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Biomethane can avoid up to $137bn in diesel imports in a decade

There is a possibility to replace fossil fuels for renewable ones in Brazil, preventing the emission of methane, study shows

09/26/2022

Biomethane production in Brazil — Foto: Barbosa Neto

Biomethane production in Brazil — Foto: Barbosa Neto

Brazil could avoid spending $137 billion in diesel imports in a decade if all heavy-duty vehicles running on the fossil fuel used locally-produced biomethane instead.

The calculation was made by the Brazilian Center of Infrastructure (CBIE) at Valor’s request and shows that there is a possibility to replace fossil fuels for renewable ones in Brazil, preventing the emission of methane, which is short-lived but the more harmful gas, and still resulting in benefits to the trade balance.

The consulting company put together three scenarios for the evolution of diesel consumption in Brazil by 2031, based on projections of different economic growth rates. In a more optimistic scenario of GDP growth, demand for diesel exceeds the country’s expected refining capacity, so Brazil would require imports of 35 billion liters in 2031 alone, or 45% of the consumption expected for that year.

In order to completely replace these imports, Brazil would need to expand the production capacity of its biomethane industry to 40 billion liters per year by 2031, or 112.89 million cubic meters of biogas per day. This volume would avoid spending $137 billion on imports from 2021 to 2031.

In the base-case scenario, in which economic growth would be less accelerated, Brazil would have to import 30 billion liters of diesel in 2031. With this, the replacement of fossil fuel by biogas would be $124 billion

This demand is within what the organizations that represent biogas investors project for Brazil’s capacity to produce the renewable fuel. According to calculations by the Brazilian Biogas Association (Abiogás), a complete utilization of the residues from farming and urban sanitation existing today in Brazil would allow the production of up to 120.8 million cubic meters of biogas per day. This is more, therefore, than the demand needed to replace the imports of fossil diesel projected by CBIE for the next decade in the most optimistic scenario for consumption.

The total use of residues, however, is still far from reality. The most likely scenario is that in 2030 Brazil will have the industrial capacity to produce 30 million cubic meters of biomethane per day, according to Abiogás, considering investments already announced for the coming years, those in the pipeline, and the expected ones.

Even considering this more conservative perspective for biomethane production, the volume would already be able to stop the increase in diesel imports by the end of the next decade. According to CBIE, in a scenario of average growth in the next decade, the country would have problems to meet diesel demand starting in 2028, considering that there will not be new investments in refining until then or increases in the import capacity of fossil fuel.

In this hypothesis, there would be a demand for 15.2 million to 29.8 million cubic meters of biomethane per day until 2031. A volume, therefore, that the expected capacity until the end of the decade would be able to meet, considering Abiogás’s projection. In this case, the consumption of biomethane would avoid imports of $7.8 billion of diesel.

The projections took into consideration that diesel today is a blend that includes 10% of biodiesel and should remain that way until 2023 and a progressive increase until 2026.

The potential estimated by CBIE is still distant when compared to the industries that are active in Brazil today. According to Abiogás, the country has today less than 10 units with capacity to deliver 400,000 cubic meters per day. Most are recent investments, such as Adecoagro and Cocal, which use residues from ethanol production to generate biogas.

Besides sugar cane, there is also potential within agribusiness for production in farms, feedlots, and agricultural crops that supply residues for biodigesters, besides urban landfills, where there is greater potential of growth. But new investments have yet to materialize.

Bruno Pascon, a partner at CBIE, believes that new legal frameworks recently approved can favor this leap. This year alone, the solid waste law was regulated, which can unlock investments in landfills, and the decree for the biomethane incentive was published, which granted tax benefits for investments. In his view, the federal fertilizer plan and the Eletrobras Law, which forced the contracting of natural gas thermoelectric plants, can also contribute to promote biomethane (which is chemically equal to natural gas).

“Due to the power of agribusiness, Brazil has everything to also be a world reference in biogas,” he said. According to Mr. Pascon, the fact that Brazil is a “leader” in the production and export of food makes the country a potential leader also in biomethane.

Currently, Germany has the largest installed capacity of biogas in the world, followed by the United States, United Kingdom, Italy and China. From this group, Mr. Pascon said, the ones with more potential to continue growing are the Americans and the Chinese, precisely because of their agricultural production, which leaves residues. “Brazil has just started,” he said.

By Camila Souza Ramos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Vibra Energia buys 50% of ZEG Biogás

Contract provides R$129.5m payment to shareholders and direct injection of R$30m

07/05/2022

Vibra Energia intends to achieve the commercialization of its first million cubic meters of biomethane in three years, reaching the mark of 2 million m³/day in the next five years, with the acquisition of 50% of ZEG Biogas. This volume corresponds to 20% of the potential for biomethane production – obtained by purifying biogas – from vinasse, a residue from ethanol production. The expansion of supply aims to meet an avid demand for green products.

