Cellulose-based ethanol
But the most spectacular advance could come from cellulose-based ethanol. This would make it possible to produce alcohol from virtually any plant material (including the leafs of corn and sugar cane).
During president Bush's recent visit to Brazil, both countries signed a research treaty targeted to realise this technology over the next 5 to 10 years. Cellulose based production could almost double the current output per hectare – from currently 7000 liters per hectare per year.
That is why Amory Lovins – one of the new gurus of ecology – does believe in ethanol; albeit in ethanol derived from wood and grasses, which would offer at the same time greater productivity and less pollution (as they require less – fossil – fuel for their production ).
Research on this is being done, amongst others, in Dupont's labs in Wilmington, Delaware. The US, of course, has special interest in this. Given the limitations of corn-based ethanol production, it would benefit enormously if ethanol could be produced from wood, grass, or rest products of other crops. It is expected, however, that it will take another decade before an economically viable technology for this gets developed.
segunda-feira, 25 de junho de 2007
Food versus ethanol?
Early 2007, ethanol production all at once got bad press as some studies , alerted that increasing production of ethanol might reduce food production, and hence raise the price of food staples and creating all kinds of side effects including increased famine in the poorer countries .
Indeed, in the US, corn production for ethanol could create and imbalance between the 'four F': food, feed, fiber and fuel.
The quantity of corn used for fuel production has tripled between 2001 and 2006 – reaching 55 million tonnes, or about 1/6th of the country’s corn production; but producing only 3% of the fuel needed for all US cars. It is said that the quantity of corn needed to produce 1 tankload of fuel for a van, would be sufficient to feed one person for one year.
For instance in Iowa, where 55 ethanol plants are being planned, Bob Wisner from the Iowa State University has calculated that those will use up all corn production of the state.
Not unsuspiciously, Hugo Chavez voiced this problem loudly at the Latin America Energy Summit held in Venezuela, and even Fidel Castro sent a message from his sick bed to qualify investments in ethanol production as an 'internationalisation of genocide'.
Brazil, being one of the largest ethanol producers worldwide, obviously gained a lot of attention.
Reality, however, shows that the increasing surface cultivated with sugar cane has not slowed down the Brazilian food production. In fact, its latest cereal harvest, no less than 125 million tonnes, represented an all-time record.
Reason behind this, is that Brazil has excellent conditions to increase sugar cane areals without prejudice to other crops. A strategic workgroup has identified 12 new frontiers suitable for sugar cane plantation, without any legal or environmental issues.
Those are located in Sao Paulo, Minas Gerais, Mato Grosso and Goias; and total about 80 million hectares – about the size of Germany and Spain summed up.
The tortilla march
The origin of all this press actually lies in Mexico, where tens of thousands of citizens went on the streets to protest against the steep price increase of corn – over 400% - which is mostly imported from the United States.
In the US, ethanol is produced from corn – and as the output got suddenly directed to ethanol rather than tortilla flour the quantities available for exports dropped dramatically.
Over the last year, the price of corn on the Chicago and New York markets increased by 50%.
In Brazil, the percentage of sugar cane production used for ethanol is expected to decline as well – from 53% in 2005 to 41% in 2010 and33% in 2014 . However, this will come largely from increase of total production rather than cannibalisation.
The impact on forests
In Asia, especially in Malaysia and Indonesia, large portions of native jungle are being destroyed to make place for dende palm plantations (which makes for an excellent source of bio-diesel).
In Brazil, ecologists are more concerned about the conversion of cattle farms to sugar cane farms – pushing the cattle farms to move to previously uncultivated areas. This is, for example reported in Mato Grosso
In the US, currently only 14% of corn production is converted to ethanol, but by 2014, the proportion is expected to rise to 36%.
This causes more of a problem in the US than it would cause in Brazil: because hardly any land is available for expansion, corn production for ethanol does cannibalise food production – raising not only the price of corn but also those influence by it, like poultry.
Texas – of all states - has overnight transformed from a cattle farming state to an ethanol producer, with two of the country's largest ethanol plants expected to come on line this year in Texas.
In total, 16 billion dollar worth of investments are being planned for 80 new plants in the next few years.
However, the US technology, based on corn, is not only one third more expensive – it also produces only half the ethanol output per hectare that the Brazilian plants produce. Finally, its production process consumes about 4 times more energy than the Brazilian technology.
