Biofuels in Brazil Sales and Logistics Ildo Sauer1

“ reen fuels” have already arrived. Together with them, 1 Ph.D in Nuclear Energy. Professor a new dynamic of commercialization and logistic was G at the University of called for and it was made available for consumers interested São Paulo. Former in cleaner and less petrol-dependent fuels. Director of Gas and Energy at Petrobras. Recent information released by the United Nations In- tergovernmental Panel on Climate Change (IPCC) presents information on planet-wide climate changes and permanent alterations to oil prices, clearly indicating that the world will be needing biofuels to an increasing extent. An integrated energy enterprise, Petrobras has been operating and investing in the biofuels area since the 1970s. Within the current context, it established strategic planning targets that include expanding its share of the biofuels market, heading up Brazil’s biodiesel output and increasing its stake in the ethanol business. Biofuel is the generic name given to fuels derived from biomass such as sugar-cane, oilseeds, forest biomass (fuel-

Biofuels in Brazil: Sales and Logistics | 35 wood, charcoal, stumps, litter, etc.) and other sources of organic matter. The best-known and most widely used are ethanol (fuel alcohol) and biodiesel, which can be used alone or added to conventional fuels. Compared to fossil fuels such as diesel and gasoline, biofuels are cleaner and help reduce greenhouse gases emissions. Brazil’s ethanol program has endowed it with the world’s greatest experience in the biofuels sector, implemented nationwide and with a track- record stretching back more than thirty years. Backed by the Brazilian Government, Petrobras and the sugar and ethanol industry, the National Fuel Alcohol Program (Proálcool) has made Brazil into one of the world’s leading ethanol producers, consumers and exporters. The share held by Petrobras was crucial for the success of this Program and now, through the Bra- zilian Biodiesel Program, it is also playing a leading role in consolidating this approach. This paper presents the activities of Petrobras in context, focused on its experience with biofuels logistics and sales.

Sales

The introduction of biofuels into Brazil’s vehicle energy matrix dates back to 1925, when pioneer- ing tests were run on the use of anhydrous ethanol as a fuel in Brazil. In 2005, ethanol accounted for 16.9% of the nation’s vehicle energy matrix Rogério Reis/Petrobras 36 | Biofuels in Brazil: REALITIES AND PROSPECTS (Figure 1). With the introduction of biodiesel and ethanol consumption being pumped up by flex-fuel cars, this share will grow even more. It is interesting to note that biofuels production, distribution and sales activities are handled through the fossil fuels chain, rather than clashing with it. For biofuels producers, this factor is of the utmost importance, as it is fossil fuels that guarantee the scale and the market that allows biofuels to be produced competitively.

Figure 1 – Brazil’s Vehicle Energy Matrix (2005) diesel oil 54,5% 55,7% (2004)

Alcohol share on Otto-cycle vehicles gasoline A 25,6% NGV Source: Ministry of 56% 26,5% (2004) 2,9% 2,4% (2004) Mines and Energy anhydrous alcohol hydrated 37%

(ethanol) alcohol 6% (MME) National 8,5% 8,4% 6,6% (2004) 8,8% (2004) Álc. Gas. NGV Energy Balance gasoline C alcohol: total (BEN) 2006 25,6 + 8,5 = 34,1% 8,5 + 8,4 = 16,9% 35,3% (2004) 15,4% (2004)

Ethanol

The roots of Brazil’s sugar and ethanol industry stretch back to the XVI century, when the first sugar mill was established in Brazil in the town of São Vicente, in 1532. This enterprise was so successful that another had already been built in the town of Olinda just three years later. Today, this sector has more than 300 mills producing sugar and ethanol

Automotive vehicles launched in Brazil in 2003 that can run on any percentage blend of ethanol and gasoline, either separately or together.

