Shell and Cosan Intend to Form $12B JV in Brazil To Be One of the World’s Largest Ethanol Producers; Shell Would Contribute Interests in Iogen and Codexis
01 February 2010
Shell International Petroleum Company Limited and Cosan S.A. have signed a non-binding memorandum of understanding (MoU), with the intention to form a circa $12 billion joint venture (JV) in Brazil for the production of ethanol, sugar and power, and the supply, distribution and retail of transportation fuels.
Cosan is the third largest sugar producer in the world, the fifth largest ethanol producer, and one of the world’s largest ethanol exporters. The JV is intended to enable Shell and Cosan to establish a scalable and profitable position in sustainable biofuels by building a market-leading position in the most efficient ethanol producing country. With annual production capacity of about 2 billion liters (528 million gallons US) and significant growth aspirations, the JV would be one of the world’s largest ethanol producers.
Under the terms of the MoU, both companies would contribute certain existing Brazilian assets to the JV. In addition, Shell would contribute a total of $1.625 billion in cash, payable over two years.
In addition, the inclusion of Shell’s 50% equity interest in Iogen (earlier post) and 14.7% stake in Codexis (earlier post) would potentially enable the JV to deploy next generation biofuels technologies in the future.
Iogen is a biotechnology firm specializing in cellulosic ethanol. Iogen also develops, manufactures and markets enzymes used to modify and improve the processing of natural fibres within the textile, animal feed, and pulp and paper industries.
Codexis is a leading developer of clean biocatalytic process technologies that can substantially reduce the cost of manufacturing across a broad range of industries. Codexis’ proprietary directed evolution technologies enable novel solutions for efficient, cost-effective and environmentally friendly processes for pharmaceutical, energy and industrial chemical applications.
The deal would also enhance both companies’ growth prospects and market position in the retail and commercial fuels businesses in Brazil. With a network of about 4,500 retail sites and a total annual throughput of about 17 billion liters (4.5 billion gallons US), the JV would have a leading position in the fuels retailing market in Brazil, with strong potential for synergy capture and future growth.
We see joining with Cosan as a way to grow the role of low-carbon, sustainable biofuels in the global transportation fuel mix. The joint venture would also enable Shell to set up a material and profitable bio-fuels business, with the potential to deploy next generation technologies.
—Mark Williams, Royal Dutch Shell’s Downstream Director
The two parties will now maintain exclusive negotiations towards a binding joint venture agreement, which shall be subject to final transactional documentation, due diligence, agreement between the two parties on important sustainability issues, regulatory approvals and respective corporate approvals.
| Contributions to the joint venture | |
|---|---|
| Cosan | Shell |
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This is GREAT NEWS!
Posted by: ejj | 01 February 2010 at 08:31 AM
Agree ejj. But Shell is still just scratching the surface. This actually represents $800M for two years to gain significant participation in Brazil's ethanol business. Not big for Shell.
but it does bode well for more E85 and blends coming onstream which directly affect imported oil numbers. So, we should be pleased to see more sustainable liquid fuel being ramped up.
Maybe we'll see ethanol pumps at the Shell stations about the time they install fast charge pedestals.
Posted by: sulleny | 01 February 2010 at 11:53 AM
Will they be using Iogen bugs for converting bagasse and other plant debris into ethanol?
Or... are they burning the bagasse to fire the boilers and do a little cogeneration of electricity?
Posted by: HealthyBreeze | 01 February 2010 at 01:32 PM