petrobras and the challenge of biofuels

Petrobras and the Challenge of Biofuels

Juliana Vaz BevilaquaPetrobras Biocombustvel

October 2010

Agenda

HistoricalandrecentdevelopmentofbiofuelsinBrazil

LookingAhead domesticmarketgrowth&exportopportunities

Petrobrasandbiofuels

Corporatestrategy

PetrobrasBiofuel

BiofuelsR&D

Historical and Recent Development of Biofuels in Brazil

Ethanoldedicatedvehiclesparticipationoftotalvehiclessales

>90%

1979 19801973

1stOilChock

1974

BrazilcreatesPROLCOOL

1977

4,5%Blendingofethanoltogasoline

15%Blendingofethanoltogasoline

2ndOilChock1983

1985

Ethanolblendingintogasolinereaches22%

1989

Crudeoilpricesfallandpriceofgasolineequatestothatof

ethanol

1992

Rio92:Signingoftheclimatechange

milestone

90s

Ethanolblendingvariesbetween20% 25%of

gasoline

2003

FlexFuelvehicleslaunching2005

BiodieselNationalProgramlaunching

Jan 2008

2%Blendingofbiodieseltodiesel

Mar 2008

CNPEauthorizes3%blendingofbiodieselto

diesel

May 2008

Ethanolconsumptionisbiggerthan

gasoline

2001

Endofderegulationprocess

Non-Renewable Energy

World 86%Brazil - 55%

Renewable Energy

World 14%Brazil 45%

July11,oilpricesrosetoanewrecordof

$147.27

Aug 2008 Jul 2009

4%Blendingofbiodieseltodiesel

Jan 2010

CNPEanticipates5%blendingmandatefrom2013to2010


PROALCOOL PRINCIPLES AND CHARACTERISTICS

On November 14, 1975 the Alcohol National Program was created with

five stated goals:

Foreign currency savings

Reducing regional income disparities

Growth of domestic income

Expansion of capital goods production


Proalcool Program and flex-fuel vehicles were both responsible for the strong growth observed in the last 30 years

Cane, Sugar and Ethanol Production

0

100

200

300

400

500

600

700

74/75

75/76

76/77

77/78

78/79

79/80

80/81

81/82

82/83

83/84

84/85

85/86

86/87

87/88

88/89

89/90

90/91

91/92

92/93

93/94

94/95

95/96

96/97

97/98

98/99

99/00

00/01

01/02

02/03

03/04

04/05

05/06

06/07

07/08

08/09

09/10

10/11

(*)

Harvest

mill

ion

tons

(Can

e)

0

10

20

30

40

50

60

70

billi

on li

ters

(Eth

anol

)m

illio

n to

ns (S

ugar

)

Cane (million tons) Sugar (million tons) Ethanol (billion liters)

ProalcoolProalcool

FlexFlex--fuel vehicles fuel vehicles launchinglaunching

Source: MAPA


ETHANOL INDUSTRY HAS IMPROVED AND BECOME MORE SUSTAINABLE SINCE IT WAS FIRST ESTABLISHED

Increased productivity (as ATRs and ethanol yields)

Power generation with sugarcane bagasse (1/3 of the plant)

Use of the stillage as a fertilizer

Production of 9.2 units of energy per unit of fossil fuel energy


ETHANOL PLANTS IN BRAZIL

Ethanol PlantsOperational: 434 plants 1

Total: 27 billion liters/year

Sugarcane Industry70,000 Sugarcane growers1.28 million People formally employed1,042 Municipalities directly benefitedSugarcane sector: US$ 28 billion (2%

GDP)Foreign revenue: US$ 9.8 billion (2009)Participation in Brazilian energy matrix:

18% (> Hidroelectricity)Avoided CO2 emissions: > 600 million

tons since 1975

Source: UNICA (1-Position on 07/12/2010; 2-Data of 2008 fromRais (Relao Anual de Informaes Sociais do Ministrio do Trabalho e Emprego); 3- Neves, Marcos Fava et. al, (2009) -Mapeamento da cadeia sucroenergtica)


Ethanol represents no threat to the Amazon Forest


PILLARS OF BRAZILIAN BIODIESEL PROGRAM

SocialSocialEnvironmentalEnvironmental MarketMarket

BiodieselBiodiesel

Technological Base: Agricultural, Industrial and Fuel Use

ENERGYENERGY

Challenge: Implement a sustainable energy project, considering price, quality and ensuring the supply of biodiesel, income generation and social inclusion


