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Bioethanol in Brazil – a norwegian experience . BNCC 4 November 2008. Global energy outlook A radical change in the energy chain. The world must move from a global energy system that is: . To a competitive energy future based on new policies on :. VULNERABLE DIRTY EXPENSIVE.
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Bioethanol in Brazil – a norwegian experience BNCC 4 November 2008
Global energy outlookA radical change in the energy chain • The world must move from a global energy system that is: • To a competitive energy future based on new policies on : VULNERABLE DIRTY EXPENSIVE ENERGY EFFICIENCY RENEWABLES NUCLEAR • Government action creates incentives to change existing investment patterns • There is no single economically and technologically feasible solution – only a mix • Biofuels is an important part of the mix (Source: IEA World Energy Outlook 2006 and UNEP 2007)
Core knowledge • A significant part of the world’s fuel consumption will come from sustainable biofuels • Sustainable biodiesel and bioethanol provide energy security and climate change mitigation • Sugarcane is by far the most efficient feedstock for bioethanol • Highest land and energy efficiency due to efficient photosynthesis • Largest reduction in greenhouse gas emissions, generally 80% relative to emissions from fossil fuels • Brazil is currently the lowest cost producer of sugarcane ethanol in the world • Vast territorial expanse • Favorable climate • Technological, agricultural and industrially developed with high competency level • No direct conflicts • The domestic market in Brazil is already well established – export potential increasing • Increasing demand from growing flex-fuel car fleet • Infrastructure for export developing • Umoe BioEnergy is an integrated bioethanol company with growth ambitions • Value chain secured – land positions and agri-industrial assets • Production start-up in 2008 and expansion in 2009/10 • Strategic growth opportunities COMPANY PRESENTATION 3
Biofuels – transportation fuel derived from biomass • Liquid or gas transportation fuel derived from biomass • Automotive transport the most common use • Cost, energy efficiency and carbon footprint varies among different technologies and biomass • Bioethanol and biodiesel are the most common biofuels • Ethanol is currently accounting for more than 90% of total biofuel usage • BIOETHANOL • Production process based on conversion of biomass into sugars, and/or fermentation of carbon sugars with final distillation of ethanol to fuel grade • Feedstocks includes cereal crops, corn (maize), sugar cane, sugar beets, potatoes, sorghum, cassava • Ethanol is used in low 5%-10% blends with gasoline (E5, E10) but also as E-85 in flex-fuel vehicles (gasoline must contain a minimum of 22% bioethanol in Brazil) • BIODIESEL • Production is based on trans-esterification of vegetable oils and fats through the addition of methanol (or other alcohols) and a catalyst, giving glycerol as a co-product • Feedstock includes rapeseeds, sunflower seeds, soy seeds, palm oil seeds from which the oil is extracted chemically or mechanically and algae • Biodiesel is currently most often used in 5%-20% blends (B5, B20) with conventional diesel, or even in pure B100 form Source: IEA Energy Technology Essentials, January 07 COMPANY PRESENTATION
Sugar cane ethanol essentials • Cost winner among current biofuels • Economically viable >40 $/bbl oil • High land efficiency • The most land efficient biomass for bioethanol • ~50 % more efficient than US corn • High energy efficiency • One of the plant kingdom’s most efficient photosynthesis • By far the most energy efficient feedstock for bioethanol • Energy output/input ratio 9,3 • Sustainable at right location • No direct conflicts • Provide energy security • Renewable • Land and energy efficient • Significant GHG reduction • The largest reduction in CO2 among biofuels • 75-90% well-to-wheels compared to gasoline COMPANY PRESENTATION
The low cost sugar cane ethanol ESTIMATED COST OF BIOFUELS Compared with the prices of oil and oil products (biofuels exclusive taxes) COST WINNER Source: The Royal Society, Sustainable biofuels, January 2008 COMPANY PRESENTATION
Sugar caneThe leading product in terms of production cost • By far the most efficient feedstock when it comes to production costs • Import barriers through local subsidies and import tariffs for Brazilian produced ethanol apply in US and in Europe. COMPANY PRESENTATION
Sugar caneThe leading product in terms of land efficiency -52.3% -60.0% COMPANY PRESENTATION
Sugar caneBy far the most energy efficient feedstock Sugarcane ethanol 8.0-9.0 vs. US corn ethanol 1.5-1.8 COMPANY PRESENTATION
