Brazil-Japan ethanol investment worth US$8 billion

A project between Brazil and Japan to help supply Brazilian ethanol made from sugarcane to the Japanese market could require a massive €6/US$8 billion in investments, Brazil's largest newspaper reported.

The money would be used to take minority stakes in 40 ethanol distilleries across Latin America's largest nation, ensuring Japan with a stable supply as it prepares to mandate an obligatory mix of ethanol in gasoline, the Folha de S. Paulo [*Portuguese] newspaper reported last weekend.

Brazilian state-run oil company Petroleo Brasileiro SA had already confirmed it was negotiating a partnership with Japan's Mitsui & Co. Ltd. on the stakes, but the report quoting Petrobras executive Paulo Roberto Costa was the first time that an investment amount was disclosed. A Petrobras spokesman did not immediately respond to a telephone message left Saturday seeking comment.

Japan could require between 1.8 billion to 6 billion liters of ethanol per year, depending on the ethanol mix required — between 3 percent to 10 percent — according to Petrobras estimates. Brazil exported 3.4 billion liters abroad in 2006, of which less than 7 percent, or 225.4 million liters, went to Japan, according Brazil's Agriculture Ministry.

Japan's National Development Bank will help with financing the distilleries aimed exclusively for the Japanese market, which would be built or purchased, Folha reported:
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Costa told the newspaper that the investment in each distillery could total US$200 million (€150 million). Aiming to ensure long-term supply for 15 years, Petrobras and Mitsui would set up a Brazil-based subsidiary.

Costa told the newspaper that Japan is insisting on guaranteed long-term supply of ethanol, an increasingly popular fuel because of persistent high oil prices. Petrobras announced earlier this week that it signed a memorandum of interest with Mitsui and a Brazilian construction firm to study the construction of a pipeline in Brazil that would be used to help export ethanol to Japan. No amount was disclosed on how much the pipeline could cost.

The United States is the world's largest ethanol producer, but Brazil is in the No. 2 spot and is the planet's largest exporter, with more agricultural land available than in America to ramp up production. While Brazil makes ethanol from sugarcane, U.S. ethanol is produced more expensively from corn.

Brazil's ethanol industry is now making profits like never before amid heavy foreign investment. There is also huge domestic demand in Brazil, where eight out of every 10 new cars are "flex fuel" models that can run on gasoline, pure ethanol or any combination of the two. Most drivers choose ethanol, because it costs almost half as much as gas.

U.S. President George W. Bush will meet Friday in Sao Paulo with Brazilian President Luiz Inacio Lula da Silva to forge an ethanol "alliance" aimed at promoting use of the fuel internationally and setting quality standards so it can be traded as a commodity.