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José Sergio GabrielliCEOJune, 19th 2007
Prospects for Renewable Fuels in Reducing Carbon Emissions
Financial Times Conference
PETROBRAS
2
The presentation may contain forecasts about future events. Such forecasts merely reflect the expectations of the Company's management. Such terms as "anticipate", "believe", "expect", "forecast", "intend", "plan", "project", "seek", "should", along with similar or analogous expressions, are used to identify such forecasts. These predictions evidently involve risks and uncertainties, whether foreseen or not by the Company. Therefore, the future results of operations may differ from current expectations, and readers must not base their expectations exclusively on the information presented herein. The Company is not obliged to update the presentation/such forecasts in light of new information or future developments.
Cautionary Statement for US investors
The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as oil and gas resources, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC.
Cautionary Statement
Increase 2004-2030 (14,341 million tonnes)
49%
18%
21%
7%5%
Power Generation IndustryTransport Residential Services*Other**
Mas esta estrutura gera externalidades negativas
World Energy-Related CO2Emissions by Sector
* Includes agriculture and public sector ** Includes international marine bunkers, other transformation and non-energy use
Source: World Energy Outlook 2006
Increase 2004-2030 (5,891 million tonnes)
28%
28%
27%
2%3%
8%4%
Coal OilGas NuclearHydro Biomass and wasteOther renewables
World Primary Energy Demand
•Transport sector dominated by oil represents only 21% of projected increase in CO2 emissions through 2030.
•Projected increases in global energy demand and emissions dominated bypower, and industry that represent 49% and 18% of projected CO2 emissionsthrough 2030;
Mas esta estrutura gera externalidades negativas
Source: EIA - International Energy Outlook 2006 and IMF Report
Export Orientation by Countries to USA (percent of GDP)
1.4%
5.9%
3.1%
Russia China Brazil
Average period 2001-05
• Reflecting dependence of Chinese growth on exports particularly to the US;
• CO2 trading mechanisms reflect transfer of CO2 emissions and not necessarily reduction.
2,343 1,981556
27,982
4,532
20,274
9,960
2,899
9,009 9,2877,543
19,073
OCDE (*) USA Russia China India Brazil
Carbon Dioxide Emission GDP
Million Metric Tons of Carbon DioxideGDP - Billion 2000 dollars
2020• China emissions are growing 10
times faster than US; • By 2020 China GDP will have
surpassed US GDP but so will CO2 emissions.
(*) without USA
•53% result from powergeneration as compared to 40% for rest of worldreflecting rapidindustrialization.
Chinese industrialization distorts all emission projections
Mas esta estrutura gera externalidades negativas
Location of CDM Projects (Sellers)
China61%India
12%
Others7%
Rest of Latina America
6% Africa3%
R of Asia7%
Brazil4%
•Regional Distribution of CDM Projects concentrated in China and secondlyIndia with major power generation concerns;
•Russia and Brazil have lagged due to use of natural gas and hydro-electricity for power;
•Energy for transport has not benefited from carbon trading mechanisms as they require assertive government policies that are not addressed by KT;
•Renewable fuel projects are usually too small for complex carbon trading mechanisms
Percentage Share of Projected CO2 Emissions2004 - 2030 Reference
3% 5%
19%
73%
Brazil Russia India China
2003
22% 18%
66%57%
6%
45%
20%
25%31%
50%
22%
54%
3% 7%
6%
3% 2%
1%
8%
37%
6% 4%6%
OCDE Russia China India Brazil
Hydroelectricity other Renewable EnergyNuclear EnergyNatural Gas OilCoal
Growth Rate 2003-2030
2.1%2.6%
3.1%
4.4%3.5%
1.4%
5.0%5.3%
6.3%6.9%
OCDE Russia China India BrazilCarbon Dioxide Emission GDP
•China and India high CO2 emissions from oil and coal for power represent more than 91% and 88% respectively;
•Russia predominance of cleaner natural gas represents 54% of energy sources;
•Share of renewable energy sources in Brazil and natural gas represents 43% of energy sources.
Source: EIA - International Energy Outlook 2006
• Projections suggest higher GDP growth and CO2 emissions growth in India and China so that oil and coal surpass 90% of energy consumption;• Continued use of natural gas in Russia;• Brazilian use of natural gas and renewables could surpass 50% of consumption by 2030.
BRIC energy consumption patterns are very different and reflect power generation
1,023
77
42
Oil Bio Other
659132
45
Oil Bio Other
36%
16%
4%
2%
5%
9%
4%
18%
5%
United States
OECD Europe
OECD Pacific
Other OECD
Brazil
China
India
Other Asia
Rest of World
Reference Increase in Demand 2004-2030 (mtoe)
Alternative Increase in Demand 2004-2030 (mtoe)
Bio 2004-2030Reference - Alternative
But transport sector can still contribute to emission reductions (IEA alternativescenario) Increased use of renewable
fuels can contribute to reduce projected increase in energy for transport by 7 %, to 15 % if adequate policies followed.
The direct benefits in emission reductions would be equally distributed between US, Europe OECD and the rest of the world
Total: 1,142 mtoe Total: 836 mtoe
Brazil is the 1st country to reap benefits from Ethanol
Accumulated effective economy:1 Billion boe ~US$ 52 bi
During this period, ethanol
utilization saved 644 million ton.
of CO2 emission
1976 1980 1984 1988 1992 1996 2000 20041972
CNG
ETHANOL
GASOLINE
120000
140000
160000
10000
80000
60000
40000
20000
0
1000
BEP
PROÁLCOOLAlcohol Vehicles
Beginning of the sector deregulation
Source: MME, BEN 2006
End of regulation 1999 FFV
Alcohol Exports 2005
Because program is government regulated there are no benefits from KT but benefitsof reduction in CO2 emissions have already materialized;
Used up to 10% in petrol, ethanol substitutes lead and MTBE as an oxygenate, withour any change in engines, without harmo to air or groundwater
Ethanol can be introduced also as a partial or full substitute for petrol: up to 25% (Brazil) partial motor adjustments require participation of automobile industry; up to/over 85% requires flex-fuel vehicles, consumer preference (price/performance).
