OUTLOOK FOR OTTO-

CYCLE FUELS IN BRAZIL

ANP Program for Regulating the

Ethanol Market in Brazil

Rosângela Moreira de Araujo

Superintendent of Biofuels and Product Quality October 25, 2011

Ethanol-run cars represent over 90% of total sales

1979 1980

1973

First oil crisis

1974

Brazil creates the Proalcool Program

1977

Addition of 4,5% ethanol to gasoline

Addition of 15% of ethanol to gasoline

Second oil crisis

1983 1985

Percentage of ethanol added to

gasoline reaches 22%

1989

Oil prices fall and gasoline prices equal to ethanol’s

1992 RIO 92: Signature of

Document on climate changes. The 90S- Ethanol becomes 20 to 25% of the

gasoline mixture

The 90’s

Ethanol becomes 20 to 25% of the gasoline

mixture

2003 Launch of biofuel cars

2005 The National

Biodiesel Program is launched

2007 Third oil crisis

January

2008 Mandatory B2 starts

March 2008

Mandatory B3 is established by CNPE as

of July, 2008

July 2009

Mandatory B4 starts

2001

End of the deregulation process

January 2010 Mandatory B5 starts

September 2011 Law nº 12.490, 2011 establishes

the regulation f or the entire ethanol chain

Evolution of Biofuels in Brazil

Brazilian Fuel Ethanol

Brazilian Market

More than 30 years of commercial use;

Total production around 27,4 bi liters in 2010/11;

Increased demand with the flex-fuel technology (E20-E100);

Main national fuel for light vehicles in 2008 and 2009;

Brazilian fuel ethanol contributes for the mitigation of climate

change classified as advanced fuel;

Ethanol plants export bioelectricity (sugarcane bagasse) into

the grid;

Other uses: heavy vehicles (SP) and airplanes (test).

Legal Background

Law nº 9,478 / 1997

“Petroleum Law”

Article 8. ANP duties:

Implement the national policy for oil,

natural gas and biofuels with an

emphasis on:

protecting the interests of

consumers in price, quality and

product supply.

specifying the quality of petroleum,

natural gas, its derivatives and

biofuels.

ANP attributions contemplate the regulation and

authorization of activities related to production,

import, export, warehousing, storage,

transportation, transfer, distribution, and marketing

of biofuels, as well as assessment and certification

of its quality, supervising them directly or through

agreements with other organs of the Union,

States, Federal District or municipalities.

Adds and gives new wording to the provisions set forth in Law

9.478/1997, and expands the jurisdiction of ANP for the entire

biofuels industry.

Law 12,490 of September 16, 2011

Anhydrous/hydrated fuel ethanol

Gasoline C

Gasoline A

Plant

Primary Base

Retailer Collector Center

Secondary Base

Refinery

ANP Regulation

National Ethanol Supply

Before the Law 12,490/2011

Ethanol anhydrous/hydrated

Gasoline C

Gasoline A

Plant

Primary Base

Retailer Collector Center

Secondary Base

Refinery

ANP Regulation

National Ethanol Supply

After the Law 12,490/2011

Extraction of sucrose

(juice)

Raw

material

Treatment of the juice

Sugar

Fermentation

Distillation

Production

and storage

of ethanol

Concentration

ANP

Where ANP Acts in the Plant

Demand Evolution Gasoline A x Fuel Ethanol

9

Source:ANP/SAB/SIMP

Ethanol > Gasol. A

Ethanol> Gas A

Fuels Consumption in Brazil 1st Semester 2011 x 2010

Fuel thous.m³ variation, %

jan-jun/10 jan-jun/2011 11/10

Diesel B5 3.615 3.825 5,8

Biodiesel 181 191 5,8

Gasoline C 2.498 2.923 17,0

Gasoline A 1.937 2.192 13,2

Anhydrous Ethanol 561 731 30,3

Hydrated Ethanol 613 472 -23,0

Total Ethanol 1.174 1.203 2,4

Total Otto Cycle 3.111 3.395 9,1

LPG 1.328 1.398 5,3

Fuel Oil 275 370 34,6

Jet Fuel 495 548 10,9

Aviation Gasoline 4 4 -2,8

TOTAL 8.827 9.540 8,1%

Regulatory Stocks Law 12,490/2011

ANP Acts

Under Public Hearings

Establishment of criteria for hiring or direct acquisition of anhydrous fuel ethanol compatible with the purchase of gasoline A (2 public hearings);

Formation of anhydrous ethanol stock by the anhydrous ethanol producers and fuel distributors;

Establishment of requirements for the registration of the trader by the ANP;

Establishment of weekly information sending from ethanol suppliers and distributors to ANP in order to monitor more accurately the availability of anhydrous ethanol in the

domestic market in order to support decision-making of ANP and other competent bodies.

