 35,000 cubic meters of ethanol.

Fleury said the bulk of these projected investments would likely go to expanding ethanol capacity at the Ilha D’Agua terminal in Rio de Janeiro.

A study by Transpetro, Petrobras’ logistics arm, is also weighing an ethanol pipeline in northern Rio state with a floating terminal, which would revive a now declining cane industry in that part of the state, once the main sugar producing state.

Brazil’s northeast ethanol producers are also studying expansion in Pernambuco, Maceo and Rio Grande do Norte states.

“Storage tanks are the bulk of the investment. But none of the ports in Brazil today have the capacity to meet the goals of 10 billion liters per year,” Fleury said.

(cf. news of June 13, 2005.)

Source

www.reuters.com June 14, 2005.

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