For Petrobras, the JV is a strategic mechanism for further internationalizing its business and entering an important fuel market, thereby opening up other opportunities for fuel distribution in Japan. Japan is looking to ethanol as one of the mechanisms for achieving its Kyoto obligations.

Earlier this year, Japanese Prime Minister Junichiro Koizumi and Brazilian President Luiz Inacio Lula da Silva agreed on the need for more non-governmental cooperation to promote ethanol use. (Earlier post.)

Japanese law allows three percent ethanol in gasoline, which would mean a market for 1.8 billion liters of the alcohol-based fuel each year. Increasing the blend cap to 10%—as is under discussion—would result in a 6 billion liter market.

Petrobras made its first export shipment of ethanol in July 2005, destined for Venezuela. Initial forecasts are for a monthly shipment of some 25,000 cubic meters (some 6.6 million gallons US). The company had announced earlier in the year that it intended to begin participating in the renewable fuels export market. Petrobras will invest US$330 million in the next five years to develop the requisite transport infrastructure. (Earlier post.)

The company controls more than 95% of the crude oil production in Brazil, and produces about 1.8 million barrels per day, the majority of which is used domestically. (Royal Dutch Shell is the only foreign company with oil production in the country, operating a single, relatively small field in the Campos Basin.) Brazil is still a net oil importer. Most of Brazil’s crude oil production is offshore in very deep water and consists of mostly-heavy grades. (EIA)