Shell Enters into Multi-Billion Dollar Brazilian Bio-fuel Venture

August 25, 2010

Shell has entered into a multi-billion dollar joint venture with Brazil’s Cosan SA Industrio and Comercio to produce bio-fuels.  Cosan is currently the largest producer of sugar in the world.

Shell is making an investment of nearly $2 billion, along with a contribution of 2,740 gas stations, their jet fuel operations, their 15% investment in Codexis, and the bio-fuel company Iogen Energy.  Cosan is contributing their 23 sugar mill operations as well as 1,700 service stations.

Analysts estimate the total worth of the joint venture to be $12 billion.  There has been commitment from both parties to enter into the business deal since February of this year.

Shell is also entitled through the agreement to buy out Cosan’s 50% investment in the venture in 2020.

Bio-fuels are seen by many proponents as an answer to the huge CO2 generation of fossil fuels, in addition to being a sustainable, renewable energy source.

Although venture capitalists have been investing billions of dollars into the bio-fuel industry for the last six years, there has been little profitability in the industry.  With a consistent drop in oil prices creating cheaper competition, bio-fuel manufacturers such as Range Fuels and Mascoma have had to delay production and diversify into food and ‘green’ chemicals.

For example, algae energy production company Aurora Biofuels is altering their mission statement to a focus on producing oils for Omega-3 fatty acid supplements.

One of the major obstacles to the bio-fuel industry has been unwillingness on the part of major oil companies to commit to bio-fuels.  For example, although ExxonMobil has invested in Synthetic Genomics, involved in producing microorganisms that create alternative fuels, they have not taken the next step to commercialization and extensive production.

One of the potential effects of the Shell-Cosan venture is that, by showing a monetary commitment to bio-fuels, other major companies may seriously enter into the industry.  That is good news for many bio-fuel start-up companies.