An import barrier – 54 dollar cents per gallon – keeps the US farmers safe for the moment, but it is not unlikely that these barriers will soon be lifted. In fact, this barrier was only created in 2002, the year in which Bush approved a $190 billion support package to the corn lobby, thanks to the efforts of Senator Grassley,
Indeed, in the US, corn production for ethanol could create and imbalance between the 'four F': food, feed, fiber and fuel.
The quantity of corn used for fuel production has tripled between 2001 and 2006 – reaching 55 million tonnes, or about 1/6th of the country’s corn production; but producing only 3% of the fuel needed for all US cars. It is said that the quantity of corn needed to produce 1 tankload of fuel for a van, would be sufficient to feed one person for one year.
For instance in Iowa, where 55 ethanol plants are being planned, Bob Wisner from the Iowa State University has calculated that those will use up all corn production of the state.
Not unsuspiciously, Hugo Chavez voiced this problem loudly at the Latin America Energy Summit held in Venezuela, and even Fidel Castro sent a message from his sick bed to qualify investments in ethanol production as an 'internationalisation of genocide'.
Brazil, being one of the largest ethanol producers worldwide, obviously gained a lot of attention.
Reality, however, shows that the increasing surface cultivated with sugar cane has not slowed down the Brazilian food production. In fact, its latest cereal harvest, no less than 125 million tonnes, represented an all-time record.
Reason behind this, is that Brazil has excellent conditions to increase sugar cane areals without prejudice to other crops. A strategic workgroup has identified 12 new frontiers suitable for sugar cane plantation, without any legal or environmental issues.
Those are located in Sao Paulo, Minas Gerais, Mato Grosso and Goias; and total about 80 million hectares – about the size of Germany and Spain summed up.
The tortilla march
The origin of all this press actually lies in Mexico, where tens of thousands of citizens went on the streets to protest against the steep price increase of corn – over 400% - which is mostly imported from the United States.
In the US, ethanol is produced from corn – and as the output got suddenly directed to ethanol rather than tortilla flour the quantities available for exports dropped dramatically.
Over the last year, the price of corn on the Chicago and New York markets increased by 50%.
In Brazil, the percentage of sugar cane production used for ethanol is expected to decline as well – from 53% in 2005 to 41% in 2010 and33% in 2014 . However, this will come largely from increase of total production rather than cannibalisation.
The impact on forests
In Asia, especially in Malaysia and Indonesia, large portions of native jungle are being destroyed to make place for dende palm plantations (which makes for an excellent source of bio-diesel).
In Brazil, ecologists are more concerned about the conversion of cattle farms to sugar cane farms – pushing the cattle farms to move to previously uncultivated areas. This is, for example reported in Mato Grosso
In the US, currently only 14% of corn production is converted to ethanol, but by 2014, the proportion is expected to rise to 36%.
This causes more of a problem in the US than it would cause in Brazil: because hardly any land is available for expansion, corn production for ethanol does cannibalise food production – raising not only the price of corn but also those influence by it, like poultry.
Texas – of all states - has overnight transformed from a cattle farming state to an ethanol producer, with two of the country's largest ethanol plants expected to come on line this year in Texas.
In total, 16 billion dollar worth of investments are being planned for 80 new plants in the next few years.
However, the US technology, based on corn, is not only one third more expensive – it also produces only half the ethanol output per hectare that the Brazilian plants produce. Finally, its production process consumes about 4 times more energy than the Brazilian technology.
An import barrier – 54 dollar cents per gallon – keeps the US farmers safe for the moment, but it is not unlikely that these barriers will soon be lifted. In fact, this barrier was only created in 2002, the year in which Bush approved a $190 billion support package to the corn lobby, thanks to the efforts of Senator Grassley,
Overview of the Brazilian ethanol industry
Early 2007, Brazil counted some 336 ethanol plants, and the number is expected to rise to over 400 in 5 years.
To realise that growth, Brazilian and foreign groups are expected in invest about $15 billion.
According to Jose Luiz Liverio, vice president of operations of Dedini S.A. (which produces about half of the ethanol plant equipment in Brazil), some 189 projects are being studied – although of course, not all of those will be realised.
To realise that growth, Brazilian and foreign groups are expected in invest about $15 billion.
According to Jose Luiz Liverio, vice president of operations of Dedini S.A. (which produces about half of the ethanol plant equipment in Brazil), some 189 projects are being studied – although of course, not all of those will be realised.
