BP Boosts Its Biofuels Business with Brazilian Joint Venture

Source: By Sarah McFarlane, Wall Street Journal • Posted: Tuesday, July 23, 2019

The transaction is set to boost the U.K. oil company’s bioenergy business by 50%

Sugar cane fields are seen in Ribeirao Preto, Brazil on May 2. Photo: marcelo texeira/Reuters

Energy giant BP BP 0.31% PLC is doubling down on biofuels with a joint venture with agricultural trader Bunge Ltd. in Brazil, betting that the global movement to reduce carbon emissions will boost demand for low-carbon fuels.

Ethanol’s greenhouse gas emissions are around 70% lower than hydrocarbon transport fuels, and around 70% of vehicles in Brazil can run on ethanol. The joint venture will also produce electricity from the waste biomass of the sugar cane.

BP will pay Bunge $75 million and the equally owned joint venture will assume $700 million of non-recourse debt associated with Bunge’s assets. The stand-alone joint venture includes BP’s three sugar cane crushing mills and Bunge’s eight mills, with combined capacity to crush 32 million metric tons a year.

The mills yield around 60% ethanol and 40% sugar, and there is some flexibility to adjust these ratios, said Dev Sanyal, chief executive of BP Alternative Energy.

Some countries, including Brazil and the U.S., mandate a minimum amount of ethanol is blended with gasoline. Brazil is already the world’s leading biofuels market as a share of the country’s transport fuel mix.

“Biofuels will be an essential part of delivering the energy transition and Brazil is leading the way in showing how they can be used at scale, reducing emissions from transport,” said Bob Dudley, BP chief executive.

Brazil is the world’s second largest ethanol market behind the U.S., having adopted policies to use more biofuels in the 1970s when oil prices surged after the Organization of the Petroleum Exporting Countries halted exports to some countries.

The joint venture follows a similar move by Royal Dutch Shell PLC and Brazilian sugar and ethanol producer Cosan Industria e Comercio SA  in 2010, when they formed Brazil’s top cane crusher Raizen.

Sugar producers have struggled with lower prices in recent years with booming output in top-producing nations, including India and Thailand, causing global stocks to build.

Meanwhile, Brazil’s ethanol market has been supported by strong demand. The government plans to introduce new mandates for fuel distributors to increase their biofuel sales from 2020.

Bunge started reviewing its South American sugar business in 2013 and had looked at options including a sale or initial public offering, the company has said. It sold its sugar trading business to Wilmar International Ltd in August last year.