Biofuels: What You Need to Know About This New Market

Ministério dasMinas e Energia

2 N D E D I T I O N U P D A T E D A N D E N L A R G E D

W H A T Y O U N E E D T O K N O W

A B O U T T H I S N E W M A R K E T

B I O F U E L S

B I O F U E L S

2 N D E D I T I O N U P D A T E D A N D E N L A R G E D

W H A T Y O U N E E D T O K N O WA B O U T T H I S N E W M A R K E T

The history of biofuels in Brazil began with pioneering

tests carried out between 1905 and 1925 with ethanol.

In 1931, the Brazilian Government passed a decree which

obliged the mixing of 5% of alcohol in gasoline imported

into the country; seven years later, Decree-Law No. 737

extended the obligation of mixing 5% of alcohol also to

gasoline produced within Brazil. In the 60s, the discovery

of vast oil reserves in the Middle East lessened the world’s

interest in biofuels. However, with the first world oil crisis

in 1973, the search for new energy sources restarted.

In1975, Brazil launched the National Alcohol Program

(known as Proálcool) – the largest program for the com-

mercial use of biomass for energy purposes in the world.

Two years later, Professor Expedito Parente, of the Ceará

Federal University, discovered biodiesel made from cotton

oil and, in 1980, he registered the first worldwide bio-

diesel patent, now in the public domain.

Throughout the world, with the passing of the years

and the intermittent energy crisis, associated to a greater

demand for fossil fuels, new and strong stimuli emerged

for the development of production technologies both for

ethanol and biodiesel. These two products are starting to

have a leading role in the world’s energy matrix and in the

international fuel market.

Thanks to its climate, geography, vast areas available

for cultivating grain and sugar cane and, also, the high

technology developed by Petrobras, in the past few years

Brazil has become, in world terms, one of the largest

producers of biofuels, with a singular and enviable potential

Presentation

for growth. Currently, nine out of ten cars sold in Brazil

have flex fuel engines, that is, they are powered by gasoline

and alcohol. Bus fleets, trains and trucks powered by

biodiesel are already in use – and the trend, certainly, is

for this market to grow considerably in the next few years.

Exactly for this reason and to explain the importance

of biofuels, their markets and numerous advantages, that

Petrobras took the initiative to produce this specific infor-

mation material solely to explain the importance of bio-

fuels, its markets and numerous advantages. The booklet

“Biofuels: What you need to know about this new market”

seeks to describe the principal points of this new market,

but without the intention of being exhaustive.

It is a dynamic publication – just like the biofuel mar-

ket itself –, and which requires periodic updates, whether

in the printed form, like this second edition, or the elec-

tronic version, accessible via the Petrobras Internet portal

(www.petrobras.com.br). With this booklet, Petrobras

intends to increase the number of communication

channels and make them even more useful to its various

publics, from teachers to authorities, from media profes-

sionals to the sector's technicians.

P r e s e n t a t i o n

S u m m a r y

ABOUT BIOFUELS . chapter one

1. What are biofuels? ...................................................................................................................................................... 9

2. What is renewable energy?.................................................................................................................................... 9

3. Are biofuels and biomass the same thing? .............................................................................................. 10

4. What types of biofuels for transport purposes are produced in Brazil? .............................. 11

5. What is the current role of biofuels in the world’s energy matrix? ........................................ 11

6. What is the current participation of renewable energy sources in the Brazilian

and world energy matrix? .................................................................................................................................. 12

7. What is the world's consumption of fuel in liters? .......................................................................... 13

8. Of this volume, what is the percentage of biofuels used? .......................................................... 13

9. Within the world's consumption of biofuels what is ethanol's share?................................ 13

10. Do biofuels represent almost half of the Brazilian energy matrix?.......................................... 14

11. What is the role of Petrobras in the production and distribution of biofuels? ............15

12. What is the importance of CENPES in the biofuel production process? .............................. 16

13. What are the benefits and advantages of biofuels (for the consumer, for the

environment, for Brazil’s economy and for vehicles)? ...................................................................... 17

14. Does the use of biofuels also offer any specific advantage for cars? .................................. 19

15. How many vehicles are powered by biofuels in Brazil?.................................................................. 20

S u m m a r y

ABOUT BIODIESEL . chapter two

16. What is biodiesel? ...................................................................................................................... 22

17. Does biodiesel have the same characteristics as diesel made from oil? ........................ 22

18. What are the ingredients used in the production of biodiesel? ...................................... 22

19. What are the raw materials used in the production of biodiesel? .................................. 23

20. What are the mixtures of biodiesel with diesel oil called?................................................ 24

21. Is there a difference in performance of biodiesel powered vehicles? ............................ 24

22. What will be the cost of biodiesel to the consumer? ........................................................ 25

23. Can any vehicle use biodiesel? ................................................................................................ 25