Big players in the Brazilian ethanol industry
Today's leader in the Brazilian sugar cane industry is COSAN, a conglomerate lead by Rubens Ometto, and producing over 1 billion litres of ethanol per year.
That leadership may soon be challenged by Infinity Bio-energy, a company founded in March 2006 that targets no less than world leadership in ethanol distribution.
Lead by Sergio Thompson Flores, this company, with half a billion dollars in cash to buy sugar cane plants, has already bought 3 plants and announced construction of another 5. By early 2007, it had already invested $230 million purchasing Cridasa (in Espiritu Santo), Usinavi (Mato Grosso do Sul) and Alcana (Minas Gerais).
By the next harvest, it should be milling around 4 million tonnes of cane – but the objective is to mill 28 million tonnes by 2010.
Based on the current productivity – 85 litres per tonne - that should be enough to produces 2.3 billion litres of ethanol.
Infinity's investment comes from international investors, like Stark, Och Ziff Management and Merrill Lynch; and 74% of its capital (around $400 million) is floated on the London Stock Market. On top of that, it plans to get listed on the Brazilian stock market Bovespa in 2007.
It entered Brazil when it took integrated the U.S. 'Evergreen' fund which owned 100% of Alcana and 51% of Cridasa.
Its strategy is to produce in regions that do NOT have a tradition in sugar cane; and Infinity will focus on the south of Mato Grosso de Sul and the north of Espiritu Santo, near the borders with Minas Gerais and Bahia. Construction of 3 new plants is already announced for Mato Grosso do Sul, in the region of Navirai. The next two should be in Espiritu Santo, near Cridasa, and in the south of Bahia.
The logic is that in those areas, the company can lease land much cheaper than in Sao Paulo, where 60% of the sugar cane production is concentrated today.
Apart from sugar cane, the company is studying an investment in biodiesel; where it would concentrate on crops with high oil yield, like mamona and dende.
Within the industry, Infinity's plans are received with mixed feelings. Some hope it will bring extra dynamics and international exposure for the industry . Others fear that their lack of specific know-how may lead to mistakes (some whispering that the R$260 million paid for the Navirai plant are way to much) and hence, a loss of credibility of the Brazilian industry in international markets.
That leadership may soon be challenged by Infinity Bio-energy, a company founded in March 2006 that targets no less than world leadership in ethanol distribution.
Lead by Sergio Thompson Flores, this company, with half a billion dollars in cash to buy sugar cane plants, has already bought 3 plants and announced construction of another 5. By early 2007, it had already invested $230 million purchasing Cridasa (in Espiritu Santo), Usinavi (Mato Grosso do Sul) and Alcana (Minas Gerais).
By the next harvest, it should be milling around 4 million tonnes of cane – but the objective is to mill 28 million tonnes by 2010.
Based on the current productivity – 85 litres per tonne - that should be enough to produces 2.3 billion litres of ethanol.
Infinity's investment comes from international investors, like Stark, Och Ziff Management and Merrill Lynch; and 74% of its capital (around $400 million) is floated on the London Stock Market. On top of that, it plans to get listed on the Brazilian stock market Bovespa in 2007.
It entered Brazil when it took integrated the U.S. 'Evergreen' fund which owned 100% of Alcana and 51% of Cridasa.
Its strategy is to produce in regions that do NOT have a tradition in sugar cane; and Infinity will focus on the south of Mato Grosso de Sul and the north of Espiritu Santo, near the borders with Minas Gerais and Bahia. Construction of 3 new plants is already announced for Mato Grosso do Sul, in the region of Navirai. The next two should be in Espiritu Santo, near Cridasa, and in the south of Bahia.
The logic is that in those areas, the company can lease land much cheaper than in Sao Paulo, where 60% of the sugar cane production is concentrated today.
Apart from sugar cane, the company is studying an investment in biodiesel; where it would concentrate on crops with high oil yield, like mamona and dende.
Within the industry, Infinity's plans are received with mixed feelings. Some hope it will bring extra dynamics and international exposure for the industry . Others fear that their lack of specific know-how may lead to mistakes (some whispering that the R$260 million paid for the Navirai plant are way to much) and hence, a loss of credibility of the Brazilian industry in international markets.
