Petrobras Studies the Construction of an Ethanol Pipeline

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Researched by Industrialinfo.com (Industrial Info Resources; Houston, Texas). Brazil’s state owned petroleum company Petrobras (NYSE:PBR) is studying the construction of a $226 million ethanol pipeline to meet a growing global demand for sugarcane alcohol fuel. This investment is mostly due to the higher petroleum prices that have caused the bio-diesel demand to increase, and thus caused the ideology of using alternate fuels in multiple industries worldwide to become more of a priority than a possibility.

Goias State Governor Marconi Perillo and Petrobras CEO Sergio Gabrielli agreed to start with the studies of a pipeline capable of transporting one billion gallons of ethanol per year. According to Gabrielli, the expansion of the ethanol market is strategic not only for Brazil, but for the whole world. The pipeline would run from the state of Goias to a refinery in Paulinia (near Sao Paulo, Brazil), and then into Brazil’s main producing centers of sugar cane and ethanol. According to estimates, the pipeline spanning more than 500 miles, will cost upwards of $226 million.

Brazil: The Largest Producer

After the oil crises during the 1970’s, Brazil turned to ethanol as a substitute for petroleum, thus saving them billions of dollars. Apart from that, this product, which can be derived from corn, sugar beet, wood chips, grass and organic waste is better for the environment, because it reduces carbon monoxide emissions.

Brazil is the largest producer and exporter of ethanol. This product is made by fermenting and distilling the sugar cane crop and then using the liquid as fuel. Although ethanol engines require an additional 25% of fuel per kilometer than petroleum, the difference is compensated with its lower cost, which is approximately half the price of gasoline.

Possible Boost in Ethanol Production

According to The New York Times, Brazil expects to double its ethanol production by 2013 in order to react to the increase in demand for alternative fuels worldwide. Although ethanol is mainly used for domestic consumption, in 2005 Petrobras exported 13 million gallons of this renewable fuel. According to their estimates for 2006, 65 million gallons will be shipped to Venezuela and Nigeria. At the same time, Petrobras is negotiating with the United States, China, South Korea, and India for future trade agreements.

Other Investments

Petrobras and the American energy company El Paso Corporation (NYSE:EP) signed a memorandum of understanding by which Petrobras may buy the El Paso 928MW Macaé gas-fired power plant for an estimated $358 million. El Paso also has first rights to other Brazilian power plants such as Manaus, in the Amazonas province and Porto Velho, in the Rondonia province, and even in the Araucaria gas fired generation project in the Amapá region.

Meanwhile, El Paso is also interested in the 1,875-mile Brazil-Bolivia gas pipeline. According to estimates, this project will cost $1 billion and will also have Copagaz and Braskem participation. At the same time, it is also considering a gas pipeline project stretching from the western Amazon Urucu gas field south to Porto Velho.

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