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Brazil ramps up investment to improve biodiesel industry

Brazil, already a world leader in biofuel usage through its 25-year-old ethanol fuel program, has recently invested an additional $7 billion in the development of the technology. Including commitments already signed into law, the investment could reach $17 billion by 2012.

Part of Brazil's objective is to bring the biodiesel industry up to the level of the ethanol industry, the most elaborate and efficient in the world, first developed in the 1970s.

The investments, though increasing in biodiesel research and production, are still mainly focused on building capacity for sugarcane ethanol. About 70 percent of recent investments and investment plans are to go to the ethanol industry. The remaining 30 percent is to be spent in biodiesel production.

There are already 10 fully working biodiesel plants in Brazil. Another 42 are under construction and should be operating in no more than 12 months. Each of these plants costs about $40 million and about $1.7 billion has already been spent on construction.

Brazil's huge soybean production is the main feed stock for biodiesel production. Nonetheless, there are promising studies for the use of the mamona (a kind of nut originally from Brazil) and the Brazilian pine tree pine nut as alternative sources of oil.

Brazilian authorities have asked fuel distributors to begin offering diesel fuel with a 2 percent biodiesel to regular fuel blend to 2008. This will become law from 2008 until 2012, when the rate will increase to 5 percent.

Today, biodiesel use in Brazil is about 26.4 million gallons per year. To satisfy the demand for the 2 percent blend, usage would have to increase to about 211 million gallons per year.

The increase in demand will be supplied by new plants. When all are finished, Brazilian biodiesel production is expected to be 400 million gallons per year by 2012. Although it is about 15 times current production, it could fall short due to external demand for biodiesel.

According to a study from the bank Crédit Suisse, by 2010, the global demand for biodiesel should be of about 4.9 billion gallons per year. Today, the worldwide demand is for 1 billion gallons per year. In Europe alone, this demand should mount to 2.6 billion gallons per year. In the United States, demand is expected to reach about 660 million gallons per year by 2010.

As in Brazil, American bets are on ethanol biofuel technology. The idea is to not only supply itself with an alternative to fossil fuels, but to profit with exports.

That's why Brazilian sugarcane producers have invested almost $5 billion in some 50 new ethanol plants currently under construction, not to mention another 27 planned between 2008 and 2012 that could bring the total investment to $14.6 billion.

This ramp up in ethanol capacity has been long awaited by growers. Sugarcane planted area is expected to grow from 14.82 million acres last year to 22.23 million acres in 2006-07. Sugarcane production will climb 60 percent to 685 million tons, despite harsh times for many farmers in Brazil.

Of the 50 plants under construction, 16 are due to begin operations next year, the remaining in 2008. Unica, the Brazilian sugarcane growers association, says that if international sugar prices fall, there may be some delays in plant construction. Nevertheless, they say the plants will be put to work sooner or later. Given market predictions of intense growth, the sooner the better.

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