Transcript www.ibrademp.org.br

Private Equity Funds
Renewable Energy Investment
Opportunities
SEPTEMBER 2006
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Summary
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The diminishing worldwide oil reserves coupled with increasing consumption in emerging
economies and environmental concerns are causing governments and corporations to
reassess their energy strategies. Important legislation has been passed globally to
encourage the development, production and usage of alternative renewable fuels
Brazil has been producing sugarcane based ethanol since 1970, has a national
distribution infrastructure in place, is a pioneer in automotive flexible fuel technology, is
the worlds lowest cost ethanol producer, and has available land to increase current
production by 100% without encroaching on the Amazon rainforest. It is also the world’s
second largest soybean producer which confirms its potential in the bio diesel sector
We are convinced that the bio fuels sector will significantly outperform the GDP in the
next decade.
We are also confident that there is opportunity for Private Equity Funds to deliver
excellent returns as a result of carefully selected investments throughout the Brazilian
agri energy value chain
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Oil Consumption Increase
According to the US EIA’s Annual Energy Outlook (2006), oil prices are not likely
to ease in the coming quarter century . In accordance with new global
consumption patterns, EIA estimates that oil prices will hover near or above $50
through 2030.
Source: Energy Information Administration
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Environmental Concerns
"There is new and stronger evidence that most of the warming observed over
the last 50 years is attributable to human activities"
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Beginning of a New Era
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What is Ethanol ?
Ethanol is a high octane clean burning alcohol that can be distilled from multiple natural
products such as corn, sugar beets, sugar cane, switch grass, other biomass or any type of
cellulose waste. Its applications are
Human consumptions
Industrial, medical, cosmetic
transportation fuel
Advantages include the fact that it is a renewable source of energy, reduces carbon emissions by
up to 80% in comparison to gasoline, and emits no sulphur dioxide. The principal functional
disadvantage is lower fuel efficiency (25% less than gasoline).
Ethanol from Sugarcane is the lowest in production costs and highest energy yields. Brazilian
cane based ethanol costs at least 50% less that US Corn ethanol. Energy yields of sugar cane
ethanol are up to 4 times other feed stocks.
Ethanol can be used as fuel for automobiles either alone (E100) in a modified engine or in a
gasoline blend for standard petroleum engines
Ethanol blends reduce the consumption of petroleum fuels, as well as air pollution. In Brazil
gasoline has a mandatory 20-25% ethanol content.
In the US Ethanol is also increasingly used as oxygenated additive for standard gasoline, in
replacement of methyl t-butyl ether (MTBE), substance responsible for groundwater and soil
contamination.
Brazil has developed the technology for flex fuels cars that run any blend of gasoline and
ethanol offering the consumer flexibility to choose at the pump.
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Environmental Aspects of Ethanol
Ethanol is a renewable source of energy:
It is primarily the result of conversion of the sun's energy into usable energy.
Ethanol has a positive energy balance:
It yields more energy than it takes to produce it. According to American
Coalition for Ethanol it takes 35.000 BTU to turn a bushel of corn into a gallon
of ethanol that contains 77.000 BTU
Ethanol has a positive impact on air quality:
Burns more cleanly than unleaded gasoline
Reduces greenhouse gas emissions by 12-19% in a 10% blend. (Argonne
National Lab)
Reduces carbon emissions by up to 80% and eliminates sulphur dioxide
emissions
Reduces greenhouse gas emissions by 35-46% and reduces fossil energy use
in and a 50-60% when used as a motor fuel (Argonne National Lab)
Ethanol is highly biodegradable, making its usage safer for the environment
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Some Economic Highlights
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US
• In 2005 the ethanol industry added US$ 32.2 billion to American GDP
•
•
Of which US$ 5.1 billion were spent on raw material, other inputs and
goods and services.
•
It is expected that RFS1 will create additional US$ 6 billion in new
investments in renewable fuel production facilities by 2012.
Brazil
• The sugar and alcohol industry will turn over in excess of R$ 34 billion
(US$ 15.8 billion) during the 2006/2007 crop, an increase of 10% over
last year's crop.
•
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Investment in new crushing facilities expected to take place until 2010 is
over US$ 13 billion, of which US$ 5 billion are already in progress.
RFS Renewable Fuel Association Industry Outlook 2006
2 UNICA – União da Agroindustria Canavieira de São Paulo
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Sugar Cane Ethanol Production
Sugar cane is harvested manually or mechanically and then sent to a
processing plant where it is roller-pressed to extract the cane juice and
bagasse (biomass). The juice is then either dried to produce sugar or
fermented for alcohol production.
The liquid is fermented by yeasts that break down sucrose into CO2 and
ethanol. The ethanol is then distilled, yielding hydrated ethanol (5% water).
The acidic residue of the distillation is neutralized with lime and sold as
fertilizer. The hydrated ethanol may be sold as automotive fuel or dehydrated
and used as additive or for industrial purposes.