24. Will the growing use of biodiesel affect the diesel consumed and produced in Brazil? 25

25. What is the estimated demand for biodiesel in Brazil in the short, medium and

long terms? .................................................................................................................................. 26

26. How is biodiesel distributed in Brazil?.................................................................................... 27

27. What is the projection for biodiesel production in the next years?................................ 27

28. What are the biodiesel auctions, how are they carried out and why? .......................... 28

ABOUT H-BIO . chapter three

29. What is H-Bio? ............................................................................................................................ 30

30. What is the difference between H-Bio and biodiesel? Are they competing? .............. 30

31. Is H-Bio already being used in the production of diesel oil at Petrobras refineries? .......... 31

S u m m a r y

32. Is H-Bio already available on the international market? .................................................. 31

33. What is Petrobras' H-Bio production capacity? .................................................................. 32

34. What is Petrobras’ projection for H-Bio production in the coming years? .................. 32

ABOUT ETHANOL . chapter four

35. What is ethanol? ........................................................................................................................ 34

36. Are ethanol and methanol the same thing? ........................................................................ 34

37. Is the production of ethanol increasing in Brazil?.............................................................. 35

38. How is ethanol produced in Brazil and the world? ............................................................ 35

39. Which countries in the world produce the most ethanol? .............................................. 36

40. Which of the two types of cultivation has the greater productivity:

ethanol from corn or from sugar cane? ................................................................................ 36

41. Is the price of Brazilian ethanol competitive on the international market? ................ 37

42. How is ethanol distributed in Brazil?...................................................................................... 38

43. How many liters of ethanol are consumed in Brazil and how many liters

are exported? .............................................................................................................................. 38

44. What are the official projections for ethanol production in the coming years? ........ 39

45. How much will be invested in ethanol production in the medium and

long terms? .................................................................................................................................. 40

46. How many alcohol plants are operating in Brazil?.............................................................. 40

47. Is it possible to produce ethanol from other sources? ...................................................... 41

48. Is it possible to fully use the waste from sugar cane production?.................................. 41

49. Will sugar cane cultivation lead to deforestation of the Amazon? .............................. 42

50. Currently, what is the total area of sugar cane cultivation in Brazil? .......................... 42

S u m m a r y

51. Does sugar cane have the greatest area under cultivation in the country,

when compared to soy and corn? .......................................................................................... 43

52. Does growing sugar cane require any special care in relation to land conservation? 43

53. What are the prospects for exporting Brazilian ethanol? ................................................ 44

SOCIAL, ENVIRONMENTAL, ECONOMIC AND REGULATORY ASPECTS . chapter five

54. Which bodies regulate and inspect the biofuel market in Brazil? .................................. 46

55. What are Petrobras’ goals for the biofuels market in the coming years? .................... 47

56. Are biofuels competitors for fossil fuels? ............................................................................ 48

57. How do biofuels contribute to reducing global warming? .............................................. 48

58. As well as producing energy can biofuels be used for producing

other materials? .......................................................................................................................... 49

59. How do biofuels contribute to generating employment and distributing

income in Brazil? ........................................................................................................................ 50

60. Which generates more employment: the oil or ethanol industry? .............................. 51

61. With the construction of new plants and the increase in alcohol production,

is the trend to generate more employment in the sector? .............................................. 51

62. Has the hard life of the sugar cane worker changed in the last few years? .............. 52

63. Does the biofuel program endanger the supply of food when it uses

agricultural land for producing ethanol and biodiesel? .................................................. 53

64. Is there any risk that Brazilian ethanol production specifically will endanger

food supply on the international market?............................................................................ 54

65. How can the export of biofuels stimulate the Brazilian economy?................................ 55

SOURCES .................................................................................................................................. 56

About

BIOFUELS

[ c h a p t e r o n e ]

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T hey are fuels produced from biomass (organic matter),

i.e. renewable sources – vegetable matter or animal

compounds. The best known sources in the world are sugar

cane, corn, soy, sunflower seeds, wood and cellulose.

From these sources it is possible to produce biofuels, such

as ethanol and biodiesel. Biofuels are biodegradable –

therefore have less impact on nature

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It is energy obtained from renewable sources, i.e.

sources that can renew themselves at a rate to support

their use without restrictions or risk of exhausting

supplies.

What are biofuels?

Soy:

raw material

for biodiesel

2What is renewable energy?

3

[ 10 ]

N o. Biomass is organic vegetable matter that stores

energy from the sun in the form of chemical energy.

It is also the quantity of living material that exists in a

determined area, at a determined moment, generally

expressed in units of energy or in the dry weight of non-

fossil organic matter. It originates from plants (aquatic or

land), forest residues and from farming

(sugar cane pulp, manure), vegetable

oils (buriti palm, babassu palm, castor

beans, oil palm, etc.), urban waste

(landfills, sewage sludge) and some

industrial waste (from the timber,

food and drink, paper and cellulose

and grain industries).

