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Ethanol Market Overview ExCo67 – Helsinki – Finland
Tuesday, May 10th, 2011
Mark Thomas Lyra Business Development Director
Agenda
at a Glance
Shell’s Motivation
Ethanol Market Overview
Agenda
at a Glance
Shell’s Motivation
Ethanol Market Overview
Raízen Overview A history of growth and innovation
Crushing Capacity (mm Tons)
4.0 7.5
9.5
15.6
19.1
30.3 31.5
38.8 40.0 40.0
45.0
60.0 62.0
1936 1986 1988 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010
¹Current total crushing capacity
100.0
2011 2012 2013 2014 2015
Esso started operations in Brazil in 1912 Shell started operations in 1914
Today Raízen is among the top players in fuel distribution
• 3600 fuel stations
• 53 Logistical Terminals
• 19,000,000m³/ Year
Raízen Overview Raízen mills enjoy locations with logistical advantages
Favorable Geographic Position Efficient Logistics
State of São Paulo
The São Paulo State is responsible for: • 74% of the Brazilian sugar production
• 67% of the Brazilian ethanol production
• 69% of the total sugar cane crushed in Brazil
The São Paulo State consumes: • 68% of all ethanol produced in the country
• 50% of all sugar produced in the country
Note: Data as of 2008/09 harvest. Source: UNICA and newspapers.
Raízen’s total crushing capacity would rank it among the top producing countries in the world
1st
2nd
3rd
4th
6th
7th
8th
9th
Brazil
India
China
Thailand
Pakistan
Mexico
Colombia
Australia
497.959
355.520
106.316
64.365
54.752
50.680
40.000
36.000
Countries Crushing Capacity
5th Raízen 62.000
Raízen 100.000
Thailand 64.365
Source: Datagro
Sugar cane area managed by Raízen is about 700.000 hectares
This area is Equivalent to 730.000 Maracanã Stadiums
Large scale sugar cane cultivation results in lower costs
Raízen is committed to improving efficiency in this area
72% of the 2011/2012
Crop will be harvested mechanically
Raízen is the world´s largest sugar cane ethanol producer
• 2011/12 production
estimated at 2.2 Billion liters
•Trading activities
covering 30% of Brazilian Market
Raízen also owns an ethanol terminal in Santos
• Cosan has
66% stake
• 40.000 m3 static capacity (4 tanks of 5.000 and 2 tanks of 10.000 m3)
Raízen is Brazil’s largest Sugar Producer and is able to Supply half of US Yearly Consumption
4.3 million Tons of Sugar
Raízen co-generation capacity is enough to supply a city like Rio de Janeiro
• 300 MW – enough to support a city of 900K people
• At conclusion of installed
projects = 600 MW
• Equivalent to the consumption of a city like
Rio de Janeiro
Total electricity co-generation for export 2011
Social Responsibility
• Raízen has over 40.000 employees
• In 2010, the Cosan Foundation benefited over 60.000 members of the communities in which it operates
Leading market position
Consolidation is Related sectors in Brazil
Market Share of Top 5 Companies (1)
0% 100%
Pulp 72.6%
Dairy 77.4%
Cement 80.0%
Orange Juice(2 ) 91.5%
Steel(2) 93.0%
Soybean 95.0%
Beer 97.0%
Oil 100.0%
Paper 48.7%
Ethanol & Sugar 18.7%
1) Note: Beer. steel data as of 2005; orange juice as of 2004; cement. dairy. pulp and. paper as of 2003; soybean as of 2000
2) Percentage based on the four top players in the sector
Superior scale in a highly fragmented industry
Brazilian market share
Sugarcane crushed in 2008/2009
Moema
Carlos Lyra
Usaçúcar
São Martinho Guarani
Alto Alegre
Tércio Wanderley
Louis Dreyfus + Santelisa Vale
Others
9,3%
5.6%
2.4%
2.2%
2.2%
2.1 %
1.8%
69.7 %
2.1 %
2.1 %
mm ton
Raízen is the First Fully Integrated Player in the Sugar Cane Industry
Sugar cultivation
Sugar and Ethanol Production
Sugar and Ethanol Trading
Domestic and Export Logistics
Retail and Distribution
Agenda
at a Glance
Shell’s Motivation
Ethanol Market Overview
Sustainable Growth By 2050 there will be over 9 billion people and most of this
population growth will come from developing nations
• Global population has increased
more than 100% since 1950
• Population will increase more than
40% by 2050 Fonte: World Bank WDI (2008)
1950
1975
2000
2025
2050
OECD
Non OECD
1 billion people
Energy Consumption Developing countries are expected to
consumer more energy per capita
Gigajoule (GJ) per capita (primary energy)
400
300
200
100
0 0 10 20 30 40
GDP per capita (PPP, ´000 2000 USD)
USA
Europe EU 15
Japan
South Korea
China
India
Fonte: OECD Energy Balances (2006)
Energy consumption increases with economic growth
Greenhouse Gas Emissions The use of fossil fuels is directly linked to the
emission of greenhouse gases
Fonte: OECD (2008)
80
70
60
50
40
30
20
10
0 1970 1980 1990 2000 2010 2020
GtCO2 eq
2030 2040 2050
OECD
BRIC
ROW
A. OECD Enviromental Outlook Baseline
Share of CO2 (MM ton) per sector
Greenhouse Gas Emissions The transportation sector is responsible for a significant portion
21%
25%
30.000
20.000
10.000
0
1990 2007
Non energy use
Agriculture
Services
Residences
Transportation
Industry
Other
Energy Generation
Source: EIA (2009)
Emissions and Climate Change Business as Usual attitude could result in a significant increase in GHG emissions
GHG emissions could be linked to climate change...
