Summit News

Sojitz sees limited Japan sales for Brazil ETBE

TOKYO (Reuters) - Sojitz Corp 2768.T, Japan's No. 6 trading firm, hopes to begin shipping some Brazilian ethanol-based gasoline additive to Japan this year, but maintains that Sao Paulo and other local cities are the best markets for its first biofuel venture.

In October Sojitz bought a 33 percent stake in Brazilian construction and chemicals conglomerate Odebrecht SA’s ethanol and sugar unit, ETH Bioenergia, for $84 million in its first investment in the fast-growing renewable fuel sector. It expects the venture to turn a profit in three years.

While Tokyo has been keen to promote cleaner fuels to meet its commitment to cut back on greenhouse gas emissions, Sojitz’s Yoshiyuki Nunomura, deputy general manager of energy and mineral resources, says the business is not counting on Japan.

“The initial target is the domestic market in Brazil. A part of the production might go to the United States, where there is a market and is geographically close,” he said in an interview ahead of the Reuters Global Agriculture and Biofuels Summit.

“As for Japan, we’re considering shipping ETBE from Brazil purely as a trading business,” he said, referring to ethyl tertiary butyl ether (ETBE), a gasoline additive made from ethanol and isobutene.

Japanese law allows oil distributors to sell gasoline blended with up to 3 percent of ethanol, either as straight ethanol or in a form of ETBE which contains 3 percent ethanol. A lack of incentives to make alternative fuels competitive with gasoline have limited distribution to government-backed tests.

The powerful oil refiner lobby has fought off efforts to push for Japan to blend pure fuel ethanol into its gasoline pool, which would require heavy investment in infrastructure.

Nunomura said Sojitz was hoping to capitalize on expected growth in demand for greener fuel in the world’s third-largest oil consumer as soon as this year.

“Currently, ETBE is the main product the infrastructure in Japan is ready to accept. So, we’d like to fit to that situation,” Nunomura said. “We’d like to see it done this year.”

Japan’s oil industry imported a total 15,700 tonnes of ETBE from Europe last year to mix with gasoline and is expected to buy more in 2008 as the industry plans to double the number of gas stations selling the greener fuel from around 50 now.

The government plans to exempt 3 percent of the current tax of some 53 yen a liter on the price of auto fuel if the content is replaced with ethanol, and also plans to make imports of ETBE duty free, both effective from April, but industry players have been frustrated with the lack of policy progress.

Brazil's state-run oil firm Petrobras PETR4.SAPBR.N last month said it would slow the pace of ethanol development with its partner Mitsui 8031.T, Japan's No. 2 trading house, due to the slower-than-expected pace of development.

Brazil’s well-established biofuel market looks a safer bet for investors.

“We expect a 10 percent year-on-year growth in ethanol consumption in Brazil in coming years,” Nunomura said, adding that the ongoing move to flex fuel vehicles, able to take any mix of gasoline and ethanol, underlines the potential in the biggest economy in South America.

Sojitz aims to make ETH Bioenergia one of the top five sugar cane crushers in Brazil, with its first sugar cane field ready by 2010 for use in the project, he added.

Sojitz has said it expects ETH Bioenergia to boost cane crushing to a total 44 million tonnes a year by 2021.

Cosan CSAN3.SACZZ.N, Brazil's No. 1 sugar and ethanol company, has a crushing capacity of some 40 million tonnes a year and has plans to boost this in coming years.

Production cost is estimated at less than 30 U.S. cents a liter in plans to build plants with their own power supply from bagasse, a residue from crushing, and with water recycled after usage, said Satoshi Awaya, deputy manager from the same office with Nunomura.

“From the planning stage, we wanted to tap into the upper end of the biofuel chain,” Nunomura said.