Biomass for energy purposes includes

the use of these various waste products

for generating alternative energy

sources. Brazil is a large producer of

agricultural products, which in turn

generate an enormous – and continuous – quantity of

biomass.

In Brazil and various countries in the world, this

chemical energy stored in liquid fuels is converted by

industrial processes. For example, it is possible to ferment

sugars from corn, wheat or sugarbeet plantations and

convert them into ethanol. Or make use of vegetable oils,

such as palm heart, soy, castor bean, palm oil, babassu

palm, rapeseed and peanut to substitute for diesel oil as

an energy source.

Are biofuels and biomass the same thing?

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Castor bean

cultivation: biomass

for energy purposes

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Hydrous ethanol, anhydrous ethanol, biodiesel and

diesel produced by the H-Bio process.

What types of biofuels for transport

purposes are produced in Brazil?

What is the current role of biofuels in the

world’s energy matrix?

B iofuels are energy sources that do

not contribute to the accumula-

tion of greenhouse gases in the atmos-

phere. This is their principal role in the

energy matrix. As the gases generat-

ed when they are used are reabsorbed

during the growth of the next har-

vest, there is a balance between the

emission and absorption of pollu-

tants. Additionally, biofuels that con-

tain oxygen in their composition,

such as ethanol and biodiesel, help

reduce the emissions of carbon

monoxide (CO) when added to fossil fuels. Reducing

these emissions represents less pollution in the local

atmosphere, mainly in big cities.

Part of the

Petrobras biodiesel

laboratory

5

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A ccording to data from the Energy

Research Company (Empresa de

Pesquisa Energética – linked to the

Ministry of Mines and Energy) of the

Ministry of Science and Technology

and the International Energy Agency

(Key World Energy Statistics - 2006),

the renewable energy sources –

hydraulic, biomass, solar, wind and

geothermal – amount to a participation

of slightly more than 14% of the

world energy matrix.

Among the countries that make up

the OECD – Organization for Economic

Co-Operation and Development (The United States,

Japan, Germany, France, Italy, The United Kingdom,

Canada, as well as Australia, Austria, Belgium, Spain,

Norway, The Netherlands, Portugal, Sweden and

Switzerland), this participation is 6%.

In Brazil, however, renewable energy has a much

bigger presence: 45% of the country’s energy matrix.

There are still no exact statistics on the participation

of biofuels in the Brazilian or world energy matrix.

What is the current participation of renewableenergy sources in theBrazilian and world energy matrix?

Wind power

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What is the world's consumption of fuel in liters?

9Within the world's

consumption of biofuels what is ethanol's share?

In 2007, 54 billion liters of ethanol were consumed

throughout the world.

In the world, 600 billion liters of fuel are used per year.

B iofuels (sugar cane ethanol, corn ethanol and

biodiesel) account for 10% of this total volume, or

something around 60 billion liters.

Biofuels represent

10% of the world's

fuel consumption

8Of this volume, what is the

percentage of biofuels used?

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No, because as well as biofuels there are other renewable

energy sources being used in Brazil. For instance, the

electricity generated by the hydroelectric power plants,

which have a large share of the country’s energy matrix.

Source: Ministério de Minas e Energia

BRAZIL IAN ENERGY MATRIX [ 2006/2007 ]

Wood and other

Biomasses 12,7%

Sugar Cane 14,5%Others Renewable Sources

2,9%

Oil Derivatives

37,8%

Uranium

1,6%

Coal 6,0%Natural Gas 9,6%

Hydroelectric

14,8%

WORLD ENERGY MATRIX [ 2005/2006 ]

Hydroelectric 2,2%

Uranium 6,5% Traditional Biomass 9,5%

Oil 35,3%

Natural Gas

21,1%

Coal

23,2%

Renewable 2,2%Renováveis 2,2%

Do biofuels represent almost half of the Brazilian energy matrix?

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What is the role of Petrobras in the

production and distribution of biofuels?

Currently Petrobras produces biodiesel in two pilot

plants in Guararema, in the state of Rio Grande do

Norte. The company's first three industrial scale plants will

be inaugurated in the first half of 2008, with a capacity to

produce 50 million liters annually. Petrobras can also pro-

duce diesel oil partly originating from vegetable oils, by the

H-Bio process, in the company's refineries, and is studying

the possibility of participating in projects to produce fuel

ethanol for export.

For national distribution, Petrobras is represented by its

subsidiary Petrobras Distribuidora (BR). Another subsidiary,

Transpetro, is in charge of pipeline and marine logistics.

Petrobras ethanol

tanks and pipelines:

production also

aimed at exports

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What is the importance of CENPES in the biofuel production process?12

CENPES:

Biofuels research

and tests line

CENPES, The largest energy technology center in Latin

America, has for many years developed various

permanent research lines and tests with biofuels.

