Shell Plans $12B Ethanol JV in Brazil

Royal Dutch Shell plc (RDSA.L) and Cosan S.A. (CSAN3.BR) announced Monday they have signed a non-binding memorandum of understanding (MoU), with the intention to form a $12 billion joint venture (JV) in Brazil for the production of ethanol, sugar and power, and the supply, distribution and retail of transportation fuels.

Under the terms of the MoU, both companies would contribute certain existing Brazilian assets to the JV.  In addition, Shell would contribute a total of $1.625 billion in cash, payable over two years.

The JV aims to establish a scalable and profitable position in biofuels by building a market-leading position in the most efficient ethanol producing country in the world. 

With annual production capacity of about 2 billion liters and significant growth aspirations, the JV would be one of the world’s largest ethanol producers. In addition, the inclusion of Shell’s equity interests in Iogen (50%) and Codexis (14.7%) would potentially enable the JV to deploy next generation biofuels technologies in the future.

With a network of about 4,500 retail sites and a total annual throughput of about 17 billion liters, the JV would have a leading position in the fuels retailing market in Brazil.

Mark Williams, Royal Dutch Shell’s Downstream Director, said: “We see joining with Cosan as a way to grow the role of low-carbon, sustainable biofuels in the global transportation fuel mix. The joint venture would also enable Shell to set up a material and profitable bio-fuels business, with the potential to deploy next generation technologies.”

Cosan is one of the four biggest fuel distributors in Brazil with 23 producing units and a nominal milling capacity of 60 million tons of sugarcane per year, producing varied qualities of raw and refined sugar and ethanol. The Company operates the export logistics for sugar and the distribution in the domestic market through the União and DaBarra brands which, together, hold approximately 50% of the retail market.

Rubens Ometto Silveira Mello, Cosan’s Chairman of the Board, said: “Cosan’s vision is to become a global leader in clean and renewable energy. Our size, degree of sophistication and stage of development means we need a partner that not only shares our vision, but also has access to international markets to help us deliver our growth potential.

The Wall Street Journal said the JV would mark the biggest foreign investment in Brazil’s ethanol industry to date. Read additional coverage at the link below.

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