The other 50% stake will remain with FFL and ZEG. With the contract signed on Friday, Vibra will disburse R$129.5 million to ZEG Biogas shareholders and will inject R$30 million directly into the company’s cash flow, in addition to the commitment to invest R$412 million for the development of new projects that are in the pipeline, according to the eventual capital needs.

The two companies intend to develop at least seven ZEG Biogas projects, one of them about to start commercial operation in the coming months, in São José dos Campos (São Paulo) – and which already has 100% of its biomethane sold. Four other projects are being negotiated with sugar and alcohol groups, using vinasse, and two other plants are under negotiations with landfill companies.

Marcelo Bragança — Foto: Marcelo Bragança

Marcelo Bragança — Foto: Marcelo Bragança

According to Marcelo Bragança, Vibra’s deputy chief operations officer, the companies are already talking to clients who are waiting for these new projects. The implementation deadlines can range from 12 to 24 months, depending on the origin of the product (whether from landfills or agribusiness waste). In addition to vinasse, there are already evaluations for projects that use the waste from the production of orange juice and palm residues.

“It is an infrastructure project that demands capex, time, and patience,” said Mr. Bragança. “We have our feet on the ground, but we think we are going to move very fast,” added Daniel Rossi, board member at ZEG Biogas. Resources to get the projects up and running, whether own capital or capital market capital, are not a bottleneck, say the executives.

Besides logistical and operational challenges, the biggest one, says Mr. Rossi, with ZEG Biogas, is knowledge about the product, which still requires demystification – something expected as the plants start commercial operation. The executive foresees a biomethane contracting boom by next year, which will ensure the development capacity of the projects.

“The biggest bottleneck today is to produce enough quantity to meet the demand,” said Mr. Rossi, explaining that the development of the supply is a tripartite negotiation. It involves the company that develops the biogas, the one that holds the residue, and the purchasing market.

Mr. Bragança, with Vibra, doesn’t rule out negotiating volumes directly with gas distributors, amid the current moment of market opening, considering them as potential customers, especially because some of them are already promoting public calls for an injection of biomethane into the network.

The acquisition of half the control of ZEG Biogas came at a very favorable time, according to the executives, since the demand is increasingly high for products linked to decarbonization and the ESG agenda, along with the granting of incentives recently by the government in order to accelerate the formation of a market.

Added to this scenario is the current high prices of fossil fuels and natural gas, which benefits new business with biofuel, since the contracts are tied to Brazil’s benchmark inflation index IPCA.

“We can not only provide predictability of the delivery of the molecule, but also the guarantee that [in the case of] any shock in the world energy market, the client will not be impacted in the same proportion,” said Mr. Bragança.

The approximation started in May last year, when the two companies signed a letter of understanding to study the biogas and biomethane market, evolving into a cooperation agreement in August and to talks, at the end of 2021, for the acquisition of the equity stake.

The partnership, according to the companies, may enable the more than 300 ethanol plants that supply Vibra to access an environmentally friendly solution for vinasse.

The synergy, they point out, involves the production capacity and commercialization of biomethane of ZEG Biogas to Vibra’s network with more than 18,000 corporate clients (B2B) that seek, for example, the replacement of LPG or diesel oil, besides a network with 8,300 gas stations.

*By Fábio Couto — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Joint venture Raízen Geo Biogás bets on biomethane

Europeans confront biomethane cost reduction challenge – EURACTIV.com

Eight months after holding the largest domestic IPO in 2021, Raízen, the country’s fourth largest company by revenues, is once again presenting to the market the reason that led it to seek the good graces of investors. With the support of the funds raised in the market, Raízen and its partner Geo Biogás e Tech will start to build a new biomethane plant made of residues from ethanol production in Piracicaba, São Paulo.

This is the second industrial investment Raízen has unveiled since going public – the first was in a cellulosic ethanol plant in Guariba, São Paulo – and the first investment in biomethane since then.

The Raízen Geo Biogas joint venture plant has already left the engineers’ desks with guaranteed customers. The first is Norwegian company Yara, the world’s largest fertilizer producer, which will use biomethane to produce “green” hydrogen and ammonia, according to a contract signed in September 2021.

The second customer is Volkswagen, which will use the product in its plants in Brazil. Raízen had already announced a partnership with the German automaker in October, which also involved the delivery of electricity and the development of new ethanol formulas, but only recently closed the biomethane delivery contract. With the two clients, the Piracicaba plant’s entire production is already sold.

The unit will consist of two biomethane production “modules” and will have the capacity to produce 26 million cubic meters of the renewable gas per year. Yara will receive 20,000 cubic meters of biomethane per day, while Volkswagen will receive 50,000 cubic meters per day. In both cases, the product is one way the companies have found to reduce the greenhouse gas emissions footprint of their industries.