Among the research in progress, one of the highlights

is, for example, H-Bio, a new technology to include

vegetable oil in diesel production and an innovative

process for producing biodiesel. Additionally, there is

research in to producing ethanol from cellulose, tests

with vehicles with new fuel formulas containing biofuels

in their composition, and tests to study the effects – and

the possible solutions – of spillages of these fuels on the

ground.

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What are the benefits and advantages of

biofuels (for the consumer, for the environment, for Brazil’s economy

and for vehicles)?

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Unlike oil and natural gas, biodiesel and ethanol are

fuels produced from renewable sources. That means

their production can be controlled: more can be planted,

in the event of higher demand, or less at times of

oversupply. Oil – in deposits found underground and

undersea – is becoming ever more scarce and its price

tends to rise; this factor, among others, means that bio-

fuels became more competitive on the global energy

market.

Biodiesel

production chain

generates new

rural jobs

[ 18 ]

According to various scientific

researches, the plants used to make

biofuels absorb carbon gas from the

air, thereby reducing the “greenhouse

effect” and, also, compensating for

the carbon gas that will be emitted

when the fuel is used.

In relation to biodiesel, the pro-

duct will generate large savings on the

importation of oil and, consequently,

for the country’s trade balance.

In logistics and infrastructure

terms, biodiesel can substitute for

traditional diesel oil in the generation

and supply of electricity to remote

communities, which are currently

dependent on mineral diesel oil generators.

For the population, the biodiesel production chain

generates an impressive number of new jobs in the

countryside – planting the raw material – and, therefore

helps promote social inclusion.

The commercial use of biodiesel also drives the

improvement of new technologies, and this accelerates

the learning curve and strengthens national industry and

agriculture.

For the environment, the advantage can be seen in

the reduction of emissions that cause the greenhouse

effect: biodiesel helps preserve the environment and

contributes to improving the air quality in large urban

centers.

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The biodiesel

production chain

generates new

employment in

the field

W ithout a doubt. Biodiesel offers greater lubricity and,

therefore, it increases the useful life of passenger

cars, buses and trucks. With a higher flash point and cetane

number, the fuel also increases the useful life of the

exhaust system catalyzer.

Additionally it is important to highlight that

biodiesel is:

A renewable energy source, an environmentally

friendly fuel using various raw materials.

A natural and biodegradable product, which

generates less emissions of carbon monoxide,

particulates and other pollutants.

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Greater lubrication

capability and longer

life for engines:

advantages for

the consumer

Does the use of biofuels also offer

any specific advantage for cars?

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Gas station:

number of flex fuel

powered vehicles may

reach 15 million

in 2013

According to the Brazilian Automotive Vehicle

Manufacturers Association (ANFAVEA - Associação

Nacional dos Fabricantes de Veículos Automotores),

since March 2003, 5 million vehicles have been equipped

with flex fuel engines in Brazil. In 2013, the number of

vehicles powered by biofuels will reach 15 million units.

How many vehicles are powered by biofuels in Brazil?

About

B I O D I E S E L

[ c h a p t e r t w o ]

16

[ 22 ]

B iodiesel is a biodegradable fuel derived from

renewable sources, which totally or partially

substitutes for mineral diesel oil in diesel internal

combustion engines, such as in trucks, tractors, buses

and other vehicles, or in stationary engines, such as

those used for generating electricity.

What is biodiesel?

Does biodiesel have the samecharacteristics as dieselmade from oil?

N o, biodiesel is an ester (a product of the reaction of

an acid, generally organic, with an alcohol) while

diesel is an n-paraffin (or normal paraffin, a subproduct

of oil processed at the refineries).

17

What are the ingredients used in the production of biodiesel?

Vegetable oils or animal fats, ethanol or methanol and

catalysts.

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What are the raw materialsused in the production

of biodiesel?

COTTONSEED

PEANUTS

BABASSU PALM OIL

BURITI PALM OIL

RAPESEED

PALM OIL

SESAME SEEDS

SUNFLOWER SEEDS

JOJOBA SEEDS

LINSEED

CASTOR SEEDS

OILSEED

RADISH

COOKING OIL

PALM KERNEL OIL

PEQUI OIL

JATROPHA

SOYBEAN

TUCUMA PALM

INDUSTRIAL

WASTE

TALLOW OR

ANIMAL FATS

Sunflower seeds

Castor seeds

Jatropha

Soybean

Peanuts

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F or a 2% mixture the denomination is B2 (2% biodiesel

and 98% diesel oil); a 25% mixture is called B25

(25% biodiesel and 75% diesel oil); A 36% mixture is

known as B36 (36% biodiesel and 64% diesel oil); and

so on, including B100 (100% biodiesel).

B2 2%

B25 25%

B36 36%

B100 100%

What are the mixtures of biodiesel with diesel oil called?

Is there a difference in performance of biodiesel powered vehicles?

In the case of B5 (5% biodiesel and 95% diesel oil), for

example, CENPES research proves that it is practically

impossible to observe engine performance differences

when compared to pure diesel oil.

