Brazil Sugarcane and Ethanol Industries
Brazilian officials feel the country has the capability to replace 10% of the world's gasoline consumption with ethanol that is produced in Brazil! That astounding assessment was pronounced at a recent workshop in Sao Paulo dealing with ethanol production. At the current level of technology, Brazil would need to grow 35 million hectares of sugarcane to achieve that goal. With improved sugarcane genetics and improved technologies in the processing of sugarcane, officials feel they could achieve that goal with just 20 million hectares of sugarcane. Sugarcane is a "hot" commodity in Brazil and Embrapa has placed increased emphasis on improving sugarcane genetics and improved technologies for turning that sugarcane into ethanol and sugar.
The sugarcane industry in Brazil will close out 2008 with 571 million tons of sugarcane processed during the year, which is 13.9% more than in 2007. Of the total sugarcane processed in 2008, 246 million tons (+6.7%) went toward the production of 32.1 million tons of sugar and 325 million tons (+20.1%) went toward the production of 26.6 billion liters of ethanol. Of the total ethanol production, 10.1 billion liters are the type that is mixed with gasoline and 16.5 billion liters are the type burned directly by automobile engines.
In 2008, sugarcane occupied 8.5 million hectares of land in Brazil. The vast majority of the sugarcane grown in Brazil is grown in the south-central part of Brazil (87.9% of the total). The state of Sao Paulo is by far the largest producing state with 340 million tons of production followed by Minas Gerais with 44 million tons of production.
Alcohol prices in Brazil this year ranged between 55 to 65% of the price of gasoline, which is a very favorable price for alcohol. Anytime alcohol prices are 70% or less the price of gasoline, it is advantageous to use alcohol instead of gasoline. Gasoline prices in Brazil are not as volatile as they are here in the U.S. The government controls the price of gasoline and they view it as a revenue stream for the government. This governmental control is also the stimulus behind the development of the alcohol industry in Brazil. The sugarcane producers and processors have known for decades that the price of gasoline is going to stay high enough allowing them to price their product at about 60% the price of gasoline and still make a profit. This is the incentive for the consumers to use alcohol in their vehicles and for produces to increase sugarcane production.
Another big stimulus for the alcohol industry in Brazil was the governmental mandate that every service station in the country be required to offer pure alcohol for their customers. (The equivalent in the U.S. would be E85) This is insurance for the consumer that there will always be alcohol available regardless of where they stop to fill up. The last piece of the puzzle was the introduction of flex-fuel engines that can utilize 100% alcohol or alcohol blended with gasoline in any combination. Today, there are over 4 million flex-fuel vehicles on the road in Brazil and over 90% of all new vehicles produced in Brazil are flex-fuel. Here is suggestion for Detroit, why don't you make plug in hybrids with flex fuel engines? That way the consumer could achieve, I don't know, maybe 1000 miles per gallon of gasoline!! Think anybody would like to buy a car like that??
The Brazilian government estimates that an additional 30 sugar mills will come on line in 2009 with an average cost of R$ 300 million for each mill. The steady growth of the sugarcane industry in Brazil makes the goal of replacing 10% of the world's gasoline seem feasible. With improved technologies, they feel they can reach that goal by producing 20 million hectares of sugarcane, which would be about 2.5 times more than the current production level. At a 13% annual growth rate, Brazil could reach 20 million hectares of sugarcane production in about a decade.
Alcohol Exports From Port of Paranagua Continue to Increase
Authorities at the Port of Paranagua in southern Brazil are very pleased with the way exports of alcohol continue to increase. They expect that the public terminal at the port to export between 100-120 million liters of alcohol before the end of 2008. There are several private terminals at the port as well, but the public terminal, which is entering into its second year of operation, is much larger than its private competitors. The public terminal, which is supported by the state government, can move the alcohol at 40% less cost than the private enterprises. As a result, the port authorities expect that all the alcohol producers in Parana will be utilizing their facility in 2009.
Total alcohol production in Brazil also continues to rise at a 15% annual rate mainly driven by domestic demand. During the month of October, the domestic market consumed 1.83 billion liters of alcohol, which is 15% more than October 2007. As far as exports of alcohol are concerned, the United States is the number one destination of Brazilian alcohol. By the end of October 2008, total Brazilian alcohol exports during the prior twelve months was 3.4 billion liters as compared to 2.0 billion liters for the same period last year. Thirty-two new sugar mills were scheduled to start operations during the 2008-09-harvest season. Two mills will start in November and three mills have already decided to postpone the start of operations until the 2009-10 harvest seasons. Many of the mills that were in the initial construction phase or still in the planning phase have canceled or postponed equipment purchases due to restricted credit availability.
Japanese Investing In Alcohol Pipeline In Brazil
The port of Paranagua in Parana, Brazil is gearing up for what they feel will be a big surge in alcohol exports from Brazil. After the inauguration of the public alcohol terminal at the port last October, exports of alcohol continue to increase. In 2006, 400 million liters of alcohol were exported through the port. That figure increased to 600 million in 2007 and it is expected to reach 1 billion liters before the end of 2008.
The public alcohol terminal consists of seven tanks with a storage capacity of 37.5 thousand cubic meters of alcohol. The alcohol travels through four kilometers of pipelines before reaching the loading dock where 15 vessels per month could be loaded with alcohol. There are other smaller privately owned terminals at the port that can also load alcohol.
The alcohol currently arrives at the port via truck and rail, but that is going to change in the future. The governor of the state of Parana is in advanced negotiations with Japanese investors concerning the construction of an alcohol pipeline from the state of Mato Grosso do Sul, through the northwest corner of the state of Parana and on to the Port of Paranagua. As we have mentioned many times before, transportation is a huge problem in Brazil and the sugarcane producers in Brazil feel they need a much more efficient method of transporting their product to the world markets. The method of achieving that needed efficiency is of course a pipeline.
The state of Parana is the second leading sugarcane producer in Brazil after the state of Sao Paulo. In 2007-08, the state produced 2.8 million tons of sugar and 1.6 billion liters of alcohol. Approximately 3.5% of the agricultural land in Parana is devoted to sugarcane production and it continues to increase at about 10% per year with no end in sight. In fact, the growth rate might even accelerate. The cultivation of sugarcane occurs in 130 of the 399 municipalities in the state and is responsible for 80,000 jobs. There are 30 sugar refineries/distillers in operation across the state and nine more are scheduled to come on line between now and 2010. The city of Maringa is considered the center of sugarcane production in the state of Parana.