The stillage that will be used to produce biomethane is already used today as organic fertilizer in the sugarcane fields that serve Raízen’s Costa Pinto mill. The biomethane plant, however, does not change this story. The difference is that, before being distributed to the fields, the biodigestion of the stillage will reduce the amount of residual raw material, but the levels of potassium and nitrates that serve as fertilizer for the sugarcane fields will be preserved.

Raízen’s choice of Piracicaba for this project is symbolic – it is where Cosan started its history in the sugar-and-ethanol industry – but it is mainly of a practical nature. To guarantee delivery of biomethane to customers, it was necessary to build a plant close to the gas distribution network – in this case, Comgás’s network.

With the construction of yet another production unit in the Piracicaba hub, Raízen CEO Ricardo Mussa argues that the site is now a “bioenergy complex,” and no longer just a sugarcane mill. “It has cellulosic ethanol plant, it has cogeneration, it has biogas. It’s like a biorefinery.”

In the plan presented to investors before the IPO, Raízen promised 39 industrial biogas modules by 2030/31 – a deadline that Mr. Mussa promises to meet. The perspective is that the first units will be built near the gas distribution network, either from Comgás or GásBrasiliano.

In those plants more distant from the grid, the plan is to use renewable gas to replace diesel in their own fleets of agricultural machinery. “There is no bottleneck. The future demand for biomethane has low risk.”

There is also the possibility of producing only biogas for electricity generation, offering a third market alternative. In the unit that will be built in Piracicaba, part of the biogas will be used for this purpose, with a capacity of 5 megawatt-hours.

“This production flexibility is interesting. We are delivering what we promised, and with greater profitability than we imagined,” Mr. Mussa said.

The executive also expressed optimism with the plans for new cellulosic ethanol units, although so far only one new plant out of the 26 promised to investors has been announced. According to Mr. Mussa, the qualification of suppliers – an essential step to ensure the protection of industrial patents held by the company – is advancing “with good surprises.” “We are racing to surprise the market,” he said.

Source: Valor International

https://valorinternational.globo.com

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Government to launch biomethane promotion plan

Biogas, Green Gas, or Biomethane? Explained

The federal government is preparing a set of measures to encourage the production and consumption of biomethane, a gas produced from the decomposition of organic materials, equivalent to natural gas of fossil origin, whose main manufacturing potential is in agriculture. The measures, which will be announced on March 21, involve tax relief on investments and attraction of international resources, according to a source who followed the discussions.

The first measure will be a decree by the Ministry of Mines and Energy to include investments in biogas and biomethane in the Special Incentive Regime for Infrastructure Development (REIDI), which suspends social taxes PIS and Cofins on contributions in new industries in the segments of infrastructure and mobility. The tax exemption is expected to reduce the cost of investments in biomethane by 9%.

The measure is supposed to equalize the tax treatment of biomethane projects to that of natural gas, which are already included in REIDI and, therefore, have the tax break. As it stands today, investments in natural gas of fossil origin end up in practice having an economic advantage over investments in biomethane, which avoid methane emissions.

The second measure will come from the Ministry of the Environment, which is expected to issue a decree to expand the resources of the Climate Fund, managed by the Brazilian Development Bank (BNDES), aimed at investments in biogas and biomethane. The expectation is to guarantee an offer of around $500 million in financing for the sector.

Biogas is already one of the energy routes planned for financing the Climate Fund’s renewable energy sub-program. Current rates range from 1.9% to 5.4% in indirect operations and stand at 1.9% in direct operations. The term of the financing agreements is 16 years, with a grace period of up to eight years.

The two decrees come as after the country joined the Global Methane Pledge during the last COP26, by which 100 countries committed to cutting gas emissions by 30% by 2030. Brazil is the fifth largest emitter of methane in the world, but the main culprit is the cattle’s enteric fermentation (belching and flatulence), which accounts for more than half of the country’s methane emissions.

Environment minister Joaquim Leite has said in recent public statements that the government also intends to create a “methane credit” instrument, along the lines of a carbon credit, which could serve as additional revenue for biomethane production projects.

In a recent event by consultancy Datagro, Mr. Leite said that methane credits could guarantee extra income to biomethane producers, both related to methane that ceases to be released into the atmosphere with the biodigestion of waste, and related to diesel that is no longer consumed in heavy vehicles and is replaced by renewable gas. The tool, however, will not be announced next week.

In recent months, ministry officials have met with representatives of the private sector to discuss the new measures. There was also a request to make the environmental licensing requirement more flexible for biogas projects with up to 10 megawatts in power.

Source: Valor International

https://valorinternational.globo.com

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