Temperature in degrees centigrade
Carbon Dioxide in the atmosphere
Source: IPCC (2007)
CO
2 p
pm
Tem
pera
ture
Ch
an
ge
Yesars before the present 1000 600 800 400 200 0
0
-0,4
1,0
0,4
0,8
250
290
330
Climate Change Projections
0ºC 1ºC 2ºC 3ºC 4ºC 5ºC 6ºC
Global Temperature Change in relation to pre industrial times
Food
Water
Eco-System
Extreme Weather
Risk of abrupt and irreversible change
Large number of species at risk of extinction
Agricultural Production Shortfalls
Disappearing glaciers and restricted water supply in some areas
Large damage to sea coral reefs
Rising sea levels
Storms, fires, draught, floods, heat waves
Growing risk of abrupt change in climate patterns and cycles
Climate Change Consequences Scientific projections point at severe consequences
Source: Stern Review
Society’s Concern Society has a growing concern with this issue
Is Global Warming a Serios Problem?
China
Poland
U.S.
Russia
Indonesia
Canada
Israel
Kenya
Britain
Pakistan
Lebanon
Egypt
Jordan
Nigeria
Palest. Ter.
Germany
Spain
Turkey
Japan
Mexico
India
France
S. Korea
Argentina
Brazil
30
36
44
44
46
47
48
48
50
50
53
54
54
57
59
60
61
65
65
65
67
68
68
69
90
• Kyoto Protocol (Annex I countries): 5,2% emission reduction by 2012 in relation to 1990 levels
• European Union: 20% emission reduction by 2020 in relation to 1990 levels
• China: 40-45% emission reduction by 2020 in relation to 2005 levels
• California: 10% emission reduction by 2020 in relation to 2005 levels
• Brazil: 36-39% emission reduction by 2020
Government and Corporate Attitude Governments and Corporations seek cleaner alternatives
Biofuels can represent up to 30% of the transportation energy matrix by 2050
Biofuels as Part of the Solution
With planning and government support, it is possible to achieve a more sustainable energy matrix
2000 2010 2020 2030 2040 2050
0
200
400
600
800
1000
EJ per Year
Other Renewables
Biomass
Nuclear
Coal
Gas
Oil
Energy Consumption in Transportation
2000 2025 2050
Electricity
Biofuels
Natural Gas
Fosil Fuels
Fonte: OECD Energy Balances (2006)
Small
Little Significant
Large
Today Biofuels are the option best aligned with existing distribution and consumption infrastructure
Biofuels as Part of the Solution
Compatibility with
Existing Business
Economic
Scale
hidroelétrica
nuclear
solar
eólica
células de
hidrogênio
biodiesel
Etanol
Brazilian sugarcane ethanol presents the best cost benefit option in terms of cost and carbon emissions
Biofuels as Part of the Solution
Energy
Source
Emissions
gCO2 eq/kcal
Costs in US$
cents/kcal
Carvão 1,147 0,0035
Gás Natural* 0,523 0,0055
Gasolina** 0,296 0,0075
Diesel** 0,483 0,0077
Nuclear* 0,035 0,0038
Solar (PV)* 0,041 0,0674
Eólica 0,077 0,0040
Etanol** 0,049 0,0064
*EUA | ** Brasil
Etanol** 0,049 0,0064
Agenda
at a Glance
Shell’s Motivation
Ethanol Market Overview
Brazilian Ethanol Market The Brazilian ethanol market has overcome several challenges
-
2.500
5.000
7.500
10.000
12.500
15.000
17.500
20.000
22.500
25.000
27.500
19
70
/71
19
72
/73
19
74
/75
19
76
/77
19
78
/79
19
80
/81
19
82
/83
19
84
/85
19
86
/87
19
88
/89
19
90
/91
19
92
/93
19
94
/95
19
96
/97
19
98
/99
20
00
/01
20
02
/03
20
04
/05
20
06
/07
20
08
/09
Brazilian Ethanol Production Evolution
De-regulation
Ethanol Vehicle
sales decline
Economic
Crisis
Food vs. Fuel
debate
Oil Chock
Ethanol vehicle
launched
Flex Fuel Car
Anhydrous Hydrous Fonte: MAPA (2010)
Brazilian Ethanol Market Oil prices and concerns about climate change impact the growth of Brazil’s ethanol market
Global Biofuels investment
Biofuels Clean energy
Fonte: New Energy Finance (2010)
0
20
40
60
80
