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Raízen to build advanced ethanol plants after agreement with Shell

Investment of R$6bn is company’s biggest step in this segment

11/08/2022

Paulo Neves — Foto: Divulgação

Paulo Neves — Foto: Divulgação

Raízen unveiled Monday a R$6 billion investment package to build five new second-generation ethanol plants over the next five years. This is the company’s biggest step in the advanced biofuels segment. The investments were made possible after an agreement with Shell to sell the product for 10 years for €3.3 billion.

The company will have nine 2G plants in operation, under construction or announced, among the 20 it promised at the time of its IPO last year. The company raised R$6.9 billion with investors, and since the offering it has announced R$9 billion in 2G ethanol investments.

The first unit is expected to start operating next year and will join the Piracicaba unit, which has been operating for eight years. The units announced Monday will start operating between 2025 and 2027.

All new plants will have the capacity to produce 82 million liters of 2G ethanol per year and will use sugarcane waste that is currently unused, such as straw and bagasse. The five units will deliver 3.3 billion liters of biofuel to Shell over 10 years and will also have the capacity to produce and sell to more customers.

The volumes delivered to Shell will go to foreign markets, a priority destination for Brazil’s cellulosic ethanol. Unlike the domestic market, the international markets pay more for 2G ethanol because of its smaller carbon footprint compared to other biofuels and because it does not use additional agricultural lands for production.

“It doesn’t compete with food, which solves the ‘food-versus-fuel’ equation,” which is valued abroad, said Paulo Neves, Raízen’s vice president of trading.

The preferred market is Europe, but other destinations are also in the sights, such as Japan and California, which offer a premium to low-carbon intensity biofuels.

Almost all the cellulosic ethanol produced today by Raízen is exported, exception for a small portion that is sold to O Boticário for a perfume line.

The contract with Shell provides security for the company to build the units because it secures the return on investment. Other companies taking the first steps in advanced biofuels have adopted the same model. One example is ECB Group, which has a green diesel project.

Once the investment is paid off, 2G ethanol will be more competitive than first-generation ethanol, made from agricultural feedstock, since its production cost is much lower because it uses residues from the field. “In first-generation ethanol, you have the land, the cost of the inputs. In 2G ethanol, after capex, there is only opex, which is lower,” he said.

The company foresees an EBITDA margin of nearly 50%, with maintenance investments of R$50 million per plant per year.

The contract foresees a minimum price for the delivery of 2G ethanol to Shell, but the effective amount will be adjusted monthly according to market prices, currently at €1,400 per cubic meter. The additional value will be “shared” between the parties.

Raízen’s product will be able to meet both the demand to supply light vehicles, replacing gasoline and the production of aviation biokerosene or other uses. “We will deliver to the industrial companies that offer the best value,” said Mr. Neves.

*By Camila Souza Ramos, Fernanda Pressinott — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Raízen starts integrating Biosev’s sugarcane suppliers

350 farmers will have access to access to rural credit, technologies and input purchasing pool

09/08/2022

A year and a half after agreeing to buy Biosev from Louis Dreyfus Company (LDC), Raízen is starting to integrate the company’s sugarcane suppliers into its relationship dynamics with farmers. In total, 350 farmers will have access to the company’s initiatives such as access to rural credit, technologies and an input purchasing pool.

With the addition of these producers to its base, Raízen will have around 2,000 sugarcane suppliers, which represent half of the volume of raw material processed. In the 2022/23 season, they are expected to harvest around 40 million tonnes, half of the almost 80 million tonnes the company is expected to crush in this cycle, as Raízen itself indicated in its last earnings report.

The integration of suppliers is the last step in the union of Biosev’s business with Raízen. The transaction, closed for R$3.6 billion and exchange of shares with Biosev’s former shareholders, increased Raízen’s crushing capacity by 30 million tonnes per cycle, making it account for one-fifth of the sugarcane processed in the South-Central region.

Offering relationship programs to these and its other sugarcane suppliers is a crucial part of Raízen’s strategy to ensure the supply of raw material at a time when the sugar-and-ethanol industry faces a shortage of sugarcane.

Amid low productivity, the mills face increasing competition. There is also fierce competition with the advance in soybean cultivation, which has reduced sugarcane fields.

One strategy has been to include the new suppliers in a pool of input purchases led by Raízen in its Cultivar program, which results in cost reductions by increasing the scale of purchases.

Ricardo Berni — Foto: Divulgação

Ricardo Berni — Foto: Divulgação

The company expects Biosev’s former producers to start joining the pool in the next crop, said Ricardo Berni, Raízen’s agribusiness director. In the last season, the organization of the pool allowed the company and 282 producers to circumvent cost inflation aggravated by the war in Ukraine at the end of the season, resulting in a savings of R$71 million, compared to R$295 million committed with inputs.

In general, the savings are around 7% to 10% in relation to market prices. In three harvests, Raízen and 200 suppliers – mostly large ones – saved R$120 million.

