Recent Developments in Ethanol and Alternative Energy in Brazil

Petrobras’s Involvement in Bio Fuels

Ted HelmsGeneral Manager

PETROBRAS New York Office

Strategic Planning for Strategic Planning for BiofuelsBiofuels

Petrobras MissionPetrobras Mission

Operate in a safe and profitable manner in the oil, gas and energy industry in Brazil and abroad, with social and environmental responsibility, providing products and services that meet client's needs.

Business StrategyBusiness Strategy

Diversify the business portfolio (emphasizing petrochemicals, logistics and commercial operations of new energy products), anchored in the synergy of downstream assets and capabilities;

Develop, coordinate and implement activities related to energy efficiency and renewable energy at Petrobras companies and to final consumers.

Selective entry into renewable energy projects.

Corporate Target for Carbon CreditsCorporate Target for Carbon Credits

Carbon credits generated in renewable energy projects 1,200 million CO2by 2010.

8691004

11321271 1336

1500 1540 1493

1686 1722 1769 1806 1802 1761 1700

2300

2060

0

500

1000

1500

2000

2500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2010

Oil Consumption & Production Forecast in Brazil (TBPD)Oil Consumption & Production Forecast in Brazil (TBPD)

52%52% 91%91% 100100%%Production/

Consumption

Petrobras’ ProductionBrazilian Consumption

114%114%70%70%

(*) Petrobras' estimate considering an average growth of 2.6 % per year

1684

1783

Self-Sufficiency

222 226300 307 323 337226 235 246 253

732 775 874 894

100 95121 132

258 255181 223

457 584

196 201

127 117

0

500

1000

1500

2000

2500

3000

2003 2004 BP 2004-10 BP 2006-10

LPG Gasoline Naphta Diesel + QAVFuel Oil Others Natural Gas

Dynamic market for oil products and natural gas in BrazilThous. boepd 2010

1,986

2,480

1,881

2,644

+3,8% p.y.+4,9% p.y.

Product Consumption in the Domestic MarketProduct Consumption in the Domestic Market

Does not include own refineries consumption

Diesel57.4%

Gasoline (E25)33.9%

NGV2.3%

Hydrous Ethanol6.3%

Fonte: ANP and Gás Brasil (2004)

AnhydrousAnhydrousEthanolEthanol

8.5%8.5%

Ethanol MarketEthanol Market--share:share:

6,3% + 8,5% 6,3% + 8,5% ⇒⇒ 14.8%14.8%

Fuel Consumption by Vehicle in Brazil Fuel Consumption by Vehicle in Brazil

NGV5.5%

Gasoline (E25)79.7%

Hydrous Ethanol14.8%

Fonte: ANP and Gás Brasil (2004)

Consumption by Light Vehicle in Brazil Consumption by Light Vehicle in Brazil

Ethanol MarketEthanol Market--share:share:

14.8% + 19.92% 14.8% + 19.92% ⇒⇒ 34.7%34.7%

ANHIDROUS

ETHANOL

19.92%

40,84%

49,46%

9,70%

Anhydrous, Hydrous and Neutral Sugar Cachaça, Sweet and Animal Feed

Anhydrous and Hydrous Ethanol => 17 Billions liters

Sugar Cane Crop Profile 2005 Sugar Cane Crop Profile 2005

The Beginning: 1925The Beginning: 1925

Fuel Ethanol Program EvolutionFuel Ethanol Program Evolution

Brazilian ExperienceBrazilian ExperienceBrazilian Experience

Program for oil imports reduction Environmental Benefits

70’s 80´S 90´S

EthanolProgram

Implanted(BLENDS)

Gasohol and Ethanol Cars(2nd oil shock)

Program of Emission Controls

(PROCONVE)Gasohol and Flex fuel Cars

00´S

RenewableHydrogen

Future

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

jan/

04 feb

mar apr

may jun jul

aug

sep

oct

nov

dec

jan/

05 feb

mar apr

may jun jul

aug

sep

oct

nov

dec

jan/

06 feb

mar

Light Vehicles Sales

FFV Gasoline Diesel Oil Ethanol

Evolution of Evolution of FlexfuelFlexfuel Productionl Productionl

LIGHT VEHICLES FLEET(thousand units)

9,08810,463

11,399 12,01912,755

13,506 14,075 14,439 14,680 14,431

3,716

3,4713,221

2,9722,712

2,4492,230 1,996 1,820 1,678

499

546597

632686

734764 782 810

843

335 1,108

1,004807626439288

1435718

9

5

44

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Gasoline Ethanol Diesel Oil CNG FFV

FFV since 2003CNG vehicles

Gradual Replacement of Conventional EnginesGradual Replacement of Conventional Engines

Ethanol: Learning CurveEthanol: Learning Curve

Trend (Rotterdam Gasoline Prices)