Biofuels in Brazil: Sales and Logistics | 37 for domestic and foreign markets, as well as electricity for in-house consumption, selling off surplus power to distribution utilities. In general, the ethanol production and distribution chain is organized as shown in the following table:

Table 1 – Ethanol Production Chain and its Agents Raw Material Production Distribution Retail Consumer

More than 70,000 386 ethanol 261 distributors 35,000 resale Major consumers agricultural distilleries stations suppliers Rural consumers 618 Retailer Reseller Ship- pers (TRR)3 Small enterprises

Automobile drivers

Sources: Sugar- Ethanol production costs are linked directly to the pro- Cane Agri-Business ductivity of the sugar-cane harvest and the industrial out- Union (UNICA); put of the ethanol production process. During the past two Brazilian Oil, decades, the development and implementation of new tech- Gas and Biofuels niques and technologies in the sugar and ethanol sector Industry Regulator have been the main factors driving down these production (ANP) costs. From 1976 through 1996, ethanol production costs fell from approximately US$ 90 / BOE to around US$ 45 / BOE, equivalent to an average annual cost reduction of between 2% to 3%. Fuel prices in Brazil are determined by the free market. Due to the importance of this sector and its nature, which often drifts away from perfect com- Fuel prices in Brazil petition standards, fuel production, distribution are determined by the and sales activities are controlled by the Brazilian free market. Oil, Gas and Biofuels Industry Regulator (ANP).

These Retailer Reseller Shippers (TRRs) consist of small businesses, generally without distribution bases, whose fuel distribution activities are guided by market opportunities.

38 | Biofuels in Brazil: REALITIES AND PROSPECTS In terms of ethanol prices, it is important to recall that as ethanol has some 70% of the calorie power of gasoline, the prices set for these two fuels must take this difference into consideration. In other words, it is advantageous for consumers to fill up their cars with ethanol only when its pump price is less than 70% of the gasoline price. Ethanol is sold on the Brazilian fuels market in two forms: anhydrous and hydrated. Perhaps the most important difference in their specifications is the minimum percentage of ethanol measured by volume: 99.3% for anhydrous and 92.6% for hydrated. Anhydrous ethanol is added to gasoline in Brazil at percentages that may vary from 20% to 25% under Federal Laws. Hydrated ethanol is used directly in Otto-cycle engines designed for this fuel, as well as more recently in flex-fuel cars. Similar to the production segment, ethanol consumption is distributed unevenly among the regions of Brazil, clustered most heavily in the Southeast and South. Tables 2 and 3 present the production and consumption of both types of ethanol, in addition to exports from 2000 through to 2005.

Table 2 – Anhydrous Ethanol Production, Consumption, Exports and Imports (2000-2005, 000 m3) YEAR 2000 2001 2002 2003 2004 2005

PRODUCTION 5,644 6,481 7,040 8,832 7,859 8,208 Source: Ministry of TOTAL 5,933 6,139 7,336 7,392 7,591 7,775 Mines and Energy CONSUMPTION (MME). National IMPORTS 0 0 2 6 6 0 Energy Balance EXPORTS 0 0 14 61 84 571 (BEN) 2006.

Pure gasoline is not sold for end-use in Brazil. When not offset by imports / exports, differences between production and consumption were evened out through stockpiles.

Biofuels in Brazil: Sales and Logistics | 39 The anhydrous ethanol market has expanded over the period at an annual rate of 5.56%, keeping pace with the expansion of the gasoline-fueled vehicles fleet. Minor varia- tions in consumption may occur due to the flexibility of the gasoline blend rate, which varies between 20% and 25%. This mechanism is used to stabilize domestic prices, tailored to product availability.

Table 3 – Production, Consumption, Exports and Imports of Hydrated Ethanol (2000-2005, 000 m3)

YEAR 2000 2001 2002 2003 2004 2005

Source: Ministry of PRODUCTION 5,056 4,985 5,547 5,638 6,789 7,832 TOTAL Mines and Energy 6,453 5,444 5,179 4,520 5,700 6,214 CONSUMPTION (MME). National IMPORTS 64 118 0 0 0 0 Energy Balance (BEN) 2006. EXPORTS 227 320 753 706 2,176 1,923

In turn, the hydrated ethanol market shrank by some 11.2% a year between 2000 and 2003, as Brazil’s ethanol- fueled car fleet was scrapped, and no new vehicles of this type were introduced. However, the launch of flex-fuel vehicles spurred hydrated ethanol consumption to new heights, reversing this trend and boosting market growth at an average annual rate of 17.25% between 2003 and 2005. During this period, there was also a significant increase in exports, as international demand soared. In 2006, the profits on international ethanol sales posted by Petrobras topped US$ 14 million. Selling more than 80 million liters, it consolidated its ethanol export logistics corridor running from Center-South Brazil to the Ilha d’Água Marine Terminal in Rio de Janeiro, through the Paulínia Refinery in São Paulo State.