The average cost of production in Brazil, including farming, transportation
and distribution is around U$ 17 cents per liter (US$ 0,63 per gallon).
The dried bagasse may be used to generate energy used in the production
process itself, or for sale into the energy grid.
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Sugar Cane Ethanol Production
Brazil is the lowest cost producer of sugar and ethanol worldwide
Sugar production costs
(US$ cents/ pound)
28.60
8.90
10.40
11.20
12.50
Brazil
Thailand
Australia
South Africa
15.00
USA
EU
Ethanol production costs
(US$ / liter)
0,70
0,26
0,31
0,29
9
0,74
0,34
0,17
Brazil
Australia Thailand
Source: Credit Suisse and Prospectiva Consultoria estimates
India
USA
EU
EU (Corn)
(Wheat)
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Global Demand
•
Transportation accounts for more than 50 per cent of the global oil consumption,
approximately
13.2 billion liters per day. The US consumes around 3.3 billion liters per day and Europe around 2.6
billion liters per day, but the consumption in developing countries such as China and India is
increasing rapidly.
•
The annual ethanol fuel consumption is currently at 36 billion liters, or approximately 2.5 per cent. of
total gasoline used for transportation worldwide.
The following table/graph illustrate how demand for ethanol is projected to increase:
Ethanol Demand (Billion litres)
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2003
2005
2010
60
Brazil
12.87
14
17.41
50
USA
10.6
13.25
18.93
Canada
0.38
0.76
1.51
EU
1.51
4.92
12.87
Japan
0.76
1.89
7.19
Others
1.51
1.51
2.27
Total
27.63
36.33
60.18
Source: New York Board of Trade
(Billion liters)
Region
40
30
20
10
0
2003
2005
2010
Brazil USA Canada EU Japan Others
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Global Supply
Country
2005 (Mi liters)
United States
16,139
Brazil
15,999
China
3,800
India
1,699
France
908
Russia
749
Germany
431
South Africa
390
Spain
352
UK
348
Thailand
299
Ukraine
246
Canada
231
Poland
220
Indonesia
170
Argentina
167
Others
3,838
Total
45,988
África do Sul Outros
1%
12%
Rússia
França 2%
Brasil
37%
2%
Índia
4%
China
9%
E.U.A
33%
Brazil and the United
States represent 2/3 of
the global production of
ethanol
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Fonte: F.O. Litch
Brazilian Ethanol Production
The “Pro Alcool” in the early 70s and current flex fuel vehicles programs have made Brazil the
leading country in alternative fuel usage. It is the largest, consumer and exporter of ethanol in
the world. Brazil crushes 383 million tons of sugar cane/year, producing 15.3 billion liters of
ethanol and 27 million tons of sugar.
DOMESTIC
ETHANOL
15.3 billion liters
SUGAR
27 million tons
EXPORTS
13.2 billion
liters
2.1 billion
liters
12 million
tons
15 million
tons
Ethanol is blended with all gasoline in a 20-25% mix or sold pure (100% hydrated ethanol).
Most of the production is sold locally.
Sources: F.O. Licht’s
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Brazilian Ethanol Local Consumption
Brazilian Light Vehicles Market Sales
5%
100%
20%
80%
60%
73%
40%
20%
0%
jan/03
jun/03
nov/03
Flex (Alcohol or Gasoline)
abr/04
set/04
Alcohol Only
fev/05
Gasoline
jul/05
dez/05
Diesel
Source: Anfavea - 2006
Brazilian Potential for Expansion
Brazil has 90 million hectares of potential agricultural use.
The country has unique conditions to attend world’s increasing
demand without encroaching the Amazon Rain Forest
Amazon
Rain Forest
Area of
Expansion
Potential
Area of
Current
Plantation
Source: EMBRAPA, UNICA
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Brazil
Million hectares
Amazonic Forest
Pastures
Protected areas
Annual crops
Permanent crops
Cultivated forest
Cities, lakes and roads
SUB-TOTAL
Other uses
Available land
TOTAL
345
220
55
47
15
5
20
707
38
106
851
Source: IBGE e CONAB – adapted by MAPA
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S&A MILLS IN OPERATION – SEASON: 2005/06
PIAUÍ
1 MILL
PARÁ
CEARÁ
2 MILLS
AMAZONAS
MARANHÃO
5 MILLS
1 MILL
4 MILLS
TOCANTINS
1 MILL
R. G.NORTE
3 MILLS
TOTAL = 347
PERNAMBUCO
28 MILLS
PARAÍBA
8 MILLS
SERGIPE
MATO GROSSO
12 MILLS
4 MILLS
BAHIA
ALAGOAS
5 MILLS
GOIÁS
26 MILLS
15 MILLS
25/07/2006
MATO GROSSO DO SUL
ESPÍRITO SANTO
9 MILLS
6 MILLS
PARANÁ
MINAS GERAIS
27 MILLS
30 MILLS
RIO GRANDE DO SUL
SÃO PAULO
RIO DE JANEIRO
1 MILL
147 MILLS
8 MILLS
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Biodiesel
Recent Brazilian legislation has established that all diesel
fuel sold from 2008 onwards contain a 2% bio diesel
blend increasing to 5% from 2013.