GLOBAL SUPPLY MARKET Illustration Net importer Net exporter Domestic supply New technology US Brazil Scale and experience efficiencies France China Spain Germany Sweden Poland Thailand India Transition Italy Argentina Ukraine South Africa Nigeria Japan Start-up industry Austria UK Global market Domestic market Bilateral deals (Few trading partners) International market (Few trading partners) Source: Accenture primary analysis Current bioethanol market COMPANY PRESENTATION 10
Why sugar cane ethanol from Brazil? • Economically, socially and environmentally sustainable transportation fuel • Cost competitive in a growing fuel market • No direct conflicts with food, water or biodiversity • Particularly energy and land efficient feedstock utilizing renewable solar energy • Significant greenhouse gas emissions reduction • Unique production environment in tropical Brazil, in a well established industry COMPANY PRESENTATION
Brazil has stabilised politically and economically • More than 20 years of military rule ended in 1985 • A new constitution was ratified in 1988 • The government of Fernando Henrique Cardoso (1995-2002) • Ended hyperinflation and advanced reforms to liberalise the economy • But public-debt indicators deteriorated amid low economic growth • The current government, under the president, Luiz Inacio Lula da Silva • Has been successful in consolidating macroeconomic stability • Stepping up social spending • Implementation of deeper reforms needed to accelerate growth COMPANY PRESENTATION Source: The Economist Intelligence Unit, August 2008
Hyperinflation Massive shortages Financial turmoil Low capital inflow Devaluation of the real in 1999 Heavy and complex tax burdens Underdeveloped bank structure and little opportunity to manage risks locally Little investments in infrastructure By 2001-02, the economy was stable but hibernate, at the same time as inflation again threatened… Declined interest rates and rising market competition acts as defense against inflation Economy resistant to turbulence due to structural demand and focus on commodities Reduced public debt and regained investment-grade status High capital inflow Program of large infrastructure investments Economic reforms and sound macroeconomic policies Relaxation of restrictions on investment Local and international banks increase presence New equity and debt issues expected M&A activity Increased focus on environment and sustainability A changing business environment in BrazilThe emergence of a new private market economy NEW PARADIGMS OLD PARADIGMS Source: The Economist Intelligence Unit, August 2008, McKinsey, Newsweek, CIA, UN
Brazilian economy accelerating without overheating • South America's leading economic power • Macroeconomic outlook of 4-5 percent GDP growth • A floating exchange rate, an inflation-targeting regime, and a tight fiscal policy are the three pillars of the present economic program • Expanding presence in world markets • Vast natural resources and a large labor pool • Industrial and agricultural growth and development • Large and well-developed agricultural, mining, manufacturing, and service sectors • Fiscal problems persist, preventing a steeper decline in interest rates • Public debt remains high at around 41.2% of GDP Source: The Economist Intelligence Unit, August 2008 and McKinsey COMPANY PRESENTATION
Brazil offers sustainable bioethanol production BRAZIL’S VAST TERRITORIAL EXPANSE Arable land of 550 million ha equates to 33 countries in Europe Only 22 % of available arable land is utilized Forest preservation requirements of 20-30% • No direct conflicts with food; rainforests; water; biodiversity • The most productive land areas in the world for sugar cane production • Resource rich – sun, water and high yield arable land • Longer harvest cycles • Greater cane production per hectare • Brazilians sugar cane has higher sugar content • Capable of expanding sugarcane operations multiple times • Highest cane crop competence • Established domestic industry and market for ethanol production and consumption • Increasing demand from growing domestic flex-fuel car fleet • Infrastructure developing – export potential increasing Source: Infoamricas, MB Agro COMPANY PRESENTATION 15
Brazil is the world’s leading sugarcane producer • 2007/2008 harvest 487Mtons from 350 plants • Of which 250 were combined mills and distilleries and 100 pure play ethanol • Sugarcane cultivation covers 7.8M ha, 2.3% of domestic arable land • Less than 50% of this goes to ethanol, rest become sugar. • Sugarcane is grown mainly in South-Central and North-easthern regions, with two different harvest periodes • South-Central 85% of production • Sao Paulo > 60% of production • Sugar mills in Brazil are becoming power/electricity self-sufficient • Re-use of bagasse new power source for electricty supply • Industry developed over the last 30 years • Continual technological improvements SUGARCANE PRODUCING REGIONS IN BRAZIL Areas marked in red indicate where sugarcane is harvested and sugar, ethanol and bioelectricity plants are located. Source: UNICA, NIPE-Unicamp, IBGE, CTC COMPANY PRESENTATION
