Emerging Markets: Bringing Brazilian Ethanol to Global Markets

Investor: Company to Watch


By Gordon Platt

Cosan, one of Brazil’s largest producers of sugar and ethanol, plans to form a $12 billion joint venture with Shell International Petroleum, a unit of Royal Dutch Shell. The São Paulo-based company will use the venture, including Shell’s distribution network in the US and Europe, to export ethanol to global transportation markets.

Shortly after the venture was announced, the US Environmental Protection Agency confirmed that sugarcane ethanol is considered an advanced biofuel. The EPA said that ethanol from Brazil reduces greenhouse gas emissions by 61% compared to gasoline.

Not only is Cosan an efficient producer of ethanol, but it also owns the two largest brands of sugar in Brazil. In 2008 it purchased a chain of service stations from Esso in Brazil. Cosan also operates co-generation plants in Brazil that produce power from sugarcane.

Shell will contribute its retail fuel and aviation distribution business to the venture, which will be Brazil’s third-largest fuel distributor, with 4,500 service stations.

“We see joining with Cosan as a way to grow the role of low-carbon, sustainable biofuels in the global transportation fuel mix,” says Mark Williams, downstream director at Shell. With annual production capacity of about 2 billion liters, and plans to double this in the future, the venture would be one of the world’s largest ethanol producers.

“The joint venture would also enable Shell to set up a material and profitable biofuels business, with the potential to deploy next-generation technologies,” Williams says. Shell and Cosan have signed a non-binding agreement and are negotiating toward a binding joint venture agreement.