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Shell and Cosan: fuelling a lower-carbon future with biofuels
In one of the biggest biofuels deals to date, Shell is combining its extensive retail experience, global network and research in advanced biofuels with Cosan's technical knowledge of producing biofuels on a large scale. Raízen will produce and sell over 2 billion litres a year of the lowest-carbon biofuel commercially available - ethanol made from Brazilian sugar cane.
Shell is already one of the largest distributors of sustainable biofuels: now it is moving for the first time into production. The deal with Cosan is a major development in Shell's strategy of investing for selective growth in its fuels business.
Raízen will distribute biofuels and over 20 billion litres of other industrial and transport fuels annually through a combined network of nearly 4,500 Shell-branded service stations. In Brazil it becomes the third largest fuels company. Plans would extend the company's reach in future years to export more ethanol to other key markets.
Low-carbon biofuels will be the most practical and commercially realistic way to take carbon dioxide (CO2) out of transport fuel in the coming years and will be a vital part of the future energy mix.
The joint venture also combines Shell's expertise and technology partnerships in advanced biofuels with Cosan's experience in the commercial production of low-carbon biofuels. This has the potential to accelerate the commercial production of biofuels from crop waste and inedible plants.
Raízen's 24 mills can process up to 62 million tonnes of cane into sugar or ethanol each year, with the flexibility to adapt to market demand.
"We are building a leading position in the most efficient ethanol-producing country in the world,” says Peter Voser, Shell Chief Executive Officer. "Low-carbon, sustainable biofuels will be increasingly important in the global transport fuel mix."
"This is a turning point in the search for alternative energy sources," says Rubens Ometto Silveira Mello, Cosan's Chairman of the Board. "Raízen is one of Brazil's largest companies and is ready to offer international markets a clean, renewable and economically viable solution."
New energy policies in Europe and the USA are calling for more renewable, lower-carbon fuels for transport. Biofuels make up around 4% of transport fuel in Europe, and 3% in the USA. Globally biofuels currently meet around 3% of road-transport fuel demand. Shell expects this to rise to about 9% by 2030.
Brazil leads the world in the use of biofuels for transport. They are likely to make up more than 40% of the country's transport fuel mix by 2030, double today's proportion. Raízen's current annual production capacity will be enough to meet nearly 9% of Brazil's current ethanol demand.
At the pump Brazilian motorists are offered the choice of pure ethanol or a blend of petrol (gasoline) and ethanol. Around 90% of the country's new cars can run on either fuel type.
"The Raízen business model, which combines Shell and Cosan assets and has direct access to consumers, is a breakthrough in the biofuels sector,” says Marcos Marinho Lutz, Cosan Chief Executive Officer.
The sugar-cane-to-ethanol process used by Raízen is the most efficient in turning biomass into fuel. Brazilian sugar cane yields 7,000 litres of ethanol per hectare of cane compared to, for example, 3,800 litres for a hectare of corn in the USA and 2,500 litres for a hectare of wheat in Europe, according to Unica, the Brazilian sugar-cane industry association.
"Sugar cane is the most efficient plant we know in converting sunlight into energy," says Professor Edgar de Beauclair, of the Crop Production Department São Paulo State University.
Turning sugar cane into ethanol offers a number of environmental benefits over other biofuel production processes. As it grows, sugar cane generally absorbs CO2 at a greater rate than other biofuel crops such as soy.
Ethanol made from Brazilian sugar cane produces around 70% less CO2 than petrol, when the cultivation and production processes are taken into account. Since 2003 the use of ethanol in Brazil has avoided over 103 million tonnes of the CO2 that the petrol it has replaced would have produced, according to Unica.
By-products from turning sugar cane into ethanol are recycled as organic fertiliser. Plant waste, called bagasse, is burned to produce power for the processing mills and surplus energy is supplied to the national grid.
To further improve productivity, Raízen will use its own advanced geographical information system to monitor its land. This allows its scientists to make accurate predictions about crop yields and adjust fertiliser or pest control, for example, to help boost production.
"Brazilian sugar-cane ethanol is one of the most sustainable and lowest-CO2 biofuels available," says Mark Gainsborough, Shell Executive Vice-President Alternative Energies. "We expect the development of advanced biofuels to benefit from Cosan's feedstock and its expertise in large-scale biofuels production. This has the potential to accelerate the future commercial viability of cellulosic ethanol."
The deal includes part of Shell's interest in the firm Iogen, which uses enzymes to break down plant waste into ethanol, as well as Shell's interest in Codexis, developers of "super-enzymes" for the faster conversion of plant waste into transport fuels.
Raízen will work to improve the sustainability of its operations. Sugar cane for ethanol requires little water to be added because Brazil's tropical rainfall provides natural irrigation. In the industrial process Raízen has been introducing a system that recycles up to 90% of water used.
Raízen supports the development of varieties of sugar cane to suit regional climate and resist disease. To protect cane from pests, it breeds and releases natural predators, further reducing the use of chemical pesticides.
As a member of Bonsucro, formerly the Better Sugarcane Initiative, Raízen has joined with other producers, non-governmental organisations and other experts to establish an EU-approved certificate for sustainable sugar-cane production. This covers areas such as human rights and the impact of activities on biodiversity.
Raízen is working towards achieving certification for all ethanol produced by its own operations over the coming years. It also plans to have certified all ethanol produced from suppliers' cane.
Current sugar-cane production in Brazil takes up 8.1 million hectares, around 0.9% of the country's land. Government legislation forbids industries from entering sensitive areas such as rainforests or land needed for other food crops, and from displacing food crops into other sensitive areas. National laws also recognise the rights of indigenous communities and their claims to land ownership. The main sugar-growing areas are hundreds of kilometres from the Amazon rainforest.
Raízen is well advanced in phasing in mechanised harvesting, ahead of requirements due to come into force in the main Brazilian sugar-cane growing state of São Paulo in 2014. It already uses machines on around 64% of its suitable land (with a slope of less than 12%). CO2 emissions can be reduced because it avoids the need to burn the hard straw, a necessary step in manual cutting.
For more information, interview requests or photography, please contact:
Shell Media Relations
David Williams +31 70 377 3600
Shell Investor Relations
Europe - Gustavo Bursztyn: + 31 70 377 3996
United States - Ken Lawrence: +1 713 241 2069
Cosan Media Relations
Daniela Christovão +55 11 3897 9797
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