Royal Dutch Shell, Europe's second biggest energy company, is poised to become the biggest oil major in biofuels as it battles to reassure investors about profitability.

The Anglo-Dutch company has signed a memorandum of understanding with the most powerful Brazil bioethanol producer, Cosan, in a joint venture said to be worth bn (£8.19bn).

The move, if finalised, will cement Brazil's position as the world's alternative energy superpower with the potential to ship huge quantities of fuel to the United States and Europe. Shell will now lobby the US administration to reduce its tariffs on biofuel imports in a move that could transform profitability.

The company hopes the aggressive moves into biofuels it has plotted for two years will signal to investors that it has growth potential as it readies itself to announce what is expected to be a 40% drop in quarterly profits on Thursday.

Analysts expect the group to report a quarterly profit of .9bn. This would take its annual profit to .4bn, down on the .4bn it made in 2008. There are suggestions the company will make further job losses on top of the 5,000 already announced.

The joint venture is intended to more than double Cosan's existing bioethanol production, which currently stands at 2bn litres. Cosan is Brazil's leading bioethanol producer in a country where virtually all new cars run on sugar cane.

But there are serious reservations among environmentalists that the growing attraction of biofuels in Brazil could see agricultural land earmarked for food shifted to fuel crops, creating pressure to chop down more rainforests.

Kenneth Richter, who campaigns against biofuels, said: "Massively expanding sugar cane plantations to produce biofuels will significantly threaten Brazil's rainforest. The biofuels industry is pushing agricultural activity on to forested land where trees are cut down to make space for farming. To be truly green energy companies should invest in clean, renewable and safe forms of energy like wind and solar power."

Shell says sugar cane for ethanol uses about 1% of Brazil's arable land (354m hectares). It adds that none of Cosan's farms are anywhere near rainforests. And it cites European Union statistics that suggest that bioethanol from sugar cane produces 71% less carbon dioxide ­emissions than conventional fuel. ­Biofuel, the company believes, will become an increasingly important energy source as the number of cars in the world is ­projected to hit 2bn by 2050. At present, cars and trucks account for 17% of energy-related CO₂ emissions.

Mark Williams, Royal Dutch Shell's downstream director, said: "We see joining Cosan as a way to grow the role of low-carbon sustainable biofuels in the global transportation fuel mix."

http://www.guardian.co.uk

02 February 2010