Shell, Cosan announce $21 billion Brazilian ethanol JV: largest biofuels deal ever

By Jim Lane
February 24, 2010

In Brazil, Royal Dutch Shell announced an MOU with Cosan (CZZ) to make the largest investment in the history of biofuels, with an agreement to establish a 50-50 Brazilian ethanol joint venture with Cosan which will own 4,500 retail stations, sugar, ethanol, fuel distribution and power generation, and the Shell aviation fuel distribution business.

The companies said that they plan to increase the venture’s ethanol production levels from 529 Mgy to 1323 Mgy, which would make the venture one of the top three ethanol producers in the world, after Archer Daniels Midland and POET in the US. Shell downstream chief Mark Williams told Reuters that the company would Under the terms of the proposed agreement, Cosan will merge its entire business into the as-yet unnamed JV, while Shell will contribute its retail, aviation distribution, and will invest up to $1.63 billion in capital into the venture. Overall, Cosan assets are valued at $4.93 billion, including its 60 million tones in sugar cane crushing capacity, and Shell’s retail and aviation marketing units are valued at $3 billion.

As announced, the enterprise will become the third-largest fuel distributor in Brazil, and will have combined annual sales of $21 billion, and an asset value of $9.56 billion. Cosan previously acquired ExxonMobil’s retail marketing unit, which operated 1500 stations, in 2008, for $1 billion, and acquired 83 Petrosul stations in December for $40 million.

The deal continues a trend of major agricultural and oil refining companies moving into Brazilian ethanol. Last month, Bunge announced that it would acquire sugar and ethanol producer Moema for $452 million, while in October Louis Dreyfus acquired 423 Mgy in annual ethanol capacity with the acquisition of Santelisa Vale, and has $4.6 billion in assets in its LDC-SEV Brazilian ethanol entity. Dreyfus, which injected $463 million into the venture, said it expected to have an IPO between 2012 and 2014.

Last October, BP said that it will commence production of cellulosic ethanol from biomass in Brazil in 2013. BP has a cellulosic ethanol joint venture, Vercipia, with Verenium, and, according to Valor Online that “the first plant for producing second generation ethanol will be constructed in the United States in 2010, with the technology being transferred to BP’s plants in Brazil after operations commence at the U.S. facility.”

In April 2008, BP invested $560 million for a 50 percent stake in Tropical Bioenergia, a joint venture with Santelisa Vale and Maeda Group that is building 370 Mgy in sugar cane ethanol capacity in Goias state.

Brazil, which produces 7 billion gallons of ethanol per year, has 15 million ethanol-based or flex-fuel cars.

Source: WorldBiofuels Markets News