MOTIVATIONALPRINCIPLESFORBRAZILIANBIODIESELPROGRAM

Fixingfamiliesinthecountryside

Expansionofsustainableagriculture

Utilizationofsoilunsuitableforfoodcrops

Offeringanenvironmentallyfriendlyfuel

Introductionofanewsustainablerenewablefuel

DiversifyingtheEnergyMatrix

Reductioninimportsofdieselandoil

Employmentcreationandincome

CastorOilPlant

Sunflower Soy AfricanOilPalm

Cotton


BIODIESEL PLANTS IN BRAZIL

Biodiesel plants authorized by ANP

Operational: 63

Commercialization: 42

Total: 4,5 billion liters/year

B5: 2,4 billion liters/year

Plants in the Social Pact (k m/y)

Plants not in the Social Pact (k m/y)

ThroughthePNPB,theGovernmentorganizedtheproductionchain,definedcreditlines,structuredthetechnologicalbaseandeditedtheregulatoryframeworkofthenewfuels


Raw materials used in biodiesel production

BRAZILIAN VEGETABLE OIL PRODUCTION

Soy: large-scale farming, helped make Brazilian Biodiesel Program possible

Castor beans production: helping family farming

Palm oil in the north region: the new frontier

Jatropha, Macauba and Others: small scale or still in development

Source: MAPA

Soy Production

SoyAnimal FatCottonseed

Source: EPE

Oil Crops Production

0

1

2

3

4

5

6

7

8

1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10

mill

ion

tons

Soy Palm Sunflower Cotton Peanuts Kernel Castor Total

Looking AheadLooking Aheaddomestic market growth & export opportunitiesdomestic market growth & export opportunities

Looking Ahead domestic market growth & export opportunities

BIODIESELAccompanying the demand for diesel, the demand for biodiesel is expected to reach 3.5 billion liters in 2017

Biodiesel production

Biodiesel Demand Projection (EPE)

mill

ion

liter

s


BIODIESEL

Brazilian biodiesel market is oversupplied, with 63 authorized plants representing 4,5 million m per year

The production chain of biofuels began a campaign in favor of a gradual increase in the use of biodiesel to 10%, instead of the current 5%.

Projections show records in oil crops production, specially soy

However, there are new investments in other crops, specially palm oil

Soybean Oil Total Biodiesel Soybean Oil Biodiesel

Year


ETHANOL

Mature technology, with significant gains in the past decades

Know-how and experience acquired in over 40 years, mainly in agriculture, which is the main stage of production

Brazil presents exceptional agroclimatic conditions for production and availability of land for expansion

Brazilian sugarcane is what is best for biomass and biofuel production in the world

Positive externalities generated in the production and use of ethanol

Ethanol and bioelectricity with a strong environmental appeal


ETHANOLProduction, consumption and export projections of ethanol reflect great dynamism, especially the growth of domestic demand.

billi

on li

ters

Ethanol Domestic Demand Forecast Production


ETHANOL

Production, consumption and export projections of ethanol reflect great dynamism, especially the growth of domestic demand. Ethanol production projected for 2019/2020 is 62.91 billion liters, more than double the production of 2008/2009, of 27.76 billion liters.

The domestic consumption for 2020 is projected at 47.79 billion liters and the exports at 15.12 billion liters. The Energy Research Company EPE (2008), projects for 2017 that 73.6% of the vehicles sold in Brazil will be of the type flex fuel.

Ethanol(billionliters)Ethanol(billionliters) ProductionProduction

Source: AGE/MAPA

ExportsExportsDomesticDemandDomesticDemand

Growth Rate2009/2010 up to 2019/2020

Production 9.38

Domestic Demand 9.00

Exports 10.70


Logistics for EthanolCompounding the Program of Economic Growth Acceleration (PAC), the project of integrated logistics for ethanol, which is being built by PMCC (Petrobras, Mitsui and Camargo Correa), integrates the Waterway and Petrobras Alcohol and Oil Products Pipeline System. The operator of the system should be Transpetro.

