Brazil biofuel investors not worried about oil

Brazil biofuel investors not worried about oil
MarketWatch - USA
... PAULO (MarketWatch) -- Falling oil prices don't scare a group of US and Brazilian investors currently looking to build the world's largest biodiesel plant in a ...

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SAO PAULO (MarketWatch) -- Falling oil prices don't scare a group of U.S. and Brazilian investors currently looking to build the world's largest biodiesel plant in a small town in the interior of Sao Paulo state, says David DeWind, one of the lead investors in Brasil Eco Energia, a new biofuel company forming in Brazil.
Oil prices having been testing new lows all week, and Nymex crude oil prices had fallen below $61 per barrel in Tuesday afternoon trade.
"Oil is a big player in the entire world push for biofuels. It's the benchmark," DeWind said in a interview with Dow Jones Newswires. "But you have to look at the global situation. You have increases in population, you have increases in energy consumption and even if they discover an oil field off the coast of the Gulf of Mexico, you're looking at years before that oil comes on line. It' years before you have fuel cells. And even when you have that, biofuels will still be big because of global warming concerns and that is not going to go away."
DeWind, two Brazilian businessmen and a couple of U.S. funds are involved in the 600-million-real ($273.9 million) investment to create Brasil Eco Energia. Their goal is to build the world's largest biodiesel plant, capable of producing 835 million liters of biofuel annually. The current largest biodiesel plant currently produces over 500 million liters and is located on the Poland-Germany border.
Biodiesel is a mix of biofuel, usually from a vegetable oil stock, with traditional diesel oil. Brasil Eco Energia will use soybeans as its feed stock, with purchases of 3.5 million metric tons of soybeans expected annually.
One of the investors - Jose Americo Ribeiro dos Santos - is a Brazilian business owner of Latin America's largest grain storage facility, capable of storing 405,000 tons of grains. By 2008, that storage house will be full of soybeans, waiting to feed a massive biodiesel and soy crushing plant in Sumare, Sao Paulo. Construction begins in the first quarter of 2007, with the facility fully operational by 2008, the year Brazil mandates a 2% mix of biofuel in all diesel fuel, DeWind said.
"All of our fund investors are stable funds. None of this is hot money. A lot of the companies and investors that are talking about building biodiesel plants and ethanol plants will fall by the wayside because many of them won't have the serious money to continue," he said.
The Brazil biodiesel market will consume some 800 million liters just to meet the 2% mix rule. That mix could increase to 5% by 2010, according to government estimates.
DeWind says that demand from the local market will grow mostly because Brazil burns two and a half times more diesel than ethanol, currently Brazil's No. 1 renewable fuel source. Brazil's energy giant, Petroleo Brasileiro (PBR), or Petrobras, says Brazil imports about 30% of the diesel it consumes, adding to overhead costs in the country's agricultural sector.
Demand for cheaper diesel is what led Brazil to adopt the diesel mixture in the first place. Moreover, Petrobras is creating its own diesel mixture called H-Bio, to meet projected demand. Archer Daniels Midland (ADM) is also planning to build a biodiesel plant in Mato Grosso, which will produce all of its fuel from soybeans.
"ADM's plant isn't going to be as big as ours. That they are coming here, too, is just a validation of the size of this market. Everybody knows that reducing carbon dioxide emissions is important and no one believes oil prices are going to fall to where they were two years ago," DeWind said, adding he suspects international oil prices to be between $55 and $60.
"OPEC has that as their floor price. They now know that the world economy can handle prices even higher without coming undone, so I think they will keep those prices as their benchmark. Thirty-five dollars per barrel is no longer in the cards," DeWind said.
"The long term trends are in favor of biodiesel," DeWind said.
Brazil's agro-energy market has taken off following the success of its sugarcane ethanol market. According to industry estimates, some 75% of new car sales in August were flex fuel cars that are powered on both ethanol and traditional gasoline, even though ethanol prices have risen this year and made gasoline more attractive at the pump.
DeWind said the company is currently discussing long-term biodiesel supply contracts with distributors. Brasil Eco Energia is a privately held company. DeWind owns Brasil Bio Energia, a eucalpytus and reforestation company serving the paper and pulp industry, located in Piaui state in northern Brazil.

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