“More than the savings, farmers now have access to information, better logistics, and predictability,” Mr. Berni said. As many suppliers also produce other crops, the partnership can help them with other activities.

The former suppliers of Biosev’s plants will also be able to access rural credit Raízen intermediates with Santander. Last season, the company facilitated the granting of R$120 million in credit from the bank to its suppliers.

Between 20% and 25% of the producers that integrate the Cultivar program tap the line of credit. Through the program, Raízen speeds up the concession of credit to farmers, reducing the red tape normally faced by individual farmers.

The company does not reveal estimates of the pace of integration of Biosev producers to its input purchase and agricultural credit programs, but expects “good adhesion,” assures Mr. Berni. The challenge is to access regions where Raízen was not present before, such as Ribeirão Preto (São Paulo), Minas Gerais and the Biosev cluster in Mato Grosso do Sul.

Some suppliers coming from Biosev are already accessing technologies that Raízen fosters in its startup hub, Pulse, in Piracicaba (São Paulo). The company has been promoting 24 tools developed there with producers from the Cultivar program. “With the scale we have acquired, we can transfer much more technology,” said Mr. Berni.

According to him, the “triad” of solutions offered – formed by the Cultivar program tools, the Elos program, more focused on sustainability, and Pulse – intends to “raise the level of profitability and productivity” of producers, who continue to be harassed by competition in the segment and by the expansion of soybean plantations.

Raízen also indicated that it expects to consolidate until the end of this harvest a program that will reward suppliers that improve their environmental and social practices. The plan is to offer better conditions to producers with “excellence in sustainability,” such as priority access to the purchasing pool, discounts on products and more attractive rates.

*By Camila Souza Ramos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Bunge, BP put joint venture up for sale

Abu Dhabi’s Mubadala fund, Raízen are among those interested in assets

08/09/2022

Bunge and BP created joint venture in 2019 — Foto: Divulgação

Bunge and BP created joint venture in 2019 — Foto: Divulgação

U.S.-based Bunge and British oil company BP have put up for sale the sugar-and-ethanol company BP Bunge Bionergia, a joint venture created by the two companies in 2019, sources say. With 11 sugar-and-ethanol mills and capacity to crush about 33 million tonnes, the deal attracted the interest of Abu Dhabi’s Mubadala fund and the giant Raízen, a partnership between Cosan and Shell, sources familiar with the matter say.

JP Morgan has been hired to advise on the sale of the company. The assets are valued between R$9 billion and R$10 billion, considering a price between $55 and $60 per tonne of crushed cane, according to a source in the sugar-and-ethanol sector.

This is not the first time that Bunge has tried to dispose of its sugar-and-ethanol business. Before creating the joint venture with BP, the U.S.-based agribusiness behemoth hired banks to sell assets in the sector.

The sale is still in the non-binding proposal phase, according to sources. In this phase, offers are received, but there is no exclusivity contract between the parties. Sources say any deal is unlikely to be cut before the elections, in October.

Initially, only Bunge wanted to sell its 50% stake in the business. In the last two months, however, BP has also decided to throw off its stake, people familiar with the matter say.

Raízen and Mubadala are said to be potentially interested in the whole business, but did not make an offer yet. The shareholders do not rule out selling the assets separately. The company’s mills are located in the states of Goiás, Mato Grosso do Sul, Minas Gerais, São Paulo and Tocantins, and have a crushing capacity of 32.4 million tonnes of sugarcane per harvest. In the harvest ending March 2022, BP Bunge Bioenergia’s net operating revenue totaled R$7.2 billion, with net income of about R$1.7 billion.

Raízen was among the groups interested in buying Bunge’s assets in the past, but the deal did not go forward. The largest sugar-and-ethanol company in Brazil, the joint venture between Cosan and Shell has a crushing capacity of over 100 million tonnes of sugarcane and 35 production units.

Last year, the group closed one of the largest M&A deal with the purchase of Biosev’s (formerly Louis Dreyfus) mills. Bunge and Louis Dreyfus, another giant in the sector, have made heavy investments in sugar and ethanol in Brazil, but have not obtained the return they expected from the deal.

Abu Dhabi’s sovereign wealth fund Mubadala is also looking at sugar-and-ethanol assets to verticalize its refining business in Brazil, sources say. Last year, the group bought the Landulpho Alves refinery (RLAM) in Bahia from Petrobras for $1.65 billion. The sovereign wealth fund raised earlier this year $322 million to invest in Brazil — last week, the fund made an offer for the control of the fast-food chain Burger King in the country.

BP and BP Bunge Bioenergia said they do not comment on market speculations. Mubadala, Raízen and JP Morgan also declined to comment.

In a statement, Bunge said it “continues to evaluate options to exit its participation in the sugar and bioenergy joint venture.” The company stresses in the statement that it is satisfied with the performance of the business, but the assets are not essential to the overall strategy of its business.

*By Monica Scaramuzzo — São Paulo

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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