Brazil Is World's Ethanol Superpower

Seven Out Of Every 10 New Brazilian Cars Uses Alternate Fuel

(AP) 

"Since the government does not dictate what happens in the marketplace, the process will be much slower than what Brazil experienced," said Amani Elobeid, an economist and international sugar analyst at Iowa State University.

A small but growing percentage of American-made vehicles are manufactured to run on the U.S. version of ethanol called E85, which is 85 percent alcohol distilled from corn and 15 percent gasoline. But many American drivers don't even know their vehicles can run on E85, and the fuel is available at only 610 American filling stations.

Brazil's state-imposed pump price for gasoline includes much higher taxes than the price U.S. consumers pay. Gas in Brazil now costs the equivalent of $4.69 per gallon. Pure ethanol — taxed at slightly lower levels and cheaper to produce — goes for about $3.59 per gallon at all of the nation's 30,000 stations. It fueled 48 percent of Brazil's passenger vehicles last year.

Meanwhile, Brazil is trying to encourage ethanol use in countries from Asia to Europe.

President Luiz Inacio Lula da Silva said in Britain this week that Brazil wants "to plant the oil of the future" and promote radical changes in how world generates energy.

Brazilian ethanol makers intent on boosting exports have been beaming ever since Mr. Bush used his January State of the Union address to plug ethanol.

"We felt that in our share price," said a smiling Paulo Diniz, chief financial officer of Grupo Cosan, Brazil's largest ethanol producer and the world's second largest after the U.S.-based Archer Daniels Midland Co.

A few years ago, Cosan was lucky to host a tour every four or five months for big foreign investors. Now the firm gets visits every two weeks, including a VIP tour in February for Google Inc. billionaires Larry Page and Sergey Brin.

Cosan is considering an initial public offering on Wall Street within the next year and a half, Diniz said. Other foreign companies may consider jumping on the bandwagon by buying Brazilian ethanol firms.

"Phones have been ringing all over the world after Mr. Bush spoke," said Cristoph Berg, an ethanol analyst with Germany's F.O. Licht, a commodities research firm. Investors "are waking up to the notion that ethanol really seems to have entered the mainstream."

Brazil's ethanol experience hasn't been so rosy for consumers in recent months. Prices surged during the annual November-March production lull while the cane grew. Ethanol remains cheaper than gas, but flex-fuel car drivers can get better fuel efficiency with gas when the price difference between the two narrows significantly.

In Sao Tome, the cooperative that owns the ethanol distillery is betting on its best profits since it bought the operation in 1993. Cocamar's production cost is $1.10 per gallon, and wholesalers are buying the fuel for $2.68— up from $1.44 last year.

About the only thing that could hurt Brazil's ethanol industry now would be an almost unimaginable plunge in international crude oil prices, currently trading above $60 per barrel, said Almir Hawthorne, the distillery's industrial manager.

"Oil could drop to $35 or $40 per barrel, and ethanol producers would still make money."