Why Brazil Is Expected to See a Corn Ethanol Boom

(BN Americas) Brazil’s corn ethanol production is expected to triple by 2030, according to Beatriz Pupo (pictured, left), biofuel senior analyst of S&P Global Platts Analytics.

The projected growth reflects the stagnation of the availability of sugarcane as raw material for ethanol and the country's need to increase biofuel output to meet environmental targets.

In this interview, Pupo and Nicolle Castro, a senior price specialist at S&P Global Platts, talk about the current scenario and outlook for biofuels in Brazil, including biodiesel, green diesel and bio aviation gasoline.

We had a goal in March to reach 13% blending, but this only occurred in one auction.

In the 79th ANP tender this was no longer possible, and the government reduced it from 13% to 10% due to the high biodiesel prices, and maintained it in the last auctions.

And now, in the 81st auction, the mixture will increase to 12%. This brings a lot of insecurity for investors who need more predictability.

Brazil is truck-driven, and we've seen how damaging it is to depend on a single modality.

In the case of biofuels, this weighs heavily. Brazil used to import a lot of ethanol from the US, but this was stopped in April or May last year because of the exchange rate and because domestic prices fell.

The north and northeast are basically being supplied by the center-south, by states like Goiás and Mato Grosso. There is, therefore, a new demand in the market, and it is being met by tanker trucks that take this route, since pipelines and more efficient cabotage are lacking.

We had a portion of ethanol production going to exports, and at the same time, we are going through a severe drought, with the expectation of the smallest sugarcane harvest in the last nine years.

This in itself already limits the availability of ethanol, and at the same time we have demand recovering, so the result has been an explosion in prices. But we can complement the output, in part, with corn ethanol. This should reach 3Bl in the harvest, jumping from 5% to 10% of total production in 2021.

Ethanol production needs to grow exponentially in the next few years to ensure compliance with the stipulated targets, and this already takes into account the growth of corn ethanol and biodiesel.

It should be remembered that corn ethanol production can come not only from production plants focused only on the grain, but we also see the growing appeal of the so-called flex-fuel plants, which can use both corn and sugarcane as raw material, and therefore continue producing even during the sugarcane off-season.

Some other advantages of corn ethanol are lower industrial capex when compared to that of sugarcane, and the possibility of generating other by-products as assets, like DDGs [distillation-dried corn kernels] and corn oil.

We project that green diesel will be the one that will grow the most in the next 20 years, from 8% to 20% of the global market share by 2040.

We saw a flurry of investments announced in the US in many refineries moving from fossil to green diesel, aiming for better remuneration. In Brazil, 70% of the circulating fleet is flex fuel, but only recently we had a regulation for green diesel. This, unfortunately, has delayed investments in production. BSBios, the largest local biodiesel producer, is setting up a green diesel plant in Paraguay through its subsidiary ECB.

As for bio aviation gasoline [bio avgas], there is still very little in production. Again, what is driving this market are public policies. First it was Norway, now it will be France and Germany. This is what will start to drive this market. Some airlines are already signing contracts to purchase bio avgas from plants that don't even exist yet. READ MORE