July 21, 2008 / 8:48 PM / 9 years ago

ANALYSIS-Politics aside, Latin America biofuels loom large

By Brian Ellsworth

CARACAS, July 21 (Reuters) - Latin America is emerging as a key global producer of biofuels as nations across the region seek to use competitive advantages such as fertile land and tropical weather to tap into unprecedented energy prices.

The region invested more than $8 billion in biodiesel and ethanol in 2007 and has already launched new projects that could increase global energy production as demand from emerging-market economies outstrips growth in oil and gas production.

The efforts contrast sharply with the broad condemnation by leaders in the region, led by Venezuela’s Hugo Chavez, that the fuels increase food prices and spur global hunger. Critics around the world have echoed such concerns, charging farmers may divert crops toward biofuels and away from food crops.

A biofuels push could sustain energy flows from Latin America toward the United States, the world’s top energy consumer, as falling oil output in Venezuela and Mexico has left Washington seeking new supplies in other regions.

Analysts say Latin America’s soil and climate are ideal for developing ethanol from soy and sugar cane, which are more efficient than the corn-based ethanol dominant in the United States -- the world’s largest producer of biofuels.

"Latin America is the logical place to produce biofuels," said Brian Dean of the Interamerican Ethanol Commission in Coral Gables, Florida. "There is greater efficiency and a more sustainable environment particularly for ethanol, since sugar cane is a more efficient feedstock and can be grown easily."

Brazil is the region’s undisputed biofuels leader, with ethanol mills expected to produce up to 27.5 billion liters in the 2008/09 season, up from 23 billion liters in 2007/08. Much of this is pumped into a vehicles outfitted to run on ethanol and gasoline.

Many countries in the region including oil producers Mexico and Venezuela are promoting renewable fuels as gasoline additives -- selling cleaner-burning fuels at home while opening the door to export into growing markets abroad.

Latin America’s biofuels production could eventually rival that of Asia, where China, India, and Indonesia are already among the top 10 world producers, according to OECD data.


Plant-based fuels are increasingly viable with oil prices near $150 per barrel, but they have sparked a global debate over whether their production increases food prices and encourages encroachment on endangered rainforests.

Former Cuban President Fidel Castro described a broad U.S. corn ethanol plan as "genocide" and was quickly seconded by Chavez and Bolivia’s Evo Morales, who berated the effort for using agriculture to feed cars instead of people.

But actions belie the words.

Venezuela, despite the criticisms, is planning to produce ethanol as an additive to gasoline sold in the domestic market.

Colombia expects to produce 1 billion liters of ethanol per year by 2010, more than doubling current output, and plans to have enough production by the end of the year for export.

Argentina, the world’s third-largest soybean exporter, in 2007 began exporting soy-based biodiesel and this year expects to more than double output -- possibly strengthened by this month’s rejection of a controversial tax hike on soy exports.

Peru this year opened a biofuels plant that processes soy but by 2010 will be fed with jatropha -- a drought-resistant plant that can be easily grown in Peru’s deserts.

Mexico, a major oil exporter that imports much of its fuel because of limited refining capacity, has created incentives for biodiesel production from crops such as beets and sorghum.

"Brazil is the most advanced in biofuels because of its experience in ethanol," said Camila Ramos, head of Latin America research at a renewable energy consulting company called New Energy Finance. "But we’re also seeing opportunities and investor interest in many other parts of Latin America."


For more information on biofuels in Latin America, see "FACTBOX-Biofuels industry grows in Latin America" [ID:nN21456087] (Editing by Matthew Lewis)

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