100
120
0
20
40
60
80
100
120
140
160
180
2004 2005 2006 2007 2008 2009
+56%
+52%
+44%
+10% -7%
WTI Average Oil Price
• Valero – Verasun
(~ US$500 M)
EUA:
• Petrobras – Tereos
(~ US$900 M)
• Shree Renuka – Equipav
(~US$650 M)
• LuisDreyfus – SantelisaVale
(~US$1.700 M)
• Bunge – Moema
(~US$1.700 M)
• Petrobras – São Martinho
(~US$462 M)
Brasil:
Brazilian Ethanol Market Investors with long term view continue to invest in the sector even after the crisis
Investimento para entrada de novos players
Fonte: diversas
158.75
Pasture
51.7
Agriculture
8.14
Sugarcane
111.34
Available
2.4% 33% 48% 16%
Brazilian Growth Potential Brazilian arable land availability reinforces the scalability of the ethanol option
Total Area Protected & Native Arable Area Other
Millions
of Hectares 2851.48 495.61 329.94 25.92
100% 58% 38% 3%
Productivity growth in sugarcane harvesting since 1970 has helped preserve
7,5 million hectares of arable land
Fonte: MME(2010)
Brazilian Growth Potential Sugarcane productivity growth also point to ethanol as a scalable option
Harvested area (millions of hectares) Preserved Area (millions of hectares) Production (million of tons)
500.00
400.00
300.00
200.00
600.00
700.00
4.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
2.00
0.00
100.00
0.00
1975
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2007
2008
1970
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2006
2009
0.3
0.0
0.5 0.7 0.8
1.0 1.1
1.1 1.6
1.9 2.2
2.0 2.3 2.4 2.3
3.0 3.0
3.3 3.6 3.5 3.5 3.3
3.7 4.0
4.4 4.8 4.8
5.3
6.2
8.1 7.5
2.3 2.3 2.4 2.3
2.6
Are
a (
millio
ns o
f h
ecta
res)
Pro
du
cti
on
(m
illio
ns o
f to
ns)
SUSTAINABILITY E
NV
IRO
NM
EN
TA
L
SO
CIA
L
EC
ON
OM
ICA
L
The importance of sustainability Demonstrating the sustainability of every operation has become critical
36 Fonte: UNEP 2009, Menichetti/Otto (2008) for bioethanol and biodiesel, IFEU (2007) for sugarcane ethanol, Liska et al. (2009) for corn ethanol; RFA 2008.
The Importance of Sustainability Studies show sugarcane ethanol’s environmental sustainability
%G
HG
em
issio
n s
avin
g c
om
pare
d f
ossil f
uels
Bioethanol
from weat
Bioethanol
from sugar
cane
143%
Bioethanol
from corn
110% 110% 174%
Bioethanol
from sugar
beets
Bioethanol
from
rapeseed
Bioethanol
from soya
beans
Bioethanol
from
sunflower
Bioethan
ol from
palm oil
Bioethanol
from
agriculture
os foresty
residues
FT diesel
from wood
Biomethane
from
manure
-868% to -2070%
-20
100
80
60
40
20
0
-40
Fonte: UNICA (2009)
The Importance of Sustainability Social sustainability across
Sector States Districts Jobs Establishments
Ethanol (*) 25 1.042 465.236 16.829
Oil(**) 24 176 73.075 1.239
2007 Data in Units
Nota: (*) includes harvesting and production. (**) Excludes oil extraction and non-fuel refining
Oil exploration concentration
Fonte: Mapa elaborado a partir dos dados da RAIS Fonte: Mapa elaborado a partir dos dados da RAIS
Ethanol’s capillarity
38
Fonte: Markestrat (2009), SCA (2010)
Sugarcane Sector GDP
(2008):
US$ 28 bi Taxes:
US$ 10 bi
Agricultural Products
(fertilizer, tractors, etc)
US$ 9,2 bi
Sugarcane Producers:
US$ 11,5 bi
Industrial Products (civil
construction, materials)
US$ 6,3bi
Mills
Ethanol: US$ 12,4 bi
Sugar: US$ 9,8 bi
Other: US$ 0,6 bi
Ethanol Distribution
and Retail:
US$ 19,7 bi
2008 Consumer Savings: R$ 7,7 billion (How much consumers saved by using ethanol rather than gasonline)
The Importance of Sustainability Ethanol is economically sustainable and creates value at each step in the value chain
Producer’s Perspective on Biofuels Certification Globally accepted certification can greatly benefit the industry