21

BIODIESEL VARIANTS

[ 25 ]

A s the production of biodiesel is

still low, currently its cost is high.

To have the same price as diesel oil,

there will need to be government

incentives, large scale production and

improvement of the process.

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What will be the cost ofbiodiesel to the consumer?

Regulations obligatorily establish a mixture, creating a

“captive market” for biodiesel, replacing part of the

diesel oil consumed in the country. It is important to

remember that diesel consumption is growing, but Brazil

still imports this product. Therefore, biodiesel will help to

lessen Brazil’s foreign exchange expenditure.

Will the growing use of biodieselaffect the diesel consumed

and produced in Brazil? 24

Can any vehicle use biodiesel?

N o, only vehicles with diesel engines.

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25F rom January 2005 up to the end of 2007, the coun-

try consumed more than 850 million liters of

biodiesel. The forecast is that by the end of 2008 there

will be a firm market of 1.3 billion liters of biodiesel.

From 2010, when the mandatory addition of 5% of

biodiesel (B5) to mineral diesel is expected to come in to

force, demand will rise to 2.3 billion liters annually

What is the estimateddemand for biodiesel in Brazilin the short, medium and long terms?

PRODUCT ION PROSPECTS *

2007 2008 2009 2010MIL

LIO

N L

ITE

RS

2300

2000

1800

1500

1300

856

500

* The projections above may change in case mandatory mixtures with higher biodiesel

percentages are anticipated.

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How is biodiesel distributed in Brazil?

B iodiesel reaches all states in Brazil by an extensive

distribution network. Petrobras Distribuidora,

for example, has the product on offer at all of its

approximately 5,500 gas stations in the country.

Petrobras

Distribuidora has

approximately

5,500 gas stations

throughout Brazil

What is the projection for biodiesel production

in the next years?

In the Petrobras Strategic Plan for 2011, the annual

biodiesel production target is 885 thousand cubic

meters.

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What are the biodiesel auctions, how are they carried out and why?

[ 28 ]

28The public auctions of the National Petroleum, Natural

Gas and Biofuels Agency (ANP - Agência Nacional do

Petróleo, Gás Natural e Biocombustíveis) were created by

the National Council for Energy Policy (CNPE - Conselho

Nacional de Política Energética) as a method to stimulate

biodiesel production in Brazil. The auctions are held by

ANP itself, which accepts the best bids to sell the volumes

of fuel. In the first five auctions held, Petrobras was

compulsorily obliged to purchase 93% of the biodiesel

auctioned, the remaining 7% went to the Alberto

Pasqualini Refinary – known as REFAP.

About

H - B I O

[ c h a p t e r t h r e e ]

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Petrobras H-Bio

process plant

I t is a process for producing diesel oil from vegetable

oils. It consists of the hydrogenation of a gasoil stream

mixed with the vegetable oil by a hydrotreatment unit

(HDT).

What is H-Bio?

What is the differencebetween H-Bio and biodiesel?Are they competing?

H -Bio is a process for producing diesel oil (n-paraffins),

while biodiesel is a product in itself (ester). As

regulations will make it mandatory to add biodiesel to

diesel oil sold throughout Brazil, and as the final product

of H-Bio is diesel oil itself, there is no competition

between them, but complementarity.

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Is H-Bio already being used in the production

of diesel oil at Petrobras refineries?

T he H-Bio process is used in the production of diesel oil

in accordance with the refining opportunity criteria

established by Petrobras. Five refineries are already

adapted to use this process, and the production from the

first tests was all sold on the Brazilian market.

Is H-Bio already available onthe international market?

H-Bio:

Petrobras has

five refineries

already adapted

Not yet. But there is interest from other companies in

importing the Petrobras H-Bio technology.

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What is Petrobras' H-Bio production capacity?

T he H-Bio production forecast for 2008 is 425 thou-

sand cubic meters, when industrial tests will be made

at three more refineries: REDUC, REVAP and RPBC.

Distribution will be made in the same manner as for any

other diesel produced at the Petrobras units.

What is Petrobras’ projectionfor H-Bio production in thecoming years?

The forecasts

for 2012 are

encouraging

T he company forecasts that, up to 2012, it will have the

capacity to process 1.05 million cubic meters of diesel

oil per year using H-Bio technology.

34

About

E T H A N O L

[ chapte r f ou r ]

35

[ 34 ]

E thanol is an alcohol, an organic oxygenated

compound, also known as ethyl alcohol, and its

chemical formula is C2H5OH.

In Brazil ethanol is used as an

automotive fuel in two forms:

hydrous alcohol, for alcohol or flex

fuel powered cars, and anhydrous

alcohol, which is currently added to

gasoline in the proportion of 25%.

The difference between the two is

the water content present in the

product: Hydrous alcohol has around

7% water, while anhydrous alcohol

has only a maximum of 0.7%.

What is ethanol?

