1

Brazil as a Strategic Brazil as a Strategic Supplier of Fuel EthanolSupplier of Fuel Ethanol

January 2005

2

Brazil is the Least Cost Producer of Brazil is the Least Cost Producer of Sugar and EthanolSugar and Ethanol

Index

Source:UNICA, F.O.Lichts

0

10

20

30

40

50

60

70

80

90

100

Beet (EU) Wheat (EU) Corn (USA) Sugarcane(Brazil)

3

40,00

45,00

50,00

55,00

60,00

65,00

70,00

75,00

80,00

85,00

75 80 90 00 04

tc/h

ecta

re

2,50

3,00

3,50

4,00

4,50

5,00

5,50

6,00

6,50

7,00

7,50

kl/

hecta

re

tcane / hectare kl ethanol / hectare

Productivity GainsProductivity Gains

Center-South RegionCenter-South Region

Source: UNICA

4

Brazil has a Record of Expanding ProductionBrazil has a Record of Expanding Production

0

8000

16000

24000

32000

40000

48000

56000

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2004

55.67Million tons

Source: Datagro

Sucrose is the raw material for sugar and ethanol production

Brazil’s Supply of Sucrose (in 000 tons)Brazil’s Supply of Sucrose (in 000 tons)

5

0

2

4

6

8

10

12

14

16

2000 2001 2002 2003 2004

Ethanol Production in BrazilEthanol Production in Brazilm

illi

on

kl

Source: Ministry of Agriculture, Livestock and Food Supply

6

The Brazilian Ethanol Experience

% Ethanol in Gasoline (gasohol)

1977: 4.5%1979: 15%1981: 20%1985: 22%1998: 24%

1999: 20 to 24% SINCE 200220% to 25%

% Ethanol in Gasoline (gasohol)

1977: 4.5%1979: 15%1981: 20%1985: 22%1998: 24%

1999: 20 to 24% SINCE 200220% to 25%

- Brazilian ethanol, gasohol & Flex-Fuel vehicles

- Imported gasohol vehicles and engines (including from Japan)

7

Brazil is the Largest Producer & UserBrazil is the Largest Producer & User

• Fuel ethanol demand represents 40.6% (average for Jan-Jul 2004) of Brazil’s total Otto cycle fuel demand, in gasoline equivalent.

• In the USA 11.5 million kiloliters of production account for only 2.3% of Otto cycle fuel demand.

8

Brazil’s Ethanol Exports are Rising(in 1000 kl)

Source: Ministry of Development, Industry and Foreign Trade (*)January – November 2004

0

500

1000

1500

2000

2500

3000

2002 2003 2004*

9

Fuel Ethanol in the WorldFuel Ethanol in the World

• Fuel ethanol production and use is in expansion worldwide.

• In 2005, production is expected to reach 38.27 million kl.– 16 million kl from Brazil (42%).

10

• Countries with ethanol-gasoline blend programs:– USA (E-10 and for FFV E-85), – Canada (E-10 and for FFV E-85), – Sweden (E-5 and for FFV E-85), – India (E-5), – Australia (E-10), – Thailand (E-10), – China (E-10), – Colombia (E-10), – Peru (E-10), – Paraguay (E-7) and, of course, – Brazil (E-20 / E-25 and for FFV any blend).

Ethanol-Gasoline Blend UseEthanol-Gasoline Blend Use

FFV: flexible fuel vehicle

11

World Crude Oil Supply & DemandWorld Crude Oil Supply & Demand

• The World is avid for a viable replacement to oil.

• Concerns are increasing from the explosive rise in energy consumption of so-called emerging economies, in particular the largely populated countries of China and India.

12

Ethanol is Perceived as a Viable Ethanol is Perceived as a Viable Alternative to OilAlternative to Oil

• Shell International: biomass ethanol is the best alternative to partially replace oil derivates in the next decades, considering consumers acceptability and strategic considerations.

13

Reasons for Adoption of Ethanol-Reasons for Adoption of Ethanol-Gasoline BlendsGasoline Blends

• Effective and environmentally-sound way to complement gasoline supplies;

• Miscibility with gasoline is good;• Durability of gasoline is not affected by ethanol;• Vehicle performance is maintained;• Vehicle drivability is kept or improved;• Good materials compatibility• Vehicle durability is maintained.

14

E10 WarrantyE10 Warranty

International car manufacturers provide full warranty coverage for vehicles that use E5 blends in Sweden

and E10 blends in the USA and Canada

Examples of statements found in the “Owner’s Manual” for 2003 japanese brands (similar to those stated by US, European and other manufacturers):

HONDA: “You may use gasoline containing up to 10% ethanol by volume”

MAZDA: “The common gasoline blend that can be used with your vehicle is ethanol blended at no more than 10%”

MITSUBISHI: “A mixture of 10% ethanol and 90% unleaded gasoline may be used in your vehicle…..”