The goal is to increase the flow capacity for 12, 9 billion liters per year, focusing mainly on the export of ethanol produced in the west and northwest of Sao Paulo, Minas Triangle, south of Goias and MatoGrosso do Sul, with investments estimated of US$ 1,5 to 2,0 billion.

The system will allow the participation of new companies, either as a porter, as a partner, or both.


Challenges forEthanol GlobalUse

ProveSustainabilitythroughLifeCicle

Supplyingdiversification

Logisticsdevelopment

Technicalspecifications

Taxbarriers

Carboncostsoffossilfuel


POWER GENERATION

Besides producing a renewable fuel for transportation, the sugarcane industry has showed its great potential to generate bio-electricity.

Source: ANP

There is a enormous potential to be developed

=1 Itaipu


SUGARCANE INDUSTRY: NEW PRODUCTS AND NEW USES

ProductsProducts NewNew UsesUses

New

OthersOthers......

0

Petrobras and Biofuels

CorporateStrategyProfitability IntegratedGrowth

Social and Environmental Responsability

Expand operations in target markets for oil, oil products, petrochemicals, gas and energy, biofuels and distribution, being a world benchmark as an integrated energy company

To grow production and

oil and gas reserves

sustainably, being recognized for excellence in E&P operations

To expand integrated

operations in refining,

commercialization, logistics and

distribution with a focus on the Atlantic

Basin

Expand operations in petrochemicals

in Brazil and South America on

an integrated basis with the PETROBRAS Groups other businesses

Develop and lead the Brazilian natural gas market and operate

on an integrated basis in the gas and

electric energy markets with a focus

on South America

Operate on a global basis in biofuels

commercialization and logistics, leading the

domestic production of biodiesel and

expanding participation in the ethanol segment

Operational, management, technological and human resources excellence

Gas & EnergyE&P Downstream (RTC) Petrochemicals BiofuelsDistribution

Commitmenttosustainabledevelopment

PetrobrasOrganization

Board

E&P

Services & TechnologyExecutive

BoardFinance

Gas & Energy

International

PetrobrasBiofuels S/A

Since July 2008

Downstream

Petrobras Biocombustvel S.A. - STRATEGIC PLAN 2020

To produce biofuels in a safe and profitable way, structuring agricultural supply chains, with social and environmental

sustainability, domestically and overseas, contributing to reduce GHG emissions and promoting the development of the regions

where we operate.

Mission

To be amongst the top five biofuels producers in the world.Vision 2020

PETROBRAS - BUSINESS PLAN 2010-2014

Corporate Strategy for biofuelsOperate in Brazil and abroad in the biofuels segment working in an

integrated manner with Petrobras system, with sustainability.

Total investments in biofuels between 2010-2014US$ 3.5 billions

PETROBRAS - BUSINESS PLAN 2010-2014

The segment of biofuels will receive U$ 3.5 billion, operating in production, logistics and marketing of biofuels and participating in the value chain in Brazil and abroad, working in an integrated manner.

The strategy in the ethanol segment was redirected to the acquisition of shares in order to become a major player in the market, ensuring the field of technology for sustainable production of biofuels.

2.600

886

2010 2014

+193%

Mil

m/a

no

Produo de Etanol Capacidade de Produo de Biodiesel no Brasil

+47%747

507

2010 2014

Mil

m/a

no

1.055

449

2010 2014

Exportao de Etanol

+135%

Mil

m/a

no

Ethanol Production Export of ethanol Production capacity of biodiesel in Brazil

BIODIESEL and ETHANOL PLANTS

10Ethanol units inoperation:

Guarani:7inSPand 1inMoambique

Total(MG)

NovaFronteira(GO)

4 Biodiesel Units in operationQuixad (CE)

Candeias(BA)

MontesClaros(MG)

Marialva (PR)

BIODIESEL PLANTS

Semiarid region of Brazil Candeias (BA), Quixad (CE) and Montes Claros (MG)

2008/09: 150.000 tonnes/year (50.000 tonnes/year each plant) Dec,2009: 300.000 tonnes/year (100.000 tonnes/year each plant) Sept/10: duplication of Candeias: + 100.000 tonnes/year

South region of Brazil Marialva

May,2010: 60.000 tonnes/year (PBIO owns 50% of the plant of120.000 tonnes/year capacity)

New Projects Belm project (Portugal)