40 | Biofuels in Brazil: REALITIES AND PROSPECTS The anhydrous ethanol market has expanded over the period at an annual rate of 5.56%, keeping pace with the expansion of the gasoline-fueled vehicles fleet. Minor varia- tions in consumption may occur due to the flexibility of the gasoline blend rate, which varies between 20% and 25%. This mechanism is used to stabilize domestic prices, tailored to product availability.

Table 3 – Production, Consumption, Exports and Imports of Hydrated Ethanol (2000-2005, 000 m3)

YEAR 2000 2001 2002 2003 2004 2005

Source: Ministry of PRODUCTION 5,056 4,985 5,547 5,638 6,789 7,832

TOTAL Unica Mines and Energy 6,453 5,444 5,179 4,520 5,700 6,214 CONSUMPTION (MME). National IMPORTS 64 118 0 0 0 0 Energy Balance In 2007, Petrobras began to export ethanol to the U.S., EXPORTS 227 320 753 706 2,176 1,923 (BEN) 2006. with an initial cargo of 12,000 m3, expanding the discus- sions involving the feasibility of introducing ethanol dis- In turn, the hydrated ethanol market shrank by some tilled from sugar-cane on a competitive footing, as it is far 11.2% a year between 2000 and 2003, as Brazil’s ethanol- less costly and more efficient than corn-based ethanol dis- fueled car fleet was scrapped, and no new vehicles of this tilled in the U.S. An initial shipment of 20,000 m3 will soon type were introduced. However, the launch of flex-fuel vehi- be leaving for Nigeria, launching its program which will add cles spurred hydrated ethanol consumption to new heights, ethanol to gasoline, with technical support from Petrobras, reversing this trend and boosting market growth at an aver- following the example of an initiative already under way in age annual rate of 17.25% between 2003 and 2005. Venezuela, which has already received 150,000 m3 During this period, there was also a significant increase of ethanol exported by Petrobras. All the signs seem in exports, as international demand soared. In 2006, the All signs seem to indicate that the internation- to indicate that profits on international ethanol sales posted by Petrobras al ethanol market will expand substantially dur- the international topped US$ 14 million. Selling more than 80 million liters, ing the next few years, as other countries become ethanol market will it consolidated its ethanol export logistics corridor running more interested in blending anhydrous ethanol expand substantially from Center-South Brazil to the Ilha d’Água Marine Terminal with gasoline as a way of reducing greenhouse during the next few in Rio de Janeiro, through the Paulínia Refinery in São Paulo gases emissions and complying with the ratified State. targets established through the Kyoto Protocol. years.

Biofuels in Brazil: Sales and Logistics | 41 The projections drawn up by the Ministry of Agriculture and the Sugar-Cane Agribusiness Union (UNICA) indicate export- able ethanol surpluses of more than 11 billion liters for the 2012–2013 harvest. As ethanol output rises in other countries and new producers appear, ethanol will consolidate its status as a commodity, for easier international trading on transparent, solid bases. In technological terms, Brazil has mastered the entire ethanol production chain at the industrial and agricultural levels, producing ethanol at the lowest costs in the world. However, political initiatives will be required from the Bra- zilian Government targeting the Governments of the U.S., the European Union, Japan and other countries, in order to consolidate an international ethanol market. A crucial step will be calling for temporary or definitive waivers of import taxes.

Biodiesel

The introduction of biodiesel on the Brazilian fuels market is quite recent, regulated by Law Nº 11,097/2005. This Law introduced a mandatory blend of biodiesel with petrodiesel, defining the transition periods between the authorized and mandatory blends, and stepping up the blend percentage, as shown in Figure 2.