N o. Methanol is also an alcohol, an organic oxygenated

compound, but it is known as methyl alcohol and has

a different chemical formula: CH3OH. However, both can

be obtained from fossil sources (natural gas) or renewable

sources (biomass).

Methanol has greater calorific power than ethanol,

but it is more reactive and, therefore, more toxic to

humans – which requires more care in its handling.

Another relevant difference is that the use of methanol

as a fuel is being discontinued throughout the world,

whereas the use of ethanol is clearly growing.

Are ethanol and methanol the same thing?

[B

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Alcohol: pure and

added to gasoline

36

37

[ 35 ]

Is the production of ethanolincreasing in Brazil?

Yes. In 2007, the increase was 11.5%. The Sugar Cane

Agroindustry Union (UNICA – União da Indústria de

Cana-de-Açúcar) estimates that ethanol production in

Brazil will reach 22 billion liters with the 2008/2009

harvest, an increase of 23% in relation to the previous

harvest.

How is ethanol produced in Brazil and the world?

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38In Brazil ethanol is produced by fermenting, with

fermentation agents, the liquid extracted from

sugar cane. In other parts of the world, corn, cassava and

beetroot, for example, are also used as raw materials.

However, in these examples the starch present in the

raw material has to be transformed in to sugar before

fermentation. This additional stage increases costs and

reduces the quantity produced, when compared to the

direct fermentation of sugar cane. After fermentation,

the product passes through various stages, culminating

in its distillation to remove excess water and make it

suitable for fuel use.

Latin America, part of Africa, India and Southeast

Asia produce ethanol from sugar cane. Production in the

United States and China is, mainly, with the use of corn.

In Europe, the most common raw material is beetroot,

but grapes are also used.

39

[ 36 ]

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B razil and the United States produce 85% of the

world's ethanol. Brazil produced 21.5 billion liters

and the United States 24.5 billion liters from the last

harvest. The third largest producer is China, with a 2.7%

share in this market. In fourth place is the European

Union with 2.5%.

Which countries in the worldproduce the most ethanol?

Which of the two types of cultivation has the greaterproductivity: ethanol fromcorn or from sugar cane?

T he cultivation of sugar cane produces almost double

the amount of ethanol than from corn. In Brazil, 7,500

liters of ethanol are produced per hectare planted with

sugar cane. In the United States, the production of ethanol

from corn is not greater than 3,800 liters per hectare.

Brazil and the

USA are the leaders

in ethanol production

40

41

[ 37 ]

I t is probably one of the most competitive. It is up to

50% lower than corn ethanol, and this explains why

Brazil currently has around 40% of the world production

of the product.

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Sugar cane

harvesting is

mechanized

Is the price of Brazilianethanol competitive on the

international market?

42

[ 38 ]

[B

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How is ethanol distributed in Brazil?

O f the 22.5 billion liters of alcohol – hydrous and

anhydrous – produced from the last harvest (2007/

2008), the greater part (73.6%, or 16.6 billion liters) was

consumed internally and was effectively used as vehicle

fuel; only 15% of production was exported.

43How many liters of ethanolare consumed in Brazil andhow many liters are exported?

Petrobras’

ethanol tanks

E thanol produced by the plants is acquired by the fuel

distributors and taken to their distribution bases,

from where it is sold to gas stations in a pure state

(hydrous alcohol) or mixed with gasoline (anhydrous

alcohol). Transport is normally by road, although in some

cases railways or pipelines are used.

44

[ 39 ]

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What are the official projections for ethanol

production in the coming years?

A ccording to the Ministry of Agriculture, Husbandry

and Supply (MAPA - Ministério da Agricultura,

Pecuária e Abastecimento), Brazil will reach a production

level of around 37 million cubic meters in 2015, more

than doubling its current production.

The estimate is that in 2010/2011 production will be 29.7

billion liters, of which 23.2 billion liters will be for the

internal market and 6.5 billion liters for export.

Brazil will

double its ethanol

production by 2015

[ 40 ]

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Currently there

are around 350

ethanol plants

in Brazil

C urrently there are around 350 units, some in the

construction phase. The forecast is that by the

2012/2013 harvest there will be more than 410 plants

in operation. Currently, a hundred of these are dedicated

to ethanol production.

46

How much will be invested in ethanol production in themedium and long terms?

According to the Sugar Cane Agroindustry Union

(UNICA - União da Indústria de Cana-de-Açúcar),

investments in new mills and enlarging alcohol plants

in the next five years will total more than R$ 17 billion.

45

How many alcohol plants are operating in Brazil?

[ 41 ]

Is it possible to produceethanol from other sources?

Yes. It is technically possible to produce ethanol from

cellulose on an industrial scale. The main restraint is

its cost, still high, but developed countries have invested

large sums in new technology to reduce the cost.

47

Is it possible to totally use the waste from sugar

cane production?

