Biofuels Market in Brazil and the Participation of Petrobras

Biofuels Market in Brazil and the Participation of Petrobras

To grow production and

oil and gas reserves

sustainably, being recognized for excellence in E&P operations

To grow production and

oil and gas reserves

sustainably, being recognized for excellence in E&P operations

To expand integrated

operations in refining,

commercialization, logistics and

distribution with a focus on the Atlantic

Basin

To expand integrated

operations in refining,

commercialization, logistics and

distribution with a focus on the Atlantic

Basin

Expand operations in target markets for oil, oil products, petrochemicals, gas and energy, biofuels and distribution, being a world benchmark as an integrated energy company

Expand operations in target markets for oil, oil products, petrochemicals, gas and energy, biofuels and distribution, being a world benchmark as an integrated energy company

Gas & EnergyE&P Downstream (RTC) Distribution Petrochemicals BiofuelsBiofuels

Develop and lead the Brazilian natural gas market and operate

on an integrated basis in the gas and

electric energy markets with a focus

on South America

Develop and lead the Brazilian natural gas market and operate

on an integrated basis in the gas and

electric energy markets with a focus

on South America

Expand operations in petrochemicals

in Brazil and South America on

an integrated basis with the PETROBRAS Group’s other businesses

Expand operations in petrochemicals

in Brazil and South America on

an integrated basis with the PETROBRAS Group’s other businesses

Operate on a global basis in biofuels

commercialization and logistics, leading the

domestic production of biodiesel and

expanding participation in the ethanol segment

Operate on a global basis in biofuels

commercialization and logistics, leading the

domestic production of biodiesel and

expanding participation in the ethanol segment

Operational, management, technological and human resources excellence Operational, management, technological and human resources excellence

Commitment to sustainable development

Profitability IntegratedGrowth

Social and Environmental Responsability

Historical and Recent Development of Biofuels in Brazil


Ethanol dedicated vehicles participation of total vehicles sales

>90%

1979 1980

1973

1st Oil Chock

1974

Brazil creates PROÁLCOOL

1977

4,5% Blending of ethanol to gasoline

15% Blending of ethanol to gasoline

2nd Oil Chock1983

1985

Ethanol blending into gasoline reaches

22%

1989

Crude oil prices fall and price of gasoline

equates to that of ethanol

1992

Rio 92: Signing of the climate change

milestone

90’s

Ethanol blending varies between 20% - 25% of

gasoline

2003

Flex-Fuel vehicles launching2005

Biodiesel National Program launching

Jan 2008

2% Blending of biodiesel to diesel

Mar 2008

CNPE authorizes 3% blending of biodiesel to

diesel

May 2008

Ethanol consumption is bigger than

gasoline

2001

End of deregulation process

Non-Renewable Energy

World 86%

Brazil - 55%

Renewable Energy

World 14%

Brazil – 45%

July 11, oil prices rose to a new record of

$147.27

Aug 2008 Jul 2009

4% Blending of biodiesel to diesel

Jan 2010

CNPE anticipates 5% blending mandate from 2013 to 2010

The Economics of Brazilian Ethanol Supply

Source: MAPA

Proalcool Program and flex-fuel vehicles were both responsible for the strong growth observed in the last 30 years

Cane, Sugar and Ethanol Production

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74/7

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10/1

1(*)

Harvest

mill

ion

to

ns

(Can

e)

0

10

20

30

40

50

60

70

bill

ion

lite

rs (

Eth

ano

l)m

illio

n t

on

s (S

ug

ar)

Cane (million tons) Sugar (million tons) Ethanol (billion liters)

ProalcoolProalcool

Flex-fuel vehicles Flex-fuel vehicles launchinglaunching

ETHANOLProduction, consumption and export projections of ethanol reflect great dynamism, especially the growth of domestic demand.

Looking Ahead domestic market growth & export opportunities

bil

lio

n l

ite

rs

Ethanol Domestic Demand Forecast ProductionSource: EPE


BIODIESELAccompanying the demand for diesel, the demand for biodiesel is expected to reach 3.5 billion liters in 2017

Biodiesel production

Biodiesel Demand Projection (EPE)

mil

lio

n l

ite

rs

Source: EPE

Looking AheadLooking AheadEthanolEthanol

domestic market growth & export opportunitiesdomestic market growth & export opportunities


PROALCOOL PRINCIPLES AND CHARACTERISTICS

On November 14, 1975 the Alcohol National Program was created with

five stated goals:

Foreign currency savings

Reducing regional income disparities

Reducing disparities in individual income

Growth of domestic income

Expansion of capital goods production

Use of its nationwide logistical and retail infrastructure to assure that the blend and the pure ethanol could reach all the country

