Oil and Gas

Ethanol to take over 75 pct Brazil car fuel market

SAO PAULO, June 3 (Reuters) - Sugar cane-based ethanol fuel is expected to take over 75 percent of Brazil’s light vehicle fuel market, shrinking gasoline’s stake to 17 percent by 2020, the head of the state-run oil company said.

The flex-fuel engine technology, which is now included in about 90 percent of all new car sales, is the reason that Brazilians are buying more ethanol fuel, said Jose Sergio Gabrielli, chief executive of PetrobrasPETR4.SAPBR.N, Brazil's state-run oil company.

Gabrielli spoke late Tuesday at the three-day Ethanol Summit in Sao Paulo hosted by Brazil’s Sugar Cane Industry Association, or Unica. [ID:nN01431173]

“Ethanol in Brazil is growing due to consumer decisions. The flex-fuel car has changed the horizon ... Gasoline stations should eventually be called ethanol stations,” said Gabrielli.

The biofuel retails for just over 90 centavos ($0.50) a liter, less than half the price of gasoline (around 2.20 reais/ltr), which already has 25 percent ethanol blended into it, in the main urban centers in the center-south regions.

Currently ethanol controls just under half of the light vehicle fuel market, with gasoline taking up most of the rest.

Natural gas accounts for a small portion of the market but is largely confined to taxi drivers, who say it is no longer economical to install natural gas fuel technologies, given the recent rise in price of the fuel.

Diesel also holds a small stake and is expected to stand at 7 percent of the light vehicle fuel market in 2020, Gabrielli said.

The growth in Brazil’s flex-fuel car market is unique in the world due to Brazil’s capacity to produce and distribute massive quantities of ethanol on the retail fuel market at competitive prices.

The local autofleet will consume around 25 billion liters of the 28 billion that is forecast to come out of the current cane crop.

Brazil is gifted with vast areas of subtropical savanna, ideal for sugar cane production, and has amassed know-how at producing ethanol efficiently after it began producing the biofuel for the local fuel market more than 30 years ago as a way to offset its dependence on the international oil market.

Gabrielli admitted that it would be difficult for the world to mimic Brazil due to the natural attributes it has to produce cane but added that the international ethanol fuel market would grow by 5 to 15 percent during the next 10 years.

Petrobras is known in the oil industry for its deep-water success at finding and producing offshore reserves. But the company, recognizing the rising importance of ethanol at home and abroad, has created a subsidiary committed to the biofuel.

It is currently the main distributor of the fuel in Brazil through its network of filling stations but it has begun to invest in production capacity with strategic partners and will develop ethanol logistic assets such as pipelines.

If Petrobras’ forecast for ethanol’s growth on the local fuel market comes true, it will free the company, which has a monopoly in refining in Brazil, from producing gasoline at the new refineries it plans to build.

“We’re going to build five refineries through 2017 ... They will be streamlined to not produce gasoline, but other products. The existing refineries will continue to produce gasoline,” Gabrielli said.

“They will produce diesel, aviation fuel, liquefied petroleum gas and other products,” he added. (Reporting by Roberto Samora; writing by Reese Ewing; Editing by Lisa Shumaker)