42 | Biofuels in Brazil: REALITIES AND PROSPECTS Figure 2 – Schedule for adding biodiesel to petrodiesel

2008 to 2012 2013 on 2005 to 2007 (2% mandatory) (2% authorized) (5% mandatory) (5% authorized)

In 2004, total diesel demands reached 39.2 million cubic meters in Brazil, of which 76% were consumed by transportation, with imports accounting for 16.3% of this demand, equivalent to US$ 1.2 billion. Consequently, adding 5% biodiesel to the petrodiesel consumed in Brazil would absorb two million cubic meters of biodiesel. It is important to stress that this forecast is based on a blend of only 5%. However, for more specific cases such as power generation, road and river transportation and fueling captive fleets, biodiesel may be added in higher percentages, when authorized by the Brazilian Oil, Gas and Biofuels Industry Regula- tor (ANP). This flexibilization may well step up biodiesel demands beyond the expected levels. Similar to the ethanol production chain, biodiesel in- terlinks farmers, industries and fuel distribution logistics chains to their end-markets. However, these relationships are far more diversified than in the ethanol chain, due either to the diversity of raw materials or the many different types of technologies that allow the plant oils market to be integrated seamlessly with the diesel oil market. Figure 3 portrays these relationships through diagrams.

Biofuels in Brazil: Sales and Logistics | 43 Figure 3 – Biodiesel Production Chain

H-BIO Field PETROBRAS Refined Grain Oil Process Oil Hydrogen Diesel Grounding Fractions or Conventional Degummed or Process Oil Refinery PETROBRAS Process Diesel Transesterification Biodiesel Ethanol or Distributor Methanol B2 or B5 or blend

Glycerin +Hydrated +Others Service Alcohol Station

With regard to the agents involved in this chain, differences are found in the agricultural and industrial phases, compared to the ethanol chain. While the latter involves more than 70,000 raw materials suppliers, the former may potentially encompass all oilseed producers, including small- scale farmers and family farms. On the other hand, this is an industry that is still in formation, with only a few production plants installed so far (Table 4), compared to the number of sugar mills. However, this is a sector that is growing rapidly, as the deadline for the mandatory biodiesel x petrodiesel blend draws closer.

44 | Biofuels in Brazil: REALITIES AND PROSPECTS Table 4 – Biodiesel Plants in Brazil TOTAL CAPACITY TOTAL CAPACITY PLANTS PLANTS 000 m³/year 000 m³/year

Pilot plants 22 22 20.9 20.9

Plants in production 19 41 708.0 728.9

Plants built not in production 14 55 566.0 1,294.9

Plants under construction 28 83 1,408.7 2,703.6

TOTAL 201 4,949.3

Biodiesel production costs consist mainly of feedstock Source: Biodiesel (80%), largely oilseeds. However, farmer remuneration must BR. Updated on April be rated as a key aspect of this project in order to underpin 25, 2007 the sustainability of the production chain. For Petrobras, it is a major challenge to respond to requirements for keenly competitive prices, while pursuing social inclusion through generating jobs and income, mainly in rural areas. Brasil E codiesel Biofuels in Brazil: Sales and Logistics | 45 Rogério Reis/Petrobras 46 | Biofuels in Brazil: REALITIES AND PROSPECTS Still with regard to production costs, although biodiesel still has a long learning curve to complete in order to boost its efficiency, it is competitive compared to biodiesel in other markets. According to market data surveyed by the National Biofuels Complex, production costs in Brazil may vary from R$ 0.80 / liter to R$ 2.10 / liter, depending on the raw material. As a comparison, this cost may vary (in Brazilian currency) between R$ 0.94 / liter and R$ 1.97 / liter in the European Union. Biodiesel sales began in Brazil through direct purchases from a small fuel distributor in limited volumes for the domestic market. In order to provide leverage for biodiesel production and consolidate this Program, the Ministry of Mines and Energy (MME) and the Brazilian Oil, Gas and Biofuels Industry Regulator (ANP) decided to schedule biodiesel auctions, with almost all these products acquired by Petrobras. Five auctions have been held, selling a total of 890 million liters with average closing prices varying between R$ 1,905 / liter (first auction) and R$ 1,747 / liter (fourth auction). This biodiesel is being sold at more than The Brazilian 4,000 service stations bearing the Petrobras Distri- Government buidora (BR) logo, which is the Petrobras subsid- has ensured an iary operating in the fuels distribution sector. important tax Finally, the Brazilian Government has ensured incentive that will an important tax incentive that will encourage encourage the the consolidation and expansion of this sector. In consolidation and order to foster the inclusion of agricultural activi- expansion of this ties by small farmers − particularly in less privi- leged parts of Brazil − this initiative introduces a sector.