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48

Ethanol:

Occupies only 3.3%

of the country's

agricultural area

Certainly. The vinasse, for example, is used as a soil

fertilizer. The bagasse has two uses: part is used in

boilers – to generate power – the rest is sold to indus-

tries. In Brazil almost the entire orange juice industry

uses sugar cane bagasse as an energy source. The straw

(dry leaves) is also used in boilers. What is left over stays

in the fields as fertilizer.

49

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T he Amazon Forest regions are not the most recom-

mended for cultivating sugar cane, due to factors

such as the climate, its suitability for farming and cattle

raising and logistics are real limitations. From the social-

economic and environmental point of view, such limita-

tions compromise the success of introducing sugar cane

cultivation and installing the sugar/alcohol industry in

that region.

The Central-South region, where cultivation is

currently expanding, has the best conditions, as it has

underused areas available which are very suitable for

agriculture. This allows the rational and efficient mana-

gement of the land – with the practice of crop rotation,

to improve the physical-chemical characteristics and

phytosanitary control –, agriculture with less applica-

tion of consumables and reduction of costs, therefore it

is possible to generate greater income per area unit.

Will sugar cane cultivation leadto deforestation of the Amazon?

Currently, what is the totalarea of sugar cane cultivationin Brazil? 50O f the 340 million hectares available for planting

(arable land) in the country, 90 million are proven as

adequate for growing sugar cane and, currently, its cul-

tivation occupies only 7 million hectares – half of which

is for sugar production.

51No. Cultivation of soy currently occupies 22 million

hectares in Brazil and corn, 13 million hectares.

Does sugar cane have thegreatest area under

cultivation in the country,when compared to soy

and corn?

Sugar cane cultivation is expan-

ding in the Central-South region,

on flat and/or slightly hilly land, in

degraded areas and poorly utilized

pasture. On the other hand, sugar

cane cultivation improves the physi-

cal-chemical characteristics of the

soil and losses by erosion are much

smaller than with most crops.

Does growing sugar cane require any special care in relation to land

conservation?

[ 43 ]

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What are the prospects for exporting Brazilianethanol?53Generally, the prospects for exporting ethanol are very

positive – although it depends on the speed at which

the international market develops. In 2010, according

to the Ministry of Development, Industry and Trade,

Brazil will export around 7 billion liters of the fuel.

Estimates

show that in 2010

a volume of 7 billion

liters of ethanol will

be exported

Social, environmental, economic and regulatory aspects

[ c h a p t e r f i v e ]

54

[ 46 ]

T he Ministry of Agriculture, Husbandry and Supply

(MAPA - Ministério da Agricultura, Pecuária e

Abastecimento) is responsible for monitoring agricultural

production and for regulating industrial production,

using the plants and distilleries registry. Those registered

with the National Petroleum, Natural Gas and Biofuels

Agency (ANP) can sell the fuel to the distributors –

which in turn are also regulated by the ANP.

Which bodies regulate and inspect the biofuel market in Brazil?[

BI

OF

UE

LS]

Alcohol plant:

regulation in charge

of MAPA and ANP

55

[ 47 ]

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What are Petrobras’ goals for the biofuels

market in the coming years?

In its Strategic Plan, the company has the goal to be

the largest biodiesel producer in Brazil by 2011, and

intends to act selectively in the ethanol value chain and

to increase it exports of this product to 3.5 billion liters

annually.

According to the

Petrobras Strategic

Plan, exports of

ethanol will reach

3.5 billion liters per

year in 2011

[ 48 ]

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N o. The future for biofuels is to be used as

additives and to complement fossil fuels. Some

countries, such as Brazil, already add ethanol to its

gasoline, and biodiesel to diesel oil, not only as a way to

minimize air pollution, but also to improve fuel quality.

Are biofuels competitors for fossil fuels?

How do biofuels contribute to reducing global warming?

56

57A s biofuels represent renewable

energy sources, the gases gener-

ated in their use are reabsorbed dur-

ing the growing of the next harvest,

there is a balance between the emis-

sion and absorption of greenhouse

gases in the atmosphere. Additio-

nally, biofuels that contain oxygen in

their composition, such as ethanol

and biodiesel, help reduce the emis-

sions of CO2 when added to fossil

fuels.

[ 49 ]

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58

Plastics can be

produced from

ethanol, although

the cost is still high

T here already exists a very well developed chemical

alcohol technology for producing substitutes for

petrochemical products – such as for ethane alcohol

and biodegradable plastics, among others. The strongest

existing barrier against its large scale adoption is the

price, generally higher than oil derivatives.

As well as producing energy can biofuels

be used for producing other

materials?

[ 50 ]

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T he construction of new sugar cane and biodiesel

plants generates direct and indirect jobs and contri-

butes to keeping workers in the rural areas. The workers

can obtain an income from agriculture, which reduces

the exodus from the countryside.

59

How do biofuels contribute to generatingemployment and distributing income in Brazil?

