Cargill Inc and the world’s largest grain processor Archer-Daniels-Midland Co, are planning to invest about 560 million US dollars in new bio-fuel refineries in Brazil.
The US agribusinesses have joined Brazilian companies that are expanding facilities in a bet the government will double to 10% the amount of bio-fuel that must be blended into petroleum-based diesel, driving up demand overnight.
With oil above in the range of 100 USD a barrel Brazil is looking for alternative fuels to fill trucks’ tanks and keep a lid on inflation. Expanding production would also boost the economy of Brazil’s impoverished centre-west region, where most of the industry is based.
However Bloomberg New Energy Finance analyst Roberto Rodriguez Labastida warns there’s an overcapacity: “there’s far more bio-diesel refineries online than are necessary”.
Brazil demands that diesel sold at the pump contain 5% bio-fuel. It’s the third-largest market by capacity after the US and Germany. But industry executives expect the Brazilian government to double it to 10% within three years, giving Brazil the world’s highest bio-diesel blending rate.
Edison Lobao, Brazil’s Minister of Mines and Energy, is considering a higher blend rate as long as there’s enough vegetable-oil that can be processed into fuel, according to a statement posted on the ministry’s website May 4. He did not say how much it may be increased.
Brazil’s regulator Agencia Nacional do Petrole, Gas Natural e Biocombustibles extended permits to 21 new plants or expansions of existing ones in 2010
Developers include Decatur, Illinois-based Archer-Daniels- Midland’s local unit, ADM do Brazil Ltda.; Minneapolis-based Cargill; and Bunge, based in New York. Together they are set to add slightly more than 2.2 billion litres of annual capacity, increasing the production base by about 38%, according to the regulator.
Even without the blending increase, national consumption of the fuel is expected to rise by 6% a year over the next decade, according to the Brazilian Ministry of Mines and Energy projection.
Industry is betting Brazil will double bio-fuel component of diesel form 5% to 10%