Prices include Federal Taxes: Social Integration Program (PIS) / Social Secu- rity Financing Levy (COFINS). The State Tax on the Circulation of Goods and Services (ICMS) is not included.

Biofuels in Brazil: Sales and Logistics | 47 series of incentives that may reach 100% exemption from Federal taxes, leaving only the State Tax on the Circulation of Goods and Services (ICMS). This is the mechanism that underpins the feasibility of production under socially desir- able conditions, providing products for sale while fostering social inclusion, underpinning economic development and ensuring environmental sustainability.

Logistics

Biofuel distribution logistics are slotted into the general fuel distribution framework, as shown in Figure 4. The flow of ethanol to biodiesel producers is intended to result in biodiesel, while the flow to the distributors is intended for use as a fuel, as ethanol may not be sold directly to end- consumers under Brazilian Law. In turn, biodiesel flows are intended for use as fuel through either the distributors or direct sales to end-consumers, in the specific cases presented below. There is, of course, a flow to the foreign market, which can be handled directly by the ethanol and biodiesel producers themselves.

48 | Biofuels in Brazil: REALITIES AND PROSPECTS Figure 4 – Fuel supply flow in Brazil

Except gasoline Final Importers Consumers

Motor Vehicles Petroleum Gas Station Diesel/ Derivatives Transport Alcohol/ Companies of Goods C Gasoline and Passengers Petrochemical Jet Fuel Aviation Companies Refineries Fuel Oil Hub Lubricants Wholesalers/ Industries LPG Lubricants Solvents Distributors Farms

Alcohol Houses Aviation Fuel Resale etc... Biodiesel Producer Distilleries/ LNG Resale Production Plants

Source: Brazil’s Oil, Gas and Biofuels The distribution logistics of ethanol and biodiesel tend Industry Regulator to be similar, downstream from the distribution bases. The (ANP). main differences appear along the routes between the plan- tation and the industrial plant. The operations of these logistic chains are presented in greater detail further ahead.

Ethanol

In Brazil, ethanol production is scattered unevenly among various regions. As shown in Table 5, production is clustered in the Southeast, particularly in the State of São Paulo with

Biofuels in Brazil: Sales and Logistics | 49 some 60% of Brazil’s output. One of the consequences of this clustering process of ethanol distribution logistics is the need to ship ethanol among these regions. In brief, the Southeast exports all over Brazil, while the Center-West exports to the North, Northeast and South. This ethanol is shipped through an intricate and extensive network of high- ways, railroads and some waterways, backed by a massive storage infrastructure.

Table 5 – Ethanol Production by Region (%) Southeast 72

Center-West 12.9

South 7.7 Source: Ministry of Agriculture, Northeast 7.1 Livestock and Supply North 0.3 (MAPA) Total 100

Export logistics are clustered in certain ports with better infrastructure and larger storage capacities, usually located closer to the production areas. The main export outlet is the Port of Santos in the State of São Paulo, which accounts for some 66% of Brazil’s ethanol exports, followed by the Port of Paranaguá in in the State of Paraná with around 18%. The Petrobras logistics infrastructure plays a key role in domestic ethanol distribution. Through nationwide multi- mode systems, Petrobras ships, stores and distributes fuels all over Brazil. This infrastructure is presented in Figure 5 and in greater detail in Table 6.

50 | Biofuels in Brazil: REALITIES AND PROSPECTS Figure 5 – Infrastructure logistics of Petrobras

Collection Hubs Distribution Terminals Railways Marine and River Terminals Major Alcohol Markets

Table 6 – Petrobras Infrastructure Logistics Shipment Distribution

• 20 Onshore Terminals; • 34 In-House Distribution Bases;

• 24 Marine and River • 22 Distribution Terminals; Terminals; • 11 Pool Distribution Bases; • 10,000 Kilometers of Pipelines; • 10 Storage Facilities on Third Party Basis; • Storage Capacity: 10 million m3. • 8 Ethanol Collection Hubs;

• Paulínia Rail Terminal.

