A blizzard of crushed husks stings the eyes. A sickly-sweet smell of fermenting alcohol assaults the nose. It's harvest time, and the busy Sao Martinho sugar mill is grinding out energy independence. Next year, Brazil expects to say goodbye to oil imports. Sugar cane is a big reason why.
PRADOPOLIS, Brazil — A blizzard of crushed husks stings the eyes. A sickly-sweet smell of fermenting alcohol assaults the nose. It's harvest time, and the busy Sao Martinho sugar mill is grinding out energy independence.
Next year, Brazil expects to say goodbye to oil imports. Sugar cane is a big reason why.
"Ethanol is an option the government has adopted so we will not be hostages of the oil-producing countries," said Mario Canabarro Abad of Brazil's Ministry of Development, Industry and Foreign Trade.
Government subsidies were crucial to getting biofuels to market. But thanks to the rising price of oil, ethanol (or grain alcohol) distilled from sugar cane is more than $1 a gallon cheaper than gasoline at Brazilian service stations. Motorists will use 5 billion gallons of it this year.
The fast-growing U.S. biofuels industry calls Brazil