Expected Results

Within the implementation of these Acts and ethanol market

monitoring, ANP considers to obtain the following outcomes:

to guarantee the supply of anhydrous fuel ethanol and gasoline C;

to boost the competitiveness of hydrated fuel ethanol;

to reduce the uncertainties inherent in the market;

to contribute to reduce the volatility of prices of fuel

ethanol and gasoline along the supply chain.

Ethanol Fuel Producer

The fuel ethanol commercialized in

the country must be certified with

the emission of the Quality

Certificate.

Custody of a control sample and of

the Quality Certificate, that must be

available to ANP.

The number of the Quality

Certificate must appear on all tax

documents with its copy.

Sending to ANP all the analysis

results contained in the Quality

Certificates monthly.

Quality Control ANP Act 7/2011

Quality Control ANP Act 7/2011

Fuel Distributor

The hydrated ethanol distributor must issue an

Accordance Bulletin to assure the quality of the fuel

before the delivery to the retail market.

Custody of the Quality Certificates issued by the

fuel ethanol producers.

The distributor has the responsibility to blend

ethanol to gasoline.

ETHANOL

Quality Control ANP Act 7/2011

Retail

Quality Control Program in the service stations

for hydrated fuel ethanol and gasoline (E20).

The service station must analyze the fuel

ethanol and the gasoline C delivered by the

distributor (ANP Act 9/2007).

Tests:

a) Hydrated Fuel Ethanol: Aspect,

density and alcohol content (densimeter method);

b) Gasoline C (E20): Aspect, density and

anhydrous ethanol content (test-tube method).

Other Regulatory Activities

Interlaboratory programs:

conduction of 20 rounds and last round

with INMETRO using ethanol reference

material;

International participation in BIOREMA;

Standardization: follow-up actions under the

technical Committees of ABNT, INMETRO, ASTM,

ISO (quality and sustainability);

International WG: participation with the

Government to reduce technical barriers, as well

as international fora dealing with the product

specification and sustainability (USA, EU,

Mercosur and IBAS).

Fuel Ethanol Specifications

Property Unity Anhydrous Hydrated Premium

Density at 20ºC kg/m³ max. 791.5 807.6 to

811.0

799.8 to

802.7

Alcoholic Content at 20°C %v/v min. 99.6 95.1 to 96.0 97.1 to 97.8

%m/m min. 99.3 92.6 to 93.8 95.5 to 96.5

Ethanol Content, min. (imp) 98.0 94.5

Water %v/v max 0.4 4.9

Acidity mg/L max. 30

Electrical Conductivity µS/m max. 350

pH - - - 6.0 to 8.0

Copper mg/kg max. 0.07 -

Chloride mg/kg max. 1

Washed gum mg/100 mL max. 5

Appearance - Clear & No Impurities

Color - Orange (dye) no dye

Methanol %v/v max. 1

Hydrocarcarbons %v/v 3

Residue by evap. mg/100 mL max. 5

Sodium mg/kg max. 2

Sulfate mg/kg max. 4

Iron mg/kg max. 5

Program of Fuel Quality Monitoring

5% - North

20% - Northeast

9% - Midwest

45% - Southeast

21% - South

38,000 service stations

245,000 samples/year

Regional gas station distribution

Program of Fuel Quality Monitoring

Fuels Quality 2005/2011

International Harmonization

of Biofuels

Brazil / US / EU: Development of the "White Paper" for biofuels

(ethanol and biodiesel) to identify properties and possible limits

to be harmonized in the short, medium and long term (January

2008);

MERCOSUR: Report on the activities of the working group for

technical harmonization of biofuels - last meeting in September

2010;

On going: Discussion of proposals and cooperation to promote

alignment and mitigation of differences among methods and

specifications.

Final Remarks

The expansion of the ANP’s jurisdiction in the fuel ethanol sector, arising from the

Law 12,490/2011, enable ANP to implement actions in order to contribute for

strengthening the production and the market and to the security of supply;

Closing of public consultation of the rules for authorization of ethanol producer

plant as well as the rules for new tools for regulating market by stock ethanol;

The fuel ethanol spec reviewed in 2011 facilitate to reduce the technical barriers;

The Program of Fuel Quality Monitoring keeps on being a very important tool to

monitor and inspect the product quality as well as allows to define consistent

regulation to protect the consumer.

Outlooks

ANP can contribute to the consistent planning of energy under the economic

environmental and social aspects, in order to define the participation of ethanol,

considering its positive externalities and the alternatives in R&D&I (new generation

products begin to eclipse alternatives in the medium to longer-term);

ANP can reduce the asymmetric information: reliability for government actions and

market and provide transparency data to new investors;

It is vital to improve the international cooperation to achieve

sustainable biofuels market as well as to ensure the

development of fuel ethanol as commodities.

Thank you for your attention!

Rosângela M. Araujo

Superintendent of Biofuels and

Quality Product

phone: + 55 21 2112 8640

rmoreira@anp.gov.br

www.anp.gov.br