Brazil is getting a big boost from new investments aimed at bringing its ethanol to Japan, even as the ongoing worldwide economic slowdown and deepening credit crisis threatens to delay biofuel projects.
That's out of the roughly $600 million that Japanese companies have invested in Brazilian ethanol plants since 2007, indicating a big boost in Japan's interest to secure ethanol for its transportation fuel needs, said Stephan Nielsen, New Energy Finance analyst in São Paulo, Brazil.
Japan now holds what Nielsen called a "relatively unimpressive" goal of bringing 860 million liters (227 million gallons) of ethanol, or roughly 1 percent of the nations transportation fuel needs, into the country by 2010. But the country could be poised to increase the goal. "The amounts these Japanese trading companies are investing at the moment indicate that something beyond this 860 million liter target will be put on the table soon," Nielsen said.
Previous investments by Japanese companies in Brazilian ethanol, such as Mitsubishi's March 2007 announcement of investing $39.3 million for a 10 percent stake in a plant, have been made with guarantees that the ethanol produced as a result would be exported to Japan, he noted.
Other recent deals include a plan between Mitsui and Brazilian national oil company Petrobras to develop up to 15 to 20 ethanol plants, with the first plant expected to produce 200 million liters (53 million gallons) per year, Nielsen said. Petrobras is considering a similar project with Toyota, he added.
Brazil is the world leader in ethanol production, using sugarcane as a feedstock instead of the corn used by almost all U.S. ethanol makers. In fact, Brazilians fueled up their vehicles with almost as much ethanol (2.38 million gallons) as they did gasoline (2.4 million gallons) in the first half of this year, according to Brazil's Agriculture Ministry, which expects ethanol to eventually surpass gasoline as the nation's fuel of choice.
Brazil's ethanol industry is not just eyeing the domestic market. The country's Agriculture Ministry expects the ethanol exports to rise 23 percent in 2008 from last year's 3.4 billion liters (898 million gallons).
Dallas-based Southridge Enterprises is one company taking advantage of Brazil's growing ethanol industry. On Monday it announced a $35 million deal to sell Hong Kong-based Jinsung Ho Trading Group up to 15 million gallons per year of ethanol supplied by Brazil's Petrozxilian Energia.
Southridge, with shares traded over the counter under the symbol SRDG, said the new deal follows a $40 million, 20 million gallon-per-year deal with Jinsung Ho last month, as well as similar supply contracts with European buyers.
Southridge has invested in ethanol plants before, but none have been completed. The company has been brokering ethanol sales between refineries and buyers instead.
Last month, Southridge sold a $4 million, 20 percent stake in its El Salvador plant to Beijing-based Shenyang Rrzk Co., Ltd. That plant is expected to produce 20 million gallons per year when it's completed in late 2009 or early 2010.
Also last month, Southridge landed $7.5 million from Brazilian partners Durmundo Carasca SA and Briskul Transaccao to finance an ethanol plant in Brazil.
Facing tough ethanol margins in the United States, Southridge has announced it has halted work on ethanol plants in Texas and Mississippi to concentrate on those lower-cost projects abroad, as well as increasing its ethanol sales agreements.
The deepening credit and financial crisis could compound woes already faced by U.S ethanol makers, leading to a shortage of financing for expansion or research and development, the CEO of cellulosic ethanol company BlueFire Ethanol told Reuters on Monday.
Even before the fall of Lehman Brothers Holdings Inc. and other U.S. financial institutions, biofuel companies were having a hard time raising capital (see Mascoma to Play Smaller Role in Pilot Project and Plans for Two Cellulosic-Ethanol Plants Scrapped).
Still, those problems didn't stop Sacramento, Calif.-based Pacific Ethanol Inc. (NASDAQ: PEIX) from starting production at its new corn-to-ethanol plant in Stockton, Calif. this week. The plant can produce 60 million gallons per year.
Pacific Ethanol has suffered along with other U.S. ethanol makers in the face of rising corn and energy prices. The company last month posted a second-quarter loss of $10.5 million, compared to a profit of $1.1 million for the same quarter a year ago, despite a 52 percent increase in ethanol sales compared to the same quarter last year.
Pacific Ethanol owns plants in Madera, Calif., Boardman, Ore. and Burley, Idaho. It holds a 24 percent stake in an ethanol plant in Windsor, Colo., built by Front Range Energy
In other news, Pasadena, Calif.-based Jacobs Engineering Group Inc. said Tuesday that it had landed a three-year contract with Royal Dutch Shell's European biofuels program to build ethanol and biodiesel blending facilities throughout Europe. Jacobs declined to disclose the contract's financial terms.
Also on Tuesday, SRI Consulting released a report saying the United States could become the largest biodiesel market in the world with 19 percent of global demand by 2012.
But the report warned that the global biodiesel industry could suffer in coming years, due to a slowing global economy and the current financial crisis, as well as rising raw material costs and changes in government regulations over concerns that biodiesel production is pushing up food prices.