• Differentiate products and support corporate reputation
• Facilitate buying decisions – increase liquidity
• Harmonize market demands – sustainability criteria consolidation
• Recognize best practices – sustainability premiums
Certification can:
Social and environmental certification are a global trend
CRAMER
Cramer Commission
EU DIRECTIVE
Low CVP Fuels
MULTISTAKEHOLDER INITIATIVES
NATIONAL INITIATIVE
S
LCFS
Low Carbon Fuel Standard
Renewable Transport
Fuel Obligation
RT
FO
G8+5
Task 39
Liquid Biofuels from Biomass
INTERNATIONAL BODIES’ INITIATIVES
Stockholm Environment Institute
SEI
RTRS
Roundtable on Responsible Soy
RSPO
Roundtable on Sustainable Palm Oil
BSI
Better Sugarcane Initiative
PBCB
Brazilian Biofuels Certification Program
Equator Principles
IB
Sistema de Verificação. da Atividade Agropecuária
CEN
European Committee for Standardization
PC 248
Scorecard
Renewable Fuel Standard
RFS ISCC
Biofuel Quota Law- Ordinance for sustainability requirements
GBEP
Global Bioenergy Partnership
RSB
Round Table on Sustainable Biofuels
Green Energy Rainforest
Rainforest Alliance
Sugarcane Discussion Group
SDG
BEFSCI
Bioenergy and Food Security Criteria and
Indicators
GLOBAL
NATIONAL
SUSTAINABLE BIOFUELS
REGIONAL INITIATIVE
S
VSE
Verified Sustainable Ethanol
FAO OECD IDB IFC IEA UNEP ISO
Green Ethanol
Sugarcane Zoning
National Commitment
National Commitment for the Improvement of Labor Conditions in
Sugarcane
CSBP
Council on Sustainable Biomass Production
Back
Certification Should
What Biofuels Certification Should Aim At Producer’s Recommendation for an Efficient Scheme
• Be comprehensive and gradual
• Involve all relevant stakeholders to
ensure acceptability and
implementation viability
• Be voluntary, with positive incentives
• Be balanced - “Triple Bottom Line
Approach”
• Be transparent and inclusive
• Be scientific and evidence based
Easily measurable
• Be objective - focus on essential
issues to ensure sustainability
Producer
Processor Consumer
Distributor
The Importance of Certification The use of ethanol can grow significantly in other markets
0
100
200
300
400
500
EUA U.E. Brasil Japão China Canadá Índia Tailândia Outros
mil
m³
MUNDO
Fonte: EIA, ANP, F.O.Licht, EUROPIA Gasolina Etanol
Global Consumption of Ethanol and Gasoline in 2010
Ethanol Growth Perspective Long term investment is necessary and the growth
potential is significant
08/09 07/08 09/10 10/11 11/12 12/13 13/14 15/16 14/15 16/17 17/18 18/19 19/20 20/21
70.000
60.000
40.000
30.000
20.000
10.000
-
50.000
Fonte: SCA
800
600
400
200
0
1.000
1.200
Domestic Market Potential Demand Sugarcane production necessary to meet sugar and ethanol demand
Year New
Mills
(2.5 M
tons)
2010 23
2011 18
2012 18
2013 19
2014 19
2015 19
2016 20
2017 20
2018 20
2019 21
2020 21
Eta
no
l m
il m
2
Mo
ag
em
mil
hõ
es t
Ethanol Growth Perspectives Sugarcane ethanol presents clear sustainability
qualities, but is it scalable?
By 2050 it will be possible to:
•Productivity increase – 85 t/ha 170 t/ha (new varieties)
•Efficiency – 82 liters per ton 250 cellulosic ethanol
•Engine and vehicle efficiency 2x kilometers per liter
•Size of the global fleet 3x more vehicles
Given the premises above, by 2050 it will be possible to produce more than 500 million m³, using the current 23 million hectares in use for sugarcane in 2009
In this scenario, sugarcane ethanol can represent ]
30% of the global fuel consumed in Otto cycle engines
Fonte: CTC e SCA
Ethanol Market Overview ExCo67 – Helsinki – Finland
Tuesday, May 10th, 2011
Mark Thomas Lyra Business Development Director
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