Biofuels in Brazil: Sales and Logistics | 51 Since the launch of Brazil’s Proálcool Fuel Alcohol Pro- gram, Petrobras has handled primary ethanol distribution, purchasing the product from the mills and storing it at its facilities (collection centers and refineries). The deregulation of this sector during the late 1990s curtailed the role played by Petrobras on the ethanol market, with each distributor allowed to handle its own acquisitions from the mills. At the moment, almost all Brazil’s distribution hubs owned by Petrobras and other companies are equipped with facilities for receiving ethanol shipments by road, and can also accept products directly from the mills. These road shipment facilities may be contracted by the mill or the distributor, working with shippers registered with Brazil’s Land Trans- port Regulator (ANTT). This is the model most commonly used for shipping ethanol. There are also some Ethanol Collection Hubs close to the producer regions, which are connected to the railroads. They receive ethanol from the mills by road, consolidate cargoes and load the products aboard rail-cars that then are hauled to other distribution bases, taking advantage of this larger- scale mode of transport. There are also subsidiary product distribution bases that serve as collection centers. Cargoes are received by road and consolidated into larger volumes, with ethanol then dispatched or transferred to other bases by rail, by pipeline (through Transpetro) or by river (Northern Brazil). Yet another option is coastal shipping between regions, when the distributors or mills join together to consolidate large volumes, due to harvest or production problems (or others), shipping their products by coastal freighter from Center- South Brazil to the Northeast or vice versa. Quite complex,

52 | Biofuels in Brazil: REALITIES AND PROSPECTS these large-scale operations are also handled by Petrobras. This logistics chain is presented in Figure 6.

Figure 6 – Ethanol Logistics Chain

roadway collection hubs railroad/ Aprox. 10 pipeline/ waterway distribution base roadway straight to the base

production plant

> 300 unites in the country

48.051 gas station (ANP) gas station

An integrated logistics option is offered by Petrobras Distribuidora, Petrobras and Transpetro for ethanol exports from Center-South Brazil. From the collection centers, the product is shipped by rail to Paulínia, where it is offloaded at the rail terminal (Tefer) and pumped into the tanks at the Paulínia Refinery (Replan). Ethanol is then pumped through pipelines operated by Transpetro to the Duque de Caxias Re- finery (Reduc) in Rio de Janeiro State, for export through the Ilha d’Água Terminal. When exported through the Port of Paranaguá, the product may be shipped out through the Ourinhos and Londrina Collection Centers in the State of Paraná by rail to Paranaguá in the same State.

Biofuels in Brazil: Sales and Logistics | 53 Figure 7 – Ethanol Export Logistics

Petrobras is Petrobras is investing in a new ethanol outflow investing in a new infrastructure, with a keen eye on exports. Shown in Figure 7, this structure strives to step up the ethanol outflow outflow capacity of the current line running to the infrastructure, with Ilha d´Água Terminal in Rio de Janeiro State while a keen eye to exports. also establishing a line for exports through the São Sebastião Terminal in São Paulo State. The construction of an ethanol pipeline will gather fuel ethanol from leading production regions that are today ac- cessible only by road, thus lowering logistics costs. The ethanol pipeline will also be connected to the Tietê-Paraná Waterway, boosting the capacity of this system. Through this new structure, the export system of the Petrobras structure is expected to reach 8 million m3/year in 2012. These investments are crucial for lowering the logistics cost of exports, endowing Brazilian ethanol with a keen competitive edge on the international market.