Prof. Goldemberg, Coelho, Nastari and Lucon - USP

Trend(Anhydrous Ethanol Prices)

More than 400 types of Sugar-Cane

Ethanol ProductionEthanol Production

Brazilian Ethanol Production

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

10.000

11.000

12.000

13.000

14.000

15.000

16.000

17.000

18.00080

/81

81/8

2

82/8

3

83/8

4

84/8

5

85/8

6

86/8

7

87/8

8

88/8

9

89/9

0

90/9

1

91/9

2

92/9

3

93/9

4

94/9

5

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

Crop Year

thou

sand

(m³/t

on)

Anhydrous Hydrous Total

2006/07Estimations

North and Central America

37%

Europe

9.8%

South America

38%

Asia

16.2%

Ethanol global market – 46.5 Billions LitersEthanol global market – 46.5 Billions Liters

Brazil35%

Brazil35%

A New Opportunity for BusinessA New Opportunity for BusinessA New Opportunity for Business

How much the production can be increased to attend the demand with social responsibility?

Facts about Ethanol Market in 2005Facts about Ethanol Market in 2005

Ethanol as a Fuel is 30.6 Billions LitersEthanol as a Fuel is 30.6 Billions Liters

Ethanol as a Fuel is 67% of total ethanol productionEthanol as a Fuel is 67% of total ethanol production

Today the ethanol consumption is 2.6% of gasoline MKTToday the ethanol consumption is 2.6% of gasoline MKT

10% of ethanol in gasoline will represent 118 Billions Lt10% of ethanol in gasoline will represent 118 Billions Lt

608 x 103 KCAL

598 x 103 KCAL

512 x 103 KCAL

1718 x 103 KCAL

1 Ton Sugar Cane

SUGAR 153 KG

BAGASSE(50% UMIDADE)

276 KG

LEAVES (*)(15% HUMIDY)

165 KG

1 Ton-Field1718 x 103 KCAL

1.2 boe

1 boe1,386 x 103 KCAL

~=

Ethanol global market is 46.5 Billions LitersEthanol global market is 46.5 Billions Liters

RAW MATERIALProduction / ha

(kg)Quantity of Ethanol/ha

Energy out/Energy

in

SUGAR CANE 85,000 7.080 liter 8,3

CORN 10,000 4.000 liter 1,3 - 1,8

RawRaw Material Material ComparisonComparison

LandLand use in use in BrazilBrazil

851370180

6197

597,626390

• Total country• Native Amazon Forest• Secondary Amazon Forest and Others • Native Forests• Pasture• Temporary Crops• Permanent Crops• Available land • Available land with low impact (*)

Area (Mha)Type

Source: FAO, 2002 and EMBRAPA (*)

Ethanol Logistic to Export Ethanol Logistic to Export

Marine Terminal Rio de Janeiro

Marine Terminal São Paulo

New Ethanol Pipeline (800 km)

New Water Wayfor Ethanol Ethanol Export

8.0 Million m3 in 2012

HH--Bio: New Technology to Produce BioBio: New Technology to Produce Bio--dieseldiesel

• H-Bio: refining process that utilizes vegetable oils as an input, in order to obtain diesel oil

• Hydrogenation of a blend of diesel and vegetable oils

• Main benefits :

• Doesn’t produce waste requiring special disposal, much simpler logistics than biodiesel’s;

• Complements the biomass usage program in the country’s energy framework

• Allows the use of vegetable oils from a variety of sources;

• Produces a higher quality of diesel oil;

•H-Bio expected to lead to reduction of 10% of diesel imports

BifuelBifuel ProductionProduction

Complementary and not competitive processes

Agribusiness

Farming

Seeds

or or

or

Ethanol

Methanol

Glycerin + Others

Biodiesel

B2 or B5mixture

orDiesel

Distributors

DieselRefinery

Hydrogen Diesel Fractions

Stations

ProcessedOil

Crushing

Transerestification

Biodiesel Biodiesel -- Brazilian seedsBrazilian seeds

Castor oil seed Sunflower Palm CottonSoy

Oil contents

47% 42% 18% 20% 15%

2005 Production in Brazil (m3/yr)

90,000 23,000 5,600,000 151,000 315,000

Oil yield (kg/ha)

705 630 540 4,000 450

Crop yield (kg/ha)

1,500 1,500 3,000 20,000 3,000

Future Markets for biodiesel

2005to

2007(2% allowable)

2008to

2012(2% demanding)

(5% allowable)

From 2012on

(5% demanding)

Brazilian market

0 - 840 million liters

Petrobras market share

0 - 200 million liters

Brazilian market

0,8 - 2,5 billion liters

Petrobras market share

200-600 million liters

Brazilian market

2,5 billion liters

Petrobras market share

600 million liters

Law 11.097/2005 – established minimal percentage for biodiesel mix in diesel

• Petrobras target for 2010: Production of 8,200 bpd of Biodiesel

Business Strategies