2014: 300.000 tonnes/year of palm oil biodiesel Par project

Jul,2013: 120.000 tonnes/year of palm biodiesel

Guamar RN (30% - castor oil)2011: 55.000 tonnes/year

(9,6% of semiarid production)

ProjectBelmProjectPar

Overall processing capacity (2010) ~ 475.000 tonnes/year

GO

SP

SP

TOTALBAMBU

GUARANISOJOS

GUARANITANABI

GUARANIANDRADE

GUARANIVERTENTE

GUARANICRUZALTA

GUARANIMAND

GUARANISEVERNIA

SOMARTINHOBOAVISTA

GUARANISENA

(Mozambique AFRICA)

GO

MG

ETHANOL PLANTS

SANTALUZIAGreenfield project

Overall Crushing Capacity (2010) ~ 20 million tonnes of sugarcaneOverall Ethanol Production (2010) ~ 890.000 m3

PARTNERSHIP: USINA TOTAL

December 22, 2009: Petrobras Biofuels announced its entry into the ethanol segment, by acquiring 40.4% of Usina Total S.A.

Plant capacity: production of 103.000 m3 of ethanol and 9.8 MW of electric power of 9.8 MW.

Petrobras Investment: R$ 150 MM that will be used to expand the unit to 203.000 m3 of ethanol and 38.5 MW of electricity. The other portion will be invested in machinery and equipment to achieve the goal of 100% of mechanized harvesting of sugarcane in 2012.

PARTNERSHIP: TEREOS

A strategic investmentPetrobras Biocombustvel announced in April, 2010 it was forming a strategic partnership with Tereos Internacionalto jointly invest in Guarani and become a leading player in the Brazilian sugarcane industry.

A strategic investment that provides Petrobras Biocombustvel with a significant stake in a market leader;

The capital increase strengthens Guaranis balance-sheet and provides the company with new resources and expertise for its growth.

Total investment of R$2.2 Bn in GuaraniInvestment by Petrobras Biocombustvel of R$1.6 Bn over next 5 years (R$682 MM already invested) with an option to reach a stake of up to 49% in Guarani;

Option for Tereos Internacional to invest up to R$600 MM of new equity in Guarani in the 12 months following Petrobras Biocombustvels initial investment in Guarani.

JV post-merger structure

26.3% to 49.0% 73.7% to 51.0%
http://www.petrobrasbiocombustivel.com.br/default.htmlhttp://www.acucarguarani.com.br/br/

PARTNERSHIP: SO MARTINHO

June, 21 2010: Petrobras announced a strategic partnership with Grupo So Martinho S.A. for the growth of ethanol production in the Midwest region of Brazil, State of Gois.

A new company will be created, called Nova FronteiraBioenergia S.A., which controls the Usina Boa Vista, currently in production, and the greenfield project called SMBJ Agroindustrial S.A., both located in Gois.

Petrobras investment: R$ 420.8 MM to Petrobras Biocombustvel acquire 49% stake in the new company.

The investment will be used to expand production of the new society, especially Usina Boa Vista. With the investments already made and implemented, it will have its milling capacity expanded from the current 2.5 million tonnes of sugarcane to 7 million tonnes in the 2014/15 season.

Sustainability

Sustainability evaluation through Life Cicle

Impactsinbiodiversityandecosystems

Useofnaturalresources

EnergyBalance

Pollutantsemission

Laborconditions/workersafetyandhealth

Impactinfoodproduction

Socialeconomicimpacts

Biofuel R&D

Biofuel R&D Investments 2010 2014

US$ 430 millionProjects developed by CENPES in partnership withUniversities, Research Institutes, Companies

MainMain ProjectsProjectsEthanolEthanol from bagasse Proprietary process

- KL Energy Partnership BiodieselProprietary Process - demonstration plants (different routes and raw materials)

Optimization of biodiesel industrial unitsAnalytical developments

Biofuel R&D

MainMain ProjectsProjects (cont.)(cont.)Raw materialsAgricultural development (castor, jatropha, sunflower, palm, macauba)Oil extraction MicroalgasNew Biofuels

H100

Thermochemical route - Biomass to Liquid (BTL)Bio Jet Fuel Joint Development Agreement with BioEconNew partnerships to development of new routes SustainabilityMonitoring and application of sustainability criterias
Agenda0

petrobras and the challenge of biofuels

Documents