Interview: Brazil's Raízen Sees Ethanol Producers Unable to Meet Demand

by Thomas Washington and Harry Clyne (S&P Global) New processing plants take 6-18 months to complete; Ethanol from sugarcane leaves is RED II-compliant -- Cellulosic ethanol supply is hampered by a shortage of plants to process EU-compliant biofuel from sugarcane leaves but several new plants in Brazil through 2024-25 should ease the supply crunch, an official at Brazilian sugar and ethanol producer Raízen said in an interview.

Sugarcane is used both in the production of refined sugar and ethanol production, be it first-generation fuel or from the leaves, which counts as a residue feedstock. Which commodity it goes toward generally hinges on prices.

"We have more demand than we are able to close out right now," Paulo Neves, Vice-President Trading at Raízen, told S&P Global Commodity Insights. "The offtake from these for the next 10 years has been fully committed to buyers."

Making cellulosic ethanol -- a second generation product -- involves the production of fuel from bagasse and waste-based feedstock, which is generated during first-generation fuel production. Bagasse is the residual pulp. First-generation ethanol and second-generation ethanol plants are integrated, with sugar production occurring during the E1G process, while E2G focuses solely on fuel production from bagasse.

Technology developed during the last 5-10 years means the leaves can be used for ethanol production and, as an advanced feedstock, complies with the European Union's Annex IX A requirements under the Renewable Energy Directive. Raízen has set a goal to have 20 cellulosic ethanol second-generation plants by 2030. Currently, there are five plants under construction, with their launch expected between 2024 and 2025, and three more plants in progress from a deal with Shell. This will represent an installed annual production capacity of approximately 1.6 million cu m of cellulosic ethanol.

Raízen has already sold 4.3 million cu m of cellulosic ethanol through long-term contracts. This volume includes a contract signed with Shell in 2022, committing to supply 3.3 million cu m until 2037. Long-term contracts represent 80% of each plant's production.

New plants had been commissioned but it would take at least six months and maybe 18 for them to come online, Neves said.

"There is no idle capacity available for more sugar in Brazil, there is no idle capacity anywhere in the world," he said. Several years of low sugar prices stifled investment and now, amid annual growth of 2 million mt/year in sugar demand, there is no spare capacity and prices through the course of 2023 have soared, he said.

Deliveries to Europe

This comes amid increasing scrutiny in Europe upon ethanol arrivals, be they from Brazil or other countries.

Europe is "relevant" as an export destination for Brazilian ethanol but only after California and Japan from crops.

"There is no other Annex IX A feedstock with the economics that cellulosic ethanol has with the volume that it has to help with decarbonization in Europe," Neves said.