Brazilian industry’simpact on the environment • Soil occupation not in conflict with food production or rain forests • 1,0% of Brazil’s territory is used for sugar cane for ethanol – supports 54% of all car fuel consumption • Sao Paulo production areas not in conflict with the Amazon Rain Forest; the Pantanal; Atlantic Forest • Reduction of greenhouse gas emissions • 75-90% wheels-to-wheels compared to gasoline • Limited impact on water supply • Brazil has the greatest availability of water in the world • Biodiversity secured through regional area planning and forest preservation requirements • Improved air quality in cities and rural area • Ethanol utilization has led to improved quality reducing; lead compounds in gasoline; sulphur; CO2 emissions; reactivity and toxicity of organic compound emissions Source: ‘Sugar Cane’s Energy’. 2007. UNICA COMPANY PRESENTATION 17
‘OUR MISSION IS TO SUPPLY THE WORLD WITH EFFICIENT, CLEAN AND SUSTAINABLE BIOENERGY’ ‘OUR VISION IS TO BECOME A MAJOR AND SUSTAINABLE PRODUCER AND PREFERRED SUPPLIER OF ETHANOL TO THE INTERNATIONAL MARKETS FOR BIOFUEL. AND FURTHER CREATE A STATE OF THE ART INTERNATIONALLY FOCUSED OPERATION’ COMPANY PRESENTATION
Umoe BioEnergy is an integrated bioethanol company Sustainable value chain – no conflicts, land control, target 100% mechanized agri-operations Competitive business model – low cost, energy and land efficient sugar cane ethanol Unique production environment in Sao Paulo, Brazil – well established industry Production start-up fall 2008 and full production in 2009 – reaching 2.9M tons/annum ~1700 employees Bioethanol + power LAND AGRICULTURAL OPERATIONS INDUSTRIAL OPERATIONS SALES COMPANY PRESENTATION 19
History COMPANY PRESENTATION
Value chain integrated bioethanol company LAND AGRICULTURAL INDUSTRIAL SALES 12 - 18 months 0 - 9 months OWN LEASE THIRD PARTY FORMING PLANTING CARING HARVESTING • ETHANOL PRODUCTION • - RECEPTION • - CRUSHING • FERMENTATION • DISTILLATION • COGENERATION / POWER MARKETING DISTRIBUTION • Secure high-yield areas is a key success factor for bioethanol companies • Reputation and CSR are transaction agents • Land survey • Approx 70% of the value chain costs are related to the agricultural part • Bio-engineering technology • Requires high expertise in the industry • Sophisticated logistic management Key success factors: • Proven technology • Operational excellence • Equipment sourcing • Bioethanol sold through gasoline distributors: • Petrobras • Shell • Exxon • Texaco++ COMPANY PRESENTATION 21
Umoe BioEnergy is a industry frontrunner • SUGAR CANE ETHANOL IS A FRONTRUNNER WITHIN THE BIOETHANOL MARKET • Energy and cost efficient sugar cane ethanol • Highly competent bioethanol industry in Brazil • Brazilian business and industry environment continually improving • Already well established domestic bioethanol market in Brazil • Export potential growing UMOE BIOENERGY A FRONTRUNNER WITHIN THE SUGAR CANE ETHANOL INDUSTRY • Land positions secured in Brazil • High agricultural competence • +95% mechanized agri-operations • Significant HR and HSE focus • High project execution competence • No direct conflicts with food, rainforests, water, biodiversity • Active and long term industrial owner LAND AGRICULTURAL INDUSTRIAL SALES COMPANY PRESENTATION
EXPANSION IN PHASES Growth Organic growth in region PHASE 4 Growth through acquisitions PHASE 3 Production expansion + Cogeneration PHASE 2 Create foundation PHASE 1 2007 2008 2009 2010 2011 2012 2013 Company growth vision • Become a major, long term and sustainable producer of bio-ethanol • Create an international business operation based on best practice governance principles • Become a preferred supplier of bio-ethanol to international oil companies and other buyers • By 2013 sustainably control • 1,000M liters/year bioethanol production • 12.0Mtons per annum sugarcane crushing capacity • 150.000 ha land • 1,000 MW electric power production capacity COMPANY PRESENTATION
Regional focus within the Sao Paulo state • Operational assets in Paranapanema region • Brazilian head office in city of Ribeirao Preto • Agricultural assets • Securing of total 36.000 ha (89.000 acres) • 28.000 ha pt secured (21.800 leased / 1.400 owned/ 4.800 3rd party) • Consolidated industrial capacity: • Crushing capacity 2.9Mtons (3.6Mtons in 2010) • Output volume 240.000 m3 hydrous ethanol (295.000 m3 in 2010) • Production Works 1 - Remodeled distillery • Municipality: Narandiba • Crushing capacity: 1.0Mtons • Production start Sep’08 / 100% complete • Production works 2 - Greenfield mill constructed (EPC) • Municipality : Sandovalina • Crushing capacity : 1.9Mtons (2.6Mtons in 2010) • Ramp-up Nov’08 / 99% complete SAO PAULO WORKS 1 - NARANDIBA WORKS 2 - SANDOVALINA COMPANY PRESENTATION
