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Biofuels in Brazil Sales and Logistics Ildo Sauer1 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 op- erating 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 mar- ket, 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 lead- ing 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 Reis/Petrobras for 16.9% of the nation’s vehicle energy matrix Rogério 3 | BIOFUELS IN BRAZIL: realitieS and proSPECTS (Figure 1). With the introduction of biodiesel and ethanol consumption being pumped up by flex-fuel cars2, this share will grow even more. It is interesting to note that biofu- els 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 impor- tance, 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) 200 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 es- tablished 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 2 Automotive vehicles launched in Brazil in 2003 that can run on any percent- age blend of ethanol and gasoline, either separately or together. BIOFUELS IN BRAZIL: SALES AND lOGISTICS | 3 for domestic and foreign markets, as well as electricity for in-house consumption, selling off surplus power to distribu- tion utilities. In general, the ethanol production and distri- bution 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). 3 These Retailer Reseller Shippers (TRRs) consist of small businesses, generally without distribution bases, whose fuel distribution activities are guided by market opportunities. 3 | 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 con- sumers 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 gaso- line in Brazil4 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, clus- tered 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 2005.5 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) 200. 4 Pure gasoline is not sold for end-use in Brazil. 5 When not offset by imports / exports, differences between production and consumption were evened out through stockpiles. BIOFUELS IN BRAZIL: SALES AND lOGISTICS | 3 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) 200. 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 vehi- cles spurred hydrated ethanol consumption to new heights, reversing this trend and boosting market growth at an aver- age 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).
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