Petrobras to push for B20 instead of B2

Via EthanolBrasil. Brazil's state-owned oil company Petrobras wants to stimulate the use of a bigger mixture of sustainably produced biodiesel than is currently mandated. In 2008 it will start a campaign to convince owners of large captive fleets to switch to a 20% biodiesel blend (B20) instead of the B2 required by law.

According to Jose Eduardo Dutra, president of BR Distribuidora (Petrobras' fuel distribution subsidiary) simulations and trials with B20 have shown that the logistics to get the fuel to captive fleets can be made efficient, even though many obstacles remain. Earlier, the company signed an agreement with Companhia Vale do Rio Doce (CVRD) - a mining giant and the world's largest iron producer - to supply its locomotives and trucks with B20. To achieve this, BR Distribuidora will open 80 biofuel supply points across the country covering the mining, melting and logistical operations of CVRD (earlier post).

According to Dutra, Aracruz Cellulose, the world's leading supplier of bleached eucalyptus pulp, is negotiating a similar B20 supply deal. In this case, the logistics are more complex because of the scattered locations of the company's activities: it has two pulp making plants, one at Barra do Riacho in Espírito Santo state and the other at Guaíba in the state of Rio Grande do Sul. Forestry operations are located in these states as well as in Bahia and Minas Gerais. But at the same time, biodiesel production plants have been established in these states, making a decentralised supply possible, though untried.

Petrobras further signed a contract with VIP, an urban bus company in São Paulo, to deliver B20.

With these contracts and its national B2 supply obligation, Petrobras is looking at a total supply of 336 million liters of biodiesel in 2008. According to Dutra contracts show a willingness amongst large fleets to switch to a high proportion of biodiesel, and he expects the number to go up because of a concerted campaign.

In June and August, Petrobras signalled difficulties in delivering the product and admitted the delays were caused by its inability to pool together enough biodiesel manufacturers willing to sell at prices offered by Petrobras, and needed to start supplying large quantities of the fuel across the country's territory. But these obstacles have now been 'practically surpassed'.

The logistics of biodiesel supplies are 'totally different' from those of Petrobras' petroleum products distribution, and they have to be matched in order to mix fossil diesel with the biofuel. The company's oil refineries are all located on the coast, while biodiesel plants are located inland, close to the feedstock source:
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Because of this situation, Petrobras faced a chicken-and-egg situation: as long as there weren't enough large fleets switching to B20, biodiesel capacity and demand was not growing sufficiently enough to warrant investments in supply points and complex distribution chains. And as long as these weren't created, biodiesel manufacturers were hesitatant to increase production or to sell to Petrobras at low prices.

The delivery obstacles are now out of the way, but biodiesel producers are already selling their output at a better price than the contracts Petrobras negotiated with them. New biodiesel auctions offered them higher prices, on the anticipation that from January 2008 onwards, the national B2 mandate comes into force.

However, Durta stressed that all contractual obligations will be met because otherwise manufacturers face severe fines from the National Petroleum Agency.

In order to pull the biodiesel producers back into Petrobras' arms, the company will now launch its B20 campaign for captive fleets, hoping it will take scale advantages that will enable it to negotiate for good prices after the B2 mandate comes into effect.

Biodiesel is produced in Brazil under a new Pro-Biodiesel program, launched during president Lula's first term in office. In contrast to the much older Pro-Alcool program, the new policy from the start included measures to improve the environmental and social sustainability of the biofuel. Incentives are available to manufacturers who source their feedstock from small farmers, members of cooperatives, who are trained and assisted by experts from the Ministry of Agriculture.

Biodiesel produced under this scheme receives a 'Social Fuel Stamp'. The program is meeting some success and is estimated to be benefiting some 60,000 rural families.

Picture: castor bean farmers in the arid, poor Northeast of Brazil, supplying biodiesel manufacturers with feedstock under the Social Fuel program. Credit: ANBA.

References:
EthanolBrasil: Petrobras quer incentivar mistura maior do biocombustível - December 10, 2007.

Biopact: World's largest iron producer CVRD to use biodiesel in its trains - May 18, 2007

Biopact: An in-depth look at Brazil's "Social Fuel Seal" - March 23, 2007