Source:Henry Joseph Jr. ANFAVEA - Volkswagen
• Ethanol price lower than petrol• Guaranteed return to ethanol producer• Lower taxes for ethanol powered vehicles• Loans to increase ethanol production• Service stations obliged to sell ethanol• Strategic inventories of ethanol
Of the original incentives to promote ethanol only lower taxes on vehicles have survived the whole program because of benefits to car manufacturers and consumer preferences:
Other tax incentives may be applicable such as circulation taxes, higher taxes on petrol vis a vis ethanol
0
2
4
6
8
10
12
14
16
18
20
US$
/GJ
2002
Ethanol prices in Brazil Rotterdam regular gasoline price
Quais seriam os motivos do diferencial de produtividade brasileira ?
1980 199519901985 2002
Source: Goldemberg 2004
103,3% 110,0%
0
20
40
60
80
100
120
140
Power
Gasoline 100% Gasohol 22% Ethanol 100%
110,0%
132,4%
Consumption
Ethanol Engine Relative Performance*Greater production cost reduction when compared to gasoline.
*Source: Volkswagen (Brazil) - Presentation prepared for review within The Warren Centre for Advanced Engineering at Sydney University
• Substantial savings can and have been achieved in costs of reducing CO2 emissions through renewable fuels but which are not addressed by Kyoto Treaty
Brazil has already made substantial progress in cost reduction of ethanol
• While most oil and product pipelines run from the south to northeast, north or southwest;• Shipment in the Pacific will have a comparative advantage in supplying California.
US Ethanol producers are concentrated in upper mid-west with little or no integration with oil facilities
Incentives are required to develop logistics for renewables in the USA for example;Such as those that exist and are being expanded in Brazil.
Ethanol Logistics System in Brazil
Diferenças de produtividade na cana de açúcar
Source: FAO
0.2
0.6
1.7
2.2
Asia andPacific
Europe NorthAmerica
LatinAmerica
Potential Arable Land(1.000 ha per capita)
61.455.6
48.6
13.9
Asia andPacific
Europe NorthAmerica
LatinAmerica
% of Potential Arable Land actually in use
• Incentives are required to associate better use of natural resources which could contribute in reducing and not transferring CO2 emissions;• Availability of lands, water and low labor cost also benefit production in Central and South America.
Latin America has the largest potential arable land per capita and only uses 13,9% of it.
72.4169.34 71.13 73
67.77
Asia USA CentralAmerica
SouthAmerica
Brazil
Sugar-Cane Productivity
Yeld per Hectar
1000
Kg/
Ha
World Average
Latin America offers excellent potential to increase ethanol production
Diferenças de produtividade na cana de açúcar
33% of the world’s internal renewable water resources are concentrated inCentral and Latin America;
Internal renewable water resources
(m³ per capita – 1997)
6.984
27.673
33.097
0
5000
10000
15000
20000
25000
30000
35000
World Latin America andCaribbean
Brazil
Source: FAO
73%
19%
9%
20%
9%71%
Agriculture Domestic Industrial
21%
18%
61%
Brazil
World
Latin America andCaribbean
Annual water use by sector
Raw Material Energy output / energy inputWheatCorn
Sugar Beet
Sugar Cane (under Brazilian Production Condictions)
1.21.3 – 1.8
1.9
8.3
Increasing Efficiency in Raw Material Use is not addressed in KT
TomorrowPotential ethanol production would grow by more than 100% based on Lignocelluloses Biomass technology
1 metric ton of sugar cane
Molasses yields only 85 l of ethanol,
But
Cane bagasseyields 185 L of ethanolBase calculation
15
Energy output/input ratio is likely to be greater in tropical climates
Mas esta estrutura gera externalidades negativas
Petrobras 2011 CO2 Emission Targets
To allow the definition of the targets, future GHG emissions were estimated based on the Company’s Business Plan for 2007 – 2011, adopting 2005 total GHG emission as an initial reference. The BAU baseline defined this way was then used as a reference to set yearly avoided GHG emission targets, as shown in the following table:
The total amount of GHG emissions to be avoided from 2006 to 2011 (18.5 million tonnes of CO2 equivalent) is equivalent to about 36% of the 2005 emission figure (51.56millionCO2e)
7.60% 7.60%8.10%6.90%3.50%2.20%Percentage of baseline year emissions
3.933.934.153.561.791.13Avoided GHG emission target (million tones of CO2 equiv)
201120102009200820072006
In line with its sustainability objectives Petrobras has established its own emission targets apart from its efforts in renewable fuels.
Mas esta estrutura gera externalidades negativas
• Bulk of projected emissions come from power generation not transport;
• China and India will benefit most from carbon trading and emission limitations because of coal and oil requirements for power while Russia and Brazil use more cleaner natural gas and hydro for power;
• Renewable fuels are flexible in their implementation but require adequate incentives and taxation mechanisms to encourage participation of entire energy chain (producers, distributors, car manufacturers and consumers)
• Comparative advantage of production in the tropics of renewable fuels requires revision of agricultural trade barrierswhich are not provided for in Kyoto.
Summary