54 | Biofuels in Brazil: REALITIES AND PROSPECTS Biodiesel

Two crucial points must be noted in regard to biodiesel supply logistics: the location of the production areas and the consumption centers, and the sites where it is blended with petrodiesel. The definition of which agent will blend the biodiesel with the petrodiesel is a crucial factor for ensuring the necessary quality for this fuel. It is generally agreed that the fewer the number of agents authorized to handle this blend, the fewer the possible defects in the operating procedures. On the other hand, shipping costs will be higher from the plants to the blending centers. Collecting biodiesel at the production plants for shipment to the blending centers represents an additional demand for inflammable cargo shipments. In principle, it is recommended that biodiesel be blended with petrodiesel by the fuel distributors, similar to adding anhydrous ethanol to gasoline. In fact, ethanol is blended only when loading the tanker-truck, using control and metering equipment. The same will tend to occur with biodiesel. From July onwards, all biodiesel sold by Petrobras Distri- buidora (BR), the Petrobras distribution subsidiary, will include an added 2% biodiesel. In every state of Brazil, 5,000 service stations bearing its logo and another 3,350 major customers will already be receiving B2 biodiesel: a blend of 2% biodiesel and petrodiesel. In order to attain this target, Petrobras Distribuidora (BR) has invested R$ 35 million in its operations and logistics infrastructure, adapting its bases and terminals network. The mandatory blend is scheduled to become effective in January 2008. There are already 4,550 service stations selling petrodiesel with added biodiesel, and there will soon

Biofuels in Brazil: Sales and Logistics | 55 Bruno Veiga/Petrobras

be 5,000 service stations serving the B2 biodiesel. All over Brazil, biodiesel is already available at 55 of the 64 Petro- bras terminals and distribution bases. By July, all 64 bases will be distributing diesel oil with an added 2% biodiesel. On the operations side, Petrobras Distribuidora has drawn up a plan to adapt its bases and terminals network. It has had to set up a complete logistics structure for biodiesel, starting with collections at all the production plants located all over Brazil (seven currently in operation with a further fifteen by the end of the year) and also including storage facilities and blending equipment, extending through shipment to the end customers.

56 | Biofuels in Brazil: REALITIES AND PROSPECTS Brasil E codiesel

In April 2006, only two Petrobras bases (Belém and For- taleza) were working with biodiesel, handling 90,000 liters of B2 biodiesel a month, out of a total of 915 million liters/month of all types of diesel (hinterlands, metropoli- tan, marine) sold by Petrobras. Today, 688 million liters of B2 biodiesel are sold each month by 86% of its operating facilities, equivalent to dispatching 40,000 tanker trucks a month. The percentage of B2 in total diesel sales by BR soared from under 1% to around 57% over the period. Termi- nals located in cities such as São Paulo, Brasília, Duque de Caxias, Betim, Mataripe, Fortaleza, Belém, São Luís, Orixim- iná, Rio Branco, Caracaraí, Macapá, Belo Monte and Marabá will sell only B2 biodiesel.

Biofuels in Brazil: Sales and Logistics | 57 Bruno Veiga/Petrobras

Finally, biodiesel logistics must face some challenges in order to solidify its bases, such as integrating production plants with the various transportation modes, and some competition with other products − such as ethanol − for trucking facilities. However, the main commercial and logistics challenge facing this sector, particularly for the distributors, will be monitoring product availability (B100) and in relation to the agricultural inputs, which are subject to harvest and market conditions. Coordinating these two chains will be a crucial step for maintaining throughflow stocks at competitive prices. It is also worthwhile recalling that the diversity of raw materials is an additional factor making this coordination even more complicated.

58 | Biofuels in Brazil: REALITIES AND PROSPECTS Final remarks

The efforts of Petrobras to ease Brazil’s dependence on imported crude date back to well before current global con- cerns with reducing pollutants and preserving energy sources. Its support for Brazil’s Fuel Alcohol Program (Proálcool) was its first major step in this direction. From the 1990s onwards, rising global awareness of environmental issues prompted interest among other countries in the technology developed in Brazil, backed by its sustainability and attract- ing new investments. Within this setting, the Brazilian Biodiesel Program tran- scends aspects arising from the use of renewable energies and advances towards generating jobs. As a result, it is ush- ering in social improvements and encouraging several production sectors, ranging from small family farms to investors eager to underwrite the development of biofuels production facilities. These investments confirm the commitment of Petrobras to the sustainable development of Brazil, proving that it is clearly able to substitute a large portion of its oil consumption in a renewable manner.

Biofuels in Brazil: Sales and Logistics | 59