Ethanol in Brazil: a successful experienceEthanol in Brazil: a successful experience

Ministry of Agriculture, Livestock and Food Supply,Ministry of Agriculture, Livestock and Food Supply,

Ministry of Development, Industry and International Ministry of Development, Industry and International TradesTrades

Ministry of Mines and EnergyMinistry of Mines and Energy

Washington - March, 2006Washington - March, 2006

Economic Agents of Sugar Cane IndustrySugar and Alcohol Industrial Phase

Fuel Distributors

Gas Stations

Exporters

Sugar Cane Agriculture Phase

Regulatory Domain: Ministry of Agriculture

• 50 thousand sugar cane growers• 346 Industrial Plants

• 32,030 Gas Stations sell alcohol.(92% of total gas stations in Brazil)

• Mercado de Preços Livres

• 160 Operating Distributors• Only distributers may blend ethanol with motor gasoline

• 2.38 Billion litters exported in 2004

Fonte = MAPA – MME – MDIC - 2005

Regulatory Domain: Ministry of Mines and Energy / ANP (National Petroleum Agency)

Why BIOFUELS?

Environmental gains- carbon sequestration

- lower emission levels in consumption

Renewability- short production cycle

- man-controlled process

Economic aspects- new demand component

- impacts on trade balance

Social aspects

- jobs creation

- income deconcentration

Equator

Trop. Capricórnio30o S

Trop. Câncer30o N

BIOFUELS: a natural aptitude in Brazil

Why choosing ETHANOL?

Renewable:• Zero Carbon Balance• Not dependent of petroleum• Large scale of production

High miscibility with gasoline and it is a perfect substitute for tetraethyl lead

Oxygenated Compound:• Reduces row emission

Low toxic

Sulfur free

Why choosing SUGAR CANE?

Exceptional life cycle balance (the production of 1m³

of alcohol allows for the reduction of 2.6 tons of CO2).

Highly favorable energetic balance.

Increases in industrial efficiency, with lower sugar

production costs.

Improvement in sugar quality.

Market diversification and the reduction of oil

dependency.

Why choosing SUGAR CANE? (continuing)

Equivalent energy: 1 ton / sugar cane = 1.2 barrel / oil.

Energy distribution: 1/3 on sugar juice, 1/3 on

bagasse, and 1/3 on straw.

Process otimization allows to transform mills into

thermoelectric plants.

Possibilities: straw and bagasse burning or

gasification, or alcohol production by hydrolysis.

Raw Material Production / ha (kg)

Quantity of Product / liter

of EthanolQuantity of Ethanol / ha

SUGAR CANE 85,000 12 kg 7,080 liter

CORN 10,000 2.8 kg 3,570 liter

Physical productivity comparison

Source: MAPA

(*)

Current Matrix of Vehicle Fuels

(1) The gasoline available in Brazilian Gas Stations is added with 25% of alcohol.

Share of alcohol

8.7 + 8.3 17%

2005

Share of Regular Gasoline(1)

26.2% + 8.7% = 34,9%

Diesel53.9%

VNG2.9%

Hydrated Alcohol8.3%

Anhydrous Alcohol8.7%

Gasoline A26.2%

Source: ANP; ABEGAS – 2006

Elaborated by MME - 2006

ALCOHOL FUEL HISTORY IN BRAZIL

Alcohol with motor gasoline: 80 years of experience

First tests using ethanol blended to gasoline

1979: vehicles manufacturers started

selling 100% hydrous alcohol cars

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

x 1.

000

un

its

sold

/ y

ear

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

DIESEL ALCOHOL GASOHOL

Brazilian Automotive Market by Fuel Kind

Great share of alcoholcars: more than 80%

Sales of new alcoholcars fallen

Brazilian Experience: nowadays…

1) Since 2003, 31 new models of Flex-Fuel Vehicles, by nine automakers: it can use any mixture of gasoline and alcohol, from 0 to 100%, without any action of car driver.

2) In December-2005, Flex Fuel vehicles sales represented 73% of total light vehicles sold (2003-2005: 1,245,201 units).

Nowadays: Brazilian Automotive Market by Fuel Kind

Source: Anfavea - 2006

Flex (Alcohol or Gasoline) Alcohol (Pure) Gasoline Diesel

5%Brazilian Light Vehicles Market Sales

0%

20%

40%

60%

80%

100%

jan/03 jun/03 nov/03 abr/04 set/04 fev/05 jul/05 dez/05

73%

20%

Start

of Fle

x-Fuel

Sal

es

1 ton of sugarcane = 80 liters of alcohol1 hectare of sugarcane = 6 m3 of alcohol

Sugarcane: Cropped and Preserved Areas due to Technological Improvements

Source: CIMA

Área Colhida

Área Poupada

2.000

3.000

4.000

5.000

6.000

7.000

8.000

Safras Agrícolas

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20

30

40

50

60

70

80

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cropped area

preservedarea

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The success of the ethanol replacing gasoline...

FUEL DEMAND FOR OTTO-CYCLE VEHICLES

0

20

40

60

80

100

120

140

160

180

1970 1975 1980 1985 1990 1995 2000

YEAR

106 BEP

FUEL DEMAND FOR OTTO-CYCLE VEHICLES

GASOLINE PRODUCTION

GASOLINE CONSUMPTION

This curve shows how much gasoline would be necessary to satisfy the fuel demand for light vehicles supposing the non-existence of the

Brazilian Ethanol Program

Total economy of 1,09 billion boeor 22 months of the present Brazilian

petroleum production

IN THIS PERIOD, THE USAGE OF ETHANOL FUEL IN BRAZIL HAS PREVENTED THE EMISSON OF 615 MILLION TONS OF CO2

Source: Ministry of Mines and EnergyBrazilian Energy Balance – 2005and Laura Tetti – USP – 2002

ETHANOL as a new commodity...

Good business for tropical countries

Challenges to overcome:

- regular supply (short-term)

- predictable prices

- guaranteed supply (long-term)

How to start a program of blending ethanol with gasoline?

Infrastructure installations and logistic;

Technical and formal questions

Economic questions;

Instruments for supply garanty;

Fiscal questions

Consumer reaction

GENERAL RULE:• There isn’t any general prescription to launch such a

program. Each Country has to design its own model.

Conclusions:

Ethanol can be an excellent business, specially that traditional sugar cane producers;

Producing and blending ethanol with gasoline are simple tasks, if all the process is carefully planned;

Brazil learned with its own mistakes. The other countries don’t need to do the same;

We are interested in share our experience, specially because we need the help of other suppliers to organize the market.

Thank you!Thank you!Contacts:Contacts:

Ministry of Agriculture, Livestock and Food Ministry of Agriculture, Livestock and Food Supply:Supply:

daa@agricultura.gov.br

Ministry of Development, Industry and International Ministry of Development, Industry and International TradesTrades

Phone: 55 (61) 2109-7293Phone: 55 (61) 2109-7293

Ministry of Mines and EnergyMinistry of Mines and Energy

Phone: 55 (61) 3319-5106Phone: 55 (61) 3319-5106

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

Incentives established by the Pro-Alcohol at That Time

Auxiliary gasoline tank

Problems and solutions of a alcohol-fueled cars

Ignition difficulties duringcold weather

Metal corrosion (tank, exhaust pipe, fire injection bomb components)

Substitution of tin and iron for aluminium and stainless steel

Drying of plastic and rubber parts(pipes in general)

Substitution for more resistent materials and the use of additives

Consumption increase (alcohol’s heating capacity is

30% lower than gasoline’s)

Increase in compression rate, R&D and subsidies to consumers during the program’s initial phase.