International investments in Brazilian ethanol
The visit of present George Bush to Brazil in April 2007 was a symbol of the huge international interest in ethanol production in Brazil. Over the next decade, some have investments of up to 100 billion dollars.
But Bush was not the only one showing interest. George Soros, Bill Gates, Richard Branson, Larry Page and Sergei Brin (the founders of Google), Vinod Khosla (founder of Sun Microsystems) – all are studying investments in ethanol.
Soros has already invested $900 million, via Adeco, in the construction of 3 ethanol plants in Mato Grosso do Sul. Gates has invested $84 million in CA-based Pacific Ethanol.
Also George Bush's brother Jeb – co-pesident of the international Ethanol Commission (IEC) – visited Brasil and announced that the Interamerican Development Bank (BID) is preparing to finance projects in Brasil. A first project of $570 million is already under way.
Also Brazilian development banks like the BNDES are prepared to finance ethanol projects, and have reserved a budget of 7 billion reais (almost $3.5 billion dollars) for this.
The BNDES strategy, as announced by its president Luciano Coutinho is to either finance up to 70% of a project or become a shareholder in new projects, owning up to 30% of the shares.
Finally, also the government is aligning a few measures in its 'economic acceleration plan' (PAC) to support the bioenergy industry and improve logistics for new refineries. Today, Brasil has about 350 sugar cane plants but the target is to add at least another 80 to 100 plants.
But Bush was not the only one showing interest. George Soros, Bill Gates, Richard Branson, Larry Page and Sergei Brin (the founders of Google), Vinod Khosla (founder of Sun Microsystems) – all are studying investments in ethanol.
Soros has already invested $900 million, via Adeco, in the construction of 3 ethanol plants in Mato Grosso do Sul. Gates has invested $84 million in CA-based Pacific Ethanol.
Also George Bush's brother Jeb – co-pesident of the international Ethanol Commission (IEC) – visited Brasil and announced that the Interamerican Development Bank (BID) is preparing to finance projects in Brasil. A first project of $570 million is already under way.
Also Brazilian development banks like the BNDES are prepared to finance ethanol projects, and have reserved a budget of 7 billion reais (almost $3.5 billion dollars) for this.
The BNDES strategy, as announced by its president Luciano Coutinho is to either finance up to 70% of a project or become a shareholder in new projects, owning up to 30% of the shares.
Finally, also the government is aligning a few measures in its 'economic acceleration plan' (PAC) to support the bioenergy industry and improve logistics for new refineries. Today, Brasil has about 350 sugar cane plants but the target is to add at least another 80 to 100 plants.
The Brazilian agricultural boom
Brazil has about the size of the US (not counting Alaska), and about 185 million consumers – which makes it the fifth or sixth largest market worldwide for a lot of consumer products.
It has for centuries been exploited by colonial powers as a cheap farming ground for sugar, coffee, soy, and cattle.
Exports, however, have often been limited because of protectionist measures by Europe and the US, who have been know to use subsidies and trade barriers to protect their farmers from the – inevitably – cheaper production from the developing countries.
Until the nineties, Brazil was seen, however, as a volatile, high-risk economy, with sky high inflation rates and unpredictable political swings.
Over the last ten years, however, Brazil has proven to be in control of its economy, with slow but continuous growth and low inflation. Financial markets have been the first to catch on and the 'country risk' of Brazil has dropped to no more than 150 points in 2007 – meaning an investment in Brazil should generate only 1.5% more return than in the 'first world' in order to compensate for it's risk.
As a result, money is continuously flowing into Brazil and its currency is not only stable but actually gaining strength year after year. Investments into the stock market were the first to start the flow, but since 2005 also direct investments – in industry and agriculture – have started to rise significantly.
Also, the West has – finally – discovered ethanol as a cheap, environmental and politically safe alternative to petroleum. The Brazilian technology to produce ethanol from sugar cane is cheaper than the corn-based technology used in the US and Australia.
Also here, the numbers are impressive - if one calculates the amount of sugar cane plantations necessary to supply the Brazilian, US, or Japanese markets with alcohol, even to replace just a part of their petroleum consumption by alcohol, it quickly becomes clear that demand will rise to unimaginable proportions in a few years' time.
While the movement has already started, the agricultural boom in Brazil is just taking off – and those investing now will not only benefit from strong immediate returns, but also from strong valuation increases over the next decade.
It has for centuries been exploited by colonial powers as a cheap farming ground for sugar, coffee, soy, and cattle.
