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BP, Bunge create biofuels joint venture in Brazil

Originally published at Biofuels International

UK energy major BP has agreed to form a 50/50 joint venture (JV) with US agricultural trader Bunge, creating a bioenergy company in Brazil.

The JV, which will be known as BP Bunge Bioenergia, will operate 11 mills across the southeast, north and Midwest regions of Brazil, one of the largest fast-growing markets for biofuels in the world.

The new company will have an annual combined crushing capacity of 32 million metric tonnes and will produce a mix of ethanol and sugar.

It will also generate renewable electricity from waste biomass from sugar cane, which will power all sites, with surplus electricity being sold to the Brazilian power grid.

According to Bunge, the combined business will be ranked as the second largest player in the Brazilian industry by effective crushing capacity.

"This partnership with BP represents a major portfolio optimisation milestone for Bunge which allows us to reduce our current exposure to sugar milling, strengthen our balance sheet and focus on our core businesses,” said Gregory Heckman, CEO of Bunge. “We have a strong, committed partner in BP, as well as flexibility in the medium and long term for further monetisation, with full exit potential via an IPO or other strategic route."

Bunge will receive cash proceeds of $775 million (€690.7 million) in the transaction, which the company will use to reduce outstanding indebtedness under its credit facilities.

"Biofuels have a key role to play in the energy transition and Brazil is leading the way by developing this industry at scale,” added Dev Sanyal, CEO of BP Alternative Energy. “In one step, this agreement will allow BP to significantly grow the size, efficiency and flexibility of our biofuels business in one of the world's major growth markets.

“With our shared commitment to safety and sustainability, the combination of BP and Bunge's assets and expertise will allow us to improve performance, develop options for growth and generate real value. BP Bunge Bioenergia will be well-placed to play a significant part in meeting Brazil's growing demand for both biofuels and biopower."

The JV will be headquartered in Sao Paulo, Brazil, with BP’s Mario Lindenhayn to become executive chairman and Bunge’s Geovane Consul to take on the role of CEO.

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Discussions

Matt Chester's picture
Matt Chester on Jul 24, 2019 6:44 pm GMT

This seems like it could make sense for the Brazilian market-- do biofuels already have a significant presence in the country for energy?

Rafael Herzberg's picture
Rafael Herzberg on Jul 24, 2019 7:29 pm GMT

Hi Matt,

Actually most of the very large agro business companies who are producing in Brazil using soyabean, sugar cane, pulp and paper, etc. do need large amounts of steam. Traditionally they wouyld go for a low pressure steam bolier arrangement and deliver the steam to the plant, after which it is then condensed and returns to the boiler.

The new "animal" - which I suggested to a number of my consulting clients is replacing the low pressure boiler by a high pressure one. This high pressure steam deliveres steam to a back pressure steam turbine associated with an electric genset to produce electric power. The exit steam is then at low pressure - sized to the plant's needs. This arrangement is called "cogeneration".

It is very cost effective because it is only about a marginal cost to produce steam at high pressure and a capex to replace the low pressure boiler, BUT at the end of the day it is a super attractive investment because of the amount of electric power produced.

These companies are able to then become self sufficient in terms of electric power and sometimes are even able to export power through the public grid.

I visited a few huge sugar mills and I saw literally mountais of suggar cane bagasse which nowadays is a great fuel to produce power even is an open cycle mode (not cogen).

Given the seasonability of the crops there are a few important issues to be considered if a firm long term PPA is at stake.

Great opportunities.

Matt Chester's picture
Matt Chester on Jul 24, 2019 9:57 pm GMT

Great to hear an insider's perspective, thanks for sharing!

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