Thursday, June 4, 2009

Brazil Ethanol Pipeline Projects May Join Forces


Operators of three, separate billion-dollar Brazilian ethanol pipeline projects said they are open to coordinating efforts to bring the biofuel from new distant production areas to the main local consumer and export markets. “There are good and bad points with each of the (pipeline) projects,” said Alberto Guimaraes, president of pipeline project PMCC, the joint venture of the state-run oil company Petrobras, Japan’s trading company Mitsui and local construction company Camargo Correa. “Naturally, I see the rival companies, not merging, but in partnerships,” he said from the sidelines of the Ethanol Summit in Sao Paulo.

PMCC, that should link Uberaba in Minas Gerais state to the sugarcane and refining center of Paulinha in Sao Paulo state, and then to an export terminal in Sao Sebastiao and Ilha d’Agua in Rio de Janeiro, is due to start operating in 2010. Investments in the project, which should be completed in 2012 and transport 12 billion liters a year, should reach $1.5 billion. Brazil’s center-south should produce about 28 billion liters of ethanol this season.The pipelines would improve the profit margins for ethanol producers, who are limited to moving the biofuel by railway at best and trucks in the most expensive case.

Brazil has some limited multiuse pipelines through which mills and fuel distributors ship ethanol but they only serve a fraction of the domestic market and are unusable for the export market as impurities from other fuels like gasoline are unacceptable in outbound shipments to international buyers.

Brazil’s cane industry is increasingly opting to expand in more remote areas in the land-locked center-west, to find cheaper and more abundant land. This makes pipelines all the more essential for getting the fuel to the main consumer markets in the big cities and to the ports.

Although the local flex-fuel car fleet will drive demand for ethanol for the next decade, Brazil could export 25 billion liters of the biofuel by 2025, according to some estimates, roughly equal to current domestic consumption and production.

Sergio Van Klareven, president of Uniduto – a project being developed by some of the biggest sugar and ethanol milling groups Cosan , Sao Martinho and Crystalsev, also admitted that there may be cooperation between the projects.

“We can not hide from analyzing all and any possibility. It seems that our projects are fairly similar at some points,” said Klareven.

The Uniduto project, which was conceived to assure that mills’ access to the main consumer markets would not be under the control of Petrobras, unites 88 mills.

Petrobras has said it will be a major player in the ethanol sector and expects to produce 3.5 billion liters of the fuel by 2013 through partnerships in mills and projects.

Rogerio Manso, an former director of Petrobras and current director of Brenco, which is beginning ethanol production at two mills in Brazil this season, said there could be eventual partnerships or cooperation between the pipeline projects.

Brenco has its own 8-billion-liter-a-year pipeline project linking the center-west to Sao Paulo, as part of a plan to export most of its 4 billion liters production seen by 2015.

“The big question is what type of convergence there could be in order to give a response (about partnerships),” Manso said. “This will depend on the price and date of starting operations… Everyone here is in talks.” (Writing by Reese Ewing; Editing by Christian Wiessner)

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