Sao Paulo COMPANY PRESENTATION
Agricultural operations • Key strategic part of the value chain • 70% of the company’s ’strategic value’ • 100% mechanized operations • Vs. 30% average in Brazilian agriculture • Vs. 60% average in Sao Paulo • No cane burning • Operational exellence emphazise • Agri-technical experienced management • Highly competent workforce • Educational programmes • Minimum salary protection • Feedstock flexibility with crop alternatives • High competency and complex industry • High level of R&D in agri-industry COMPANY PRESENTATION
Industrial operations PRODUCTION WORKS 1 • Remodeled distillery • Municipality: Narandiba • Crushing capacity: • 1.0Mtons in 2008 • Started production Sep’08 • 100% complete PRODUCTION WORKS 2 • Greenfield mill constructed (EPC) • Municipality : Sandovalina • Crushing capacity • 1.9Mtons in 2009 • 2.6Mtons in 2010) • Ramp-up Nov.’08 • 100% complete COMPANY PRESENTATION
Current manning COMPANY PRESENTATION 31
Paranapanema project – Phase 1 and 2 EXPANSION IN PHASES Growth Production expansion + Cogeneration PHASE 2 INDUSTRIAL ASSETS 0.7M tons/annum 284,000 Mwh AGRICULTURAL ASSETS 10,000 ha land SUBJECT TO FINANCING Create foundation PHASE 1 AGRICULTURAL ASSETS 36,000 ha land INDUSTRIAL ASSETS 2.9M tons/annum CONSTRUCTION TO BE COMPLETED IN 2008 2007 2008 2009 2010 COMPANY PRESENTATION 32
CONSTRUCTION TO BE COMPLETED IN 2008 PROJECT LOCATION Sao Paulo, Brazil AGRICULTURAL ASSETS 36,000 ha land INDUSTRIAL ASSETS 2.9M tons/annum PARANAPANEMA REGION Works 1 and 2 are approx. 30 km apart LAND 28,000 ha presently secured : - 21,800 leased - 1,400 owned - 4,800 third party) 36,000 ha totally to be secured to support 2.9M tons/year crushing capasity • PRODUCTION WORKS 1 • - Remodeled distillery • 1.0M tons/annum crushing capacity • 100% compl. Prod.started sept’08 • Municipality of Narandiba • PRODUCTION WORKS 2 • Greenfield mill constructed (EPC) • 1.9M tons/annum crushing capacity • 100% completed; ramp up Nov’08. • Municipality of Sandovalina • PRODUCTION EQUIPMENT • CLT equipment: • Cutting • Loading • Transport • CONSOLIDATED CAPACITY • 2.9M tons / annum crushing capacity • 240.000 m3 hydrous ethanol PRODUCTIVITY Average farm productivity: 97 tons/ha (07/08 harvest) PRODUCTIVITY Average industrial productivity 2008/09: 85 l. ethanol / ton sugar cane Phase 1 - ongoing project COMPANY PRESENTATION
Phase 2 - investment plan project SUBJECT TO FINANCING PROJECT LOCATION Sao Paulo, Brazil AGRICULTURAL ASSETS 10,000 ha land INDUSTRIAL ASSETS 0.7M tons/annum 284,000 Mwh PARANAPANEMA REGION Works 2 and cogeneration LAND Need to secure 10.000 ha additional land to support additional 0.7M tons crushing capacity and totally 3.6M tons crushing capacity EXPANSION WORKS 2 Capacity expansion of Production Works 2 with 0.7M tons crushing capacity to 3,6 million tons COGENERATION PLANT Cogeneration plant with excess output capacity up to 284,000 Mwh • PRODUCTION EQUIPMENT • CLT equipment: • Cutting • Loading • Transport CONSOLIDATED CAPACITY 3.6M tons / annum crushing capacity 298.000 m3 hydrous ethanol 284,000 Mwh production capacity COMPANY PRESENTATION 34
Experiences Project specific: • Poor initial project planning • Project execution challenges and delays • Lack of financial control and planning • Lack of adherence to required licences and permits • Poor quality control
Experiences General framework and conditions: • Generally well regulated • Strengthened regulations and permits (environment and social responsibility focus) • Rules not always well enforced and policed – lead to unbalanced conditions and requirements across country • Bureaucracy is a huge time and effort cost to industries • Unpredictable tax regime • Sugar industry cleaning up still required to secure 100% stamp of sustainability • Easy to differentiate ourself from the average industry
Shareholders COMPANY PRESENTATION
The Umoe Group • Norwegian investment company and one of Norway’s largest private companies • An active long-term owner and investor • develop new companies through acquisition, restructuring and organic growth • counter-cyclically investments and willingly accept the risks associated • see management as co-owners in the companies in which they invest • Investments include • marine transportation • maritime equipment industries • Shipyards • oil & gas services • catering services • IT/telecom • Founded in 1984, by sole owner and president and CEO Jens Ulltveit-Moe • www.umoe.no COMPANY PRESENTATION 38