Exports, however, have often been limited because of protectionist measures by Europe and the US, who have been know to use subsidies and trade barriers to protect their farmers from the – inevitably – cheaper production from the developing countries.
Until the nineties, Brazil was seen, however, as a volatile, high-risk economy, with sky high inflation rates and unpredictable political swings.
Over the last ten years, however, Brazil has proven to be in control of its economy, with slow but continuous growth and low inflation. Financial markets have been the first to catch on and the 'country risk' of Brazil has dropped to no more than 150 points in 2007 – meaning an investment in Brazil should generate only 1.5% more return than in the 'first world' in order to compensate for it's risk.
As a result, money is continuously flowing into Brazil and its currency is not only stable but actually gaining strength year after year. Investments into the stock market were the first to start the flow, but since 2005 also direct investments – in industry and agriculture – have started to rise significantly.
Also, the West has – finally – discovered ethanol as a cheap, environmental and politically safe alternative to petroleum. The Brazilian technology to produce ethanol from sugar cane is cheaper than the corn-based technology used in the US and Australia.
Also here, the numbers are impressive - if one calculates the amount of sugar cane plantations necessary to supply the Brazilian, US, or Japanese markets with alcohol, even to replace just a part of their petroleum consumption by alcohol, it quickly becomes clear that demand will rise to unimaginable proportions in a few years' time.
While the movement has already started, the agricultural boom in Brazil is just taking off – and those investing now will not only benefit from strong immediate returns, but also from strong valuation increases over the next decade.
Brazil, the new agricultural frontier
With India, China and Russia entering the capitalist system, 3 billion new consumers are all at once entering the world consumer markets. This is creating a surge in demand of a size never seen before for agricultural staples of all types. Soy, corn, sugar, meat, paper... all will have to be produced in quantities that are 2 or 3 times higher than the current world production.
On top of this, the western world is finally discovering the potential of ethanol and biodiesel as an efficient way to produce energy and to reduce the world's dependence on the handful of oil producing nations.
So the multi-billion dollar question is: where will all these products be produced?
Obviously, Europe, the US and Japan are already close to their production limits – not even to mention the high cost of land and labour which make farming hardly competitive with the developing countries.
Of course, it would be ideal to produce those crops in those new capitalist markets themselves. China and India have enormous space and cheap labour. But unfortunately, soil, water and climate conspire against them.
India, for instance, is a large producer of sugar cane – but it is already near its limits for production due to a lack of fertile soil and water. China is already struggling with huge environmental problems and lack of clean water – it is estimated that almost two thirds of its population does not have access to clean drinking water.
In contrast with those, Brazil has all the assets needed to become the farmhouse of the planet. Enormous reserves of uncultivated, but fertile land. A tropical to sub-tropical climate with lots of rain – and almost one third of the whole world's drinking water reserves. Land is cheap, labour is cheap, and production is higher.
As a result, Brazil is becoming the world's new agricultural frontier. Since around 2005, massive investments have started to flow to Brazil; the beginning of a boom that will undoubtedly grow over the next one or two decades.
On top of this, the western world is finally discovering the potential of ethanol and biodiesel as an efficient way to produce energy and to reduce the world's dependence on the handful of oil producing nations.
So the multi-billion dollar question is: where will all these products be produced?
Obviously, Europe, the US and Japan are already close to their production limits – not even to mention the high cost of land and labour which make farming hardly competitive with the developing countries.
Of course, it would be ideal to produce those crops in those new capitalist markets themselves. China and India have enormous space and cheap labour. But unfortunately, soil, water and climate conspire against them.
India, for instance, is a large producer of sugar cane – but it is already near its limits for production due to a lack of fertile soil and water. China is already struggling with huge environmental problems and lack of clean water – it is estimated that almost two thirds of its population does not have access to clean drinking water.
In contrast with those, Brazil has all the assets needed to become the farmhouse of the planet. Enormous reserves of uncultivated, but fertile land. A tropical to sub-tropical climate with lots of rain – and almost one third of the whole world's drinking water reserves. Land is cheap, labour is cheap, and production is higher.
As a result, Brazil is becoming the world's new agricultural frontier. Since around 2005, massive investments have started to flow to Brazil; the beginning of a boom that will undoubtedly grow over the next one or two decades.
Assinar:
Postagens (Atom)