Estimated assured demand 1 billion lts. rising to
2.5billion lts.
Biodiesel can be made from any oilseed or any source of
fat. (animal or vegetal)
Brazil is the second largest producer of soy beans;
Advantages are similar to ethanol: renewable energy,
environmental friendly, low producing cost in Brazil,
balance of trade.
Challenges of a new industry: capitalization, execution
risk, management, logistics
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- MOBILITY -
-INSECTICIDES BIOLOGICAL CONTROL;
RESISTENT VARIETIES
-CHEMICAL INDUSTRY SUCRO-CHEMISTRY
ALCOHOL – CHEMISTRY
REPLACING
PETRO-CHEMISTRY
(PLASTICS, LYSIN)
RENEWABLE FUELS
(LIQUID FUELS)
REPLACING LIQUID
FOSSIL FUELS
SUGARCANE, OR
CORN, OR
SOYBEAN, OR
BEETS, OR.....
AGRI-ENERGY
-POWER AGRICULTURAL FIBERS
REPLACING FOSSIL
FUELS FOR ELECTRICITY
-JOBS/INVESTMENTS -
-POLLUTION LOCAL (GASES EMISSIONS)
REGIONAL (ACID RAIN)
GLOBAL (CARBON UPTAKE)
-FERTILIZERS AGRICULTURAL RESIDUES
(FROM AGRI-INDUSTRIAL)
RETURNING TO SOILS
JOBS CREATION (MILLIONS)
IN A DECENTRALIZED WAY
IN THE RURAL SECTOS
-TECHNOLOGY BREAKTHROUGHS (FFV;
HYBRIDS FFV; BLENDS
FOSSIL – RENEWABLE;
GMO; BIOREFINERIES
A GREAT REVOLUTION – A NEW GREEN REVOLUTION: PEACE;
MARKET ACCESS AS A WAY FOR A BETTER FUTURE FOR
ALL..... FOR THE EARTH!!!
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Ladies and Gentlemen
In the last few months we are all seeing a mounting tide of interest in ethanol,
biodiesel and in all sorts of renewable fuels. Of these, ethanol, be it produced from
corn or from sugar cane, is the one that occupies the center of attentions.
This is due , in no small measure to the Brazilian experience and entrepeneurship.
My country was the first to decide to face the risks of a new technology and to
incentivate the producers, the automakers and the consumers to participate in the
‘alcool project PROALCOOL, thus making the vision of an enormous fleet of cars
moved by ethanol a reality.
Allow me a brief lpersonal digression: I cannot hide my enormous pride in saying that
this famous adventure got the first impulse, in 198x, when the then vice Governor of
the State of São Paulo wrote a letter to President Geisel (who had been president of
Petrobras and therefore knew a lot about oil) defending this idea of cars fueled by
ethanol .Many people thought this man to be na slighthly crazy old farmer. Well, this
man was my late father and I worked with him since the initial days of the ethanol
saga
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Cont.
But this is history and I am here to talk about the Future. I think I do not have to
reveal to you that I am a firm believer on the future of ethanol.
I believe that more and more cars will be manufactured to run on ethanol; I believe
that the growing use of ethanol will make the air cleaner and the greenhouse effect
less severe; I believe therefore that the demand for ethanol will expand
exponentially; I believe that many countries will become large producers of ethanol
but I also believe and bet that, for some years to come, Brazil will remain one of the
largest producers of ethanol and that in a level field, in a flat world without
extravagant taxation and protection, Brazil’s ethanol will remain the cheapest.
Furthermore I am confident that Brazil can expand the land occupied by sugar cane
by xxx thousand hectares, i.e., yy% of the present area, without touching one single
square centimeter of the Amazon. And finally, I am also absolutely sure that the
producitvity of our fields and mills will double in 5 year time, due to best varieties,
better planting techniques, improvements in the machinery and improvements in the
crushing and milling of the sugar cane, not to mention the important and overdue
improvements in processing the bagasse and every gram of biomass to generate
energy.
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cont
Ladies and Gentlemen: As I am such a staunch believer in the future of ethanol and
– specially – the future of ethanol in Brazil that you may not believe in everything I
have been saying. Or maybe, you are taking all this with a ‘grain of salt’...
Do not protest, I am not insulted by your eventual doubts. I know it is hard to believe
in the fantastic prowess of the Brazilian alcohool program.
Being this so, I have decided to simply read for you a few paragraphs of a text by
another author
ARTICLE NYT
I had breakfast in São Paulo, exactly 10 days ago, with the author of this piece who
is also the author of “The World is Flat” The following day, Thomas Friedman
published this article in the NYTimes and ended it with the following lament:
“If only we were as smart as Brazil...
Do not lament, do not cry for us: JOIN US!.
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