Development of technical solutions for adequate handling of ethanol, including its transportation by multi-product pipelines and storage

Formulation of gasoline to receive the blend of ethanol

R&D of solutions regarding quality of product, effects of blend and pure ethanol on the engines and materials etc

Instrumental, on behalf of the government, in centralizing acquisitions of huge volumes of ethanol to regulate the domestic market



ETHANOL INDUSTRY HAS IMPROVED AND BECOME MORE SUSTAINABLE SINCE IT WAS FIRST ESTABLISHED

Sugar-energy sector: US$ 28.1531 billion (almost 2%of GDP)

Increased productivity (as ethanol yields)

*Mapping the sugarcane genome

Power generation with sugarcane bagasse (1/3 of the plant)

Use of the vinasse as a fertilizer

Production of 9.2 units of energy per unit of fossil fuel energy

Recognized as an advanced biofuel, it emits more than 60% less

Source: MAPA

~ 2 thousand liters/ha

~ 7 thousand liters/ha


NUMBERS OF THE BRAZILIAN SUGARCANE INDUSTRY

434 Plants¹

70,000 Sugarcane growers

The 15 largest producers of ethanol represent only 37% of total production

1.28 million People formally employed²

1,042 Municipalities directly benefited

GDP of the sugarcane sector: US$ 28 billion

Foreign revenue: US$ 9.8 billion (2009)

Participation in Brazilian energy matrix: 18% (> Hidroelectricity)

Avoided CO2 emissions: > 600 million tons since 1975³

Source: UNICA (1-Position on 07/12/2010; 2-Data of 2008 from Rais (Relação Anual de Informações Sociais do Ministério do Trabalho e Emprego); 3- Neves, Marcos Fava et. al, (2009) -Mapeamento da cadeia sucroenergética)


ETHANOL PLANTS IN BRAZIL

Ethanol Plants

Operational: 434 plants

Total: 27 billion liters/year


Ethanol (billion liters)Ethanol (billion liters) ProductionProduction

Source: AGE/MAPA

ExportsExportsDomestic DemandDomestic Demand

Growth Rate

2009/2010 up to 2019/2020

Production 9.38

Domestic Demand 9.00

Exports 10.70

Looking AheadLooking AheadBiodieselBiodiesel

domestic market growth & export opportunitiesdomestic market growth & export opportunities


MOTIVATIONAL PRINCIPLES FOR THE CREATION OF BRAZILIAN BIODIESELPROGRAM

Fixing families in the countryside Expansion of sustainable agriculture

Utilization of soil unsuitable for food crops

Offering an environmentally friendly fuel

Introduction of a new sustainable renewable fuel Diversifying the Energy Matrix

Reduction in imports of diesel and oil

Employment creation and income

Castor-Oil Plant

Sunflower Soy African Oil Palm

Cotton


BRAZILIAN VEGETABLE OIL PRODUCTION

Soy: large-scale farming, helped make Brazilian Biodiesel Program possible

Castor beans production: helping family farming

Jatropha, Macauba, Sunflower and Others: small scale or still in development

Animal Fat: the second largest feedstock for brazilian biodiesel

Palm oil in the north region: the new frontier Soy

Animal Fat

Cottonseed

Source: EPE

Granted to producers who:

Buy raw material from family agriculture in the minimum percentage of:

• 15% North and West-center region• 30% Other regions

Do negotiated contracts with family farmers, consisting:• The contractual period• The value of buying criteria and adjustment of contract price• The delivery terms of raw material• The safeguards of each party• Identification and agreement of a representation of farmers who

participated in the negotiations

Ensure training and technical assistance to family farmers.

Source: MDA

Social Fuel Stamp


BIODIESEL PLANTS IN BRAZIL

Biodiesel plants

authorized by ANP

Operational: 63

Commercialization: 42

Total: 4,5 billion liters/year

B5: 2,4 billion liters/year

Plants in the Social Pact (k m³/y)

Plants not in the Social Pact (k m³/y)

0

Petrobras and Biofuels

• The segment of biofuels will receive U$ 3.5 billion, operating in production, logistics and marketing of biofuels and participating in the value chain in Brazil and abroad, working in an integrated manner.

• The strategy in the ethanol segment was redirected to the acquisition of shares in order to become a major player in the market, ensuring the field of technology for sustainable production of biofuels.

2.600

886

2010 2014

Mil

m³/

an

o

Produção de EtanolCapacidade de Produção de

Biodiesel no Brasil

747

507

2010 2014

Mil

m³/

an

o

1.055

449

2010 2014

Exportação de Etanol

+135%

Mil

m³/

an

o

PETROBRAS - BUSINESS PLAN 2010-2014

Ethanol Production Export of ethanol Production capacity of biodiesel in

Brazil

BIODIESEL and ETHANOL PLANTS

10 Ethanol units in operation:Guarani: 7 in SP and 1 in MoçambiqueTotal (MG)Nova Fronteira (GO)

4 Biodiesel Units in operation

Quixadá (CE)

Candeias (BA)

Montes Claros (MG)

Marialva (PR)

Semiarid region of Brazil• Candeias (BA), Quixadá (CE) and Montes Claros (MG)

2008/09: 150.000 tonnes/year (50.000 tonnes/year each plant) Dec,2009: 300.000 tonnes/year (100.000 tonnes/year each plant) Sept/10: duplication of Candeias: + 100.000 tonnes/year

South region of Brazil• Marialva

May,2010: 60.000 tonnes/year (PBIO owns 50% of the plant of 120.000 tonnes/year capacity)

New Projects

• Belém project (Portugal) 2014: 300.000 tonnes/year of palm oil biodiesel

• Pará project 2013: 120.000 tonnes/year of palm biodiesel

• Guamaré – RN (30% - castor oil) 2011: 55.000 tonnes/year (9,6% of semiarid production)

Project BelémProject Pará

Overall processing capacity (2010) ~ 475.000 tonnes/year

BIODIESEL PLANTS

GO

SP

SP

TOTAL BAMBUÍ

GUARANI SÃO JOSÉ

GUARANI TANABI

GUARANI ANDRADE

GUARANI VERTENTE

GUARANICRUZ ALTA

GUARANIMANDÚ

GUARANISEVERÍNIA

SÃO MARTINHOBOA VISTA

GUARANI SENA

( Mozambique – AFRICA)

GO

MG

SANTA LUZIAGreenfield project

ETHANOL PLANTS

Overall Crushing Capacity (2010) ~ 20 million tonnes of sugarcaneOverall Ethanol Production (2010) ~ 890.000 m3

December 22, 2009: Petrobras Biofuels announced its entry into the ethanol segment, by acquiring 40.4% of Usina Total S.A.

Plant capacity: production of 103.000 m3 of ethanol and 9.8 MW of electric power of 9.8 MW.

Petrobras Investment: R$ 150 MM that will be used to expand the unit to 203.000 m3 of ethanol and 38.5 MW of electricity. The other portion will be invested in machinery and equipment to achieve the goal of 100% of mechanized harvesting of sugarcane in 2012.

PARTNERSHIP: USINA TOTAL

A strategic investment

Petrobras Biocombustível announced in April, 2010 it was forming a strategic partnership with Tereos Internacional to jointly invest in Guarani and become a leading player in the Brazilian sugarcane industry.

A strategic investment that provides Petrobras Biocombustível with a significant stake in a market leader;

The capital increase strengthens Guarani’s balance-sheet and provides the company with new resources and expertise for its growth.

Total investment of R$2.2 Bn in Guarani

Investment by Petrobras Biocombustível of R$1.6 Bn over next 5 years (R$682 MM already invested) with an option to reach a stake of up to 49% in Guarani;

Option for Tereos Internacional to invest up to R$600 MM of new equity in Guarani in the 12 months following Petrobras Biocombustível’s initial investment in Guarani.

PARTNERSHIP: TEREOS

JV post-merger structure

26.3% to 49.0% 73.7% to 51.0%

PARTNERSHIP: SÃO MARTINHO

June, 21 2010: Petrobras announced a strategic partnership with Grupo São Martinho S.A. for the growth of ethanol production in the Midwest region of Brazil, State of Goiás.

A new company will be created, called Nova Fronteira Bioenergia S.A., which controls the Usina Boa Vista, currently in production, and the greenfield project called SMBJ Agroindustrial S.A., both located in Goiás.

Petrobras investment: R$ 420.8 MM to Petrobras Biocombustível acquire 49% stake in the new company.

The investment will be used to expand production of the new society, especially Usina Boa Vista. With the investments already made and implemented, it will have its milling capacity expanded from the current 2.5 million tonnes of sugarcane to 7 million tonnes in the 2014/15 season.

Export Logistics

Araçatuba

PresidenteEpitácio

Anhembi

PR

SP

MS

Senador Canedo

REPLAN

Ilha D’ água

REDUC

Ribeirão Preto

Uberaba

MG

RJ

3

1

4

São Sebastião

Taubaté

REVAP

Multi-product pipeline

Ethanol pipeline

Ethanol pipeline

Barges

2

2

1

3

4

Existent

Study concluded

In study

Study concluded

Documents

Biofuels Market in Brazil and the Participation of Petrobras