Peanut

plantation workers:

The growing biofuel

industry generates

employment

throughout the

country and reduces

the rural exodus

60Which generates moreemployment: the oil or

ethanol industry?

T he ethanol industry employs 20 times more labor per

liter produced than fossil fuel and alternative ener-

gies industries, such as hydrogen and electricity.

T he State of São Paulo alone has

400 thousand people employed

in sugar and alcohol production.

The installation of new plants is

happening in regions where employ-

ment opportunities are scarce.

Therefore, new job opportunities

will guarantee employment to the

population of these regions and in

neighboring areas.

61

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[ 51 ]

With the construction of newplants and the increase inalcohol production, is the

trend to generate moreemployment in the sector?

[ 52 ]

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Sugar cane

plantation workers:

Fairer pay and

reduction in

working hours

62Has the hard life of the sugarcane worker changed in thelast few years?

W orking conditions have improved for sugar cane

workers, by, for example, better pay and a reduc-

tion in working hours.

The work that causes most controversy is cutting the

burnt sugar cane. But the agricultural areas that are

expanding allow the mechanization of farming opera-

tions, in accordance with Federal Decree 2.661 of 1998,

which requires a reduction in sugar cane burning, and

with São Paulo State Law No. 11.241/2002, which during

the next few years requires the total elimination of burn-

ing in areas that can be mechanized.

[ 53 ]

T here is no truth in the argument

that there is a shortage of food in

the world or, in particular in Brazil;

what is missing is income for the

poorer members of the population

to buy the food which, often, is

destroyed by the producer or left

unharvested, due to low market

prices. With the expansion of the

biofuels industry, new jobs will

naturally be created and, consequently,

income generated for the worker to

sustain his family.

In Brazil, areas previously not

used for agriculture, or not adequate for growing food

crops due to low rainfall levels, are those most used for

the expansion of the process of growing the raw materials

for producing biofuels. This is the case in large regions of

the dry Northeast, in which, despite the lack of rain, some

oilseed plants manage to produce their fruit.

Does the biofuel program endanger the supply of

food when it uses agricultural land for

producing ethanol and biodiesel?

Biofuel industry

generates more

income for workers

and their families

63

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Ethanol

production doesn't

endanger internal

food supply

64

Is there any risk thatBrazilian ethanol productionspecifically will endangerfood supply on the international market?

B razil has 850 million hectares and conditions to

economically sustain agricultural production, as

much of this area is poorly used or not used at all –

the same is happening in Africa. Currently, only 7% of

the country's total land is planted with soy, corn, rice,

beans, sugar cane and other crops. Pasture occupies

more than 20% of the total area and forests almost

50%. There is an estimate that around 100 million

hectares of Brazilian land is suitable for expanding agri-

culture – in addition to the expectation of a large

increase in productivity, arising from a higher level of

technology. Therefore, in Brazil there is no risk that the

cultivation of sugar cane will endanger food supply.

[ 55 ]

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65Agrobusiness has contributed very positively to

Brazil’s large trade balance. This market earns Brazil

foreign exchange and, particularly in the case of biofuels,

attracts direct, long-term investments to the interior

of the country. This, in turn, promotes continuing rural

employment and economic and social development of

urban areas, as well as generating thousands of jobs in

the base industries that support this activity in Brazil

and, increasingly more, also abroad.

How can the export of biofuels stimulate the

Brazilian economy?

Cultivation

of oilseed plants,

such as castor beans,

helping to keep

workers in rural areas

Petróleo Brasileiro S.A. – Petrobras

Ministério de Minas e Energia (MME)

Ministério da Agricultura, Pecuária e Abastecimento (Mapa)

Ministério de Ciência e Tecnologia (MCT)

Ministério do Desenvolvimento, Indústria e Comércio (MDIC)

Empresa de Pesquisa Energética (EPE/MME)

Empresa Brasileira de Pesquisa Agropecuária (Embrapa)

União da Indústria de Cana-de-Açúcar (Unica)

Sindicato Nacional das Empresas Distribuidoras de Combustíveis

e de Lubrificantes (Sindicom)

F.O. Licht

IDB-OMC

Icone

The Economist

Toepfer Institute

International Energy Agency [Key World Energy Statistics/2006]

Associação Nacional dos Fabricantes de Veículos

Automotores (Anfavea)

Companhia Nacional de Abastecimento (Conab)

This booklet is produced by Institutional Communications of the

Petrobras Supply Division

EDITORIAL PROJECT, RESEARCH AND EDITION:

Newsday Consultoria de Comunicação e Marketing

GRAPHIC PROJECT:

Mello & Mayer Design

PHOTOS:

Petrobras' images database

Page 51: Keystone Group

Page 52: Ricardo Azoury / Tyba Agency

PRINT:

Setprint Gráfica e Editora

Printed on recycled paper

Final edition date:

31/07/08

Sources

Editorial Board