TOYOTA: “If you use gasohol in your Toyota be sure…that it does not contain more than 10% ethanol”

Source Downstream Alternatives Inc

15

Positive ImpactsPositive Impacts

• Employment - 0.9 million direct and another 0.9 million indirect jobs.

• Sugar cane ethanol has proven to be one of the few

effective sustainable development strategies to:

– mitigate poverty in developing countries

– address two main problems faced by the developed world: • the need to find a viable replacement to oil• control urban pollution and mitigate greenhouse gas

emissions.

16

Brazil has Capacity to Expand Brazil has Capacity to Expand ProductionProduction

million hectaresBrazil´s Territory ~850.00Total Arable Land 320.00 Cultivated - all crops 60.40 - with Sugar Cane 5.34 - for ethanol 2.66

Area needed to supply Japan with E3 0.27 E10 0.90

Source: Ministry of Agriculture, Livestock and Food Supplies

17

SUGAR CANE ~ 60,000 producers

C-S (80% land)

harvest: april/november

N-NE(~20% land)

harvest: sept/march

Source: UNICA

Main Sugar Cane Areas in Brazil

18

Expansion Area in the “Cerrado” Expansion Area in the “Cerrado” RegionRegion

Brazilian Cerrado (million hectares)

Total Area ………………........... 204Area good for agriculture...... 137Area in use for cattle raising... (35)Occupied area (forests & plantations) (12)Available Area for expansion.....

90

Source: Ministry of Agriculture, Livestock and Food Supplies

19

Brazil has Capacity to Expand Brazil has Capacity to Expand ProductionProduction

• Brazil is ready to help supply ethanol import needs of Japan.

• Other nations/producers will most likely become ethanol suppliers -- Thailand, Australia, Guatemala, Peru, Argentina, and Paraguay.

2

20

Urban PollutionUrban Pollution

• Studies have found (Australia) that the use of E10:– Decreased CO emission by 32%;– Decreased HC emission by 12% ;– Decreased toxic emissions of 1-3 butadiene

(19%), benzene (27%), toluene (30%) and xylene (27%);

– Decreased carcinogenic risk by 24%.

• In the USA, wintertime CO emissions have been reduced by 25% to 30%.

21

Urban PollutionUrban Pollution

• NOx emissions may decrease or increase marginally with low significance to air quality.

– 1% > in the Australian study;

– no increase in ambient NO2 in California with E6.

2

22

Global WarmingGlobal Warming

• IPCC: “the XXth century has been reported as the hottest in the last 1000 years and the last decade was the warmest of the century”.

• During past 20 years, ~25% of man-made

CO2 emissions were due to fossil fuel use in transportation.

• The use of biofuels could reduce CO2 emissions by a factor of five, provided a high proportion of renewable energy is used.

23

Global WarmingGlobal Warming

• Anhydrous ethanol use saves 2.7 kg CO2 equivalent/liter of ethanol.

• Sugar cane yields the best energy balance in production of ethanol.

Raw Material Energy Output / Energy Input

Wheat 1.2

Corn 1.3 – 1.8

Sugar Beet 1.9

Sugar Cane (under Brazilian production conditions)

8.3

Source: Macedo, I. et alii, F.O. Lichts 2004

2

24

Ethanol LogisticsEthanol Logistics

Brazil has extensive know-how. According to Transpetro / BR :

Most appropriate storage tanks Fixed Roof.

Ethanol can also be transported through pipelines, sharing or not with oil products.

Estimated investment in the unloading, blending, loading and expedition systems is US$ 360/kl of needed storage capacity.

Most equipment used for oil products are compatible with ethanol.

25

Preparation of ethanol-gasoline blends is simple and

recommended to be made during truck loading

Gasohol Blend

Gasohol Blending & Distribution SchemeGasohol Blending & Distribution Scheme

Fuel Station Storage Tank

ANHYDROUSETHANOL

GASOLINE

75%

Automatic in line blending

25%

26

Learning curveLearning curve

1

10

100

0 50000 100000 150000 200000 250000

Ethanol Cumulative Production (thousand m3 )

(Oct

200

2) U

S$

/ GJ

Ethanol prices in Brazil Rotterdam regular gasoline price

trend (Rotterdam gasoline prices) trend (Ethanol prices)

1986

2002

1999

1996

1980

19901993

Source: Goldemberg, J., et alii, 2004

27

Ethanol is Competitive with GasolineEthanol is Competitive with Gasoline

Year Gasoline Ethanol

Quantity (1000 kl)

Average price

(US$/kl)

Quantity(1000 kl)

Average price

(US$/kl)

2002 2,338 177.56 662,4 255.37

2003 2,641 207.40 656,9 240.68

2004* 1,466 280.45 2,191,5 213.22

Brazilian Exports of Gasoline and Ethanol

Source: Ministry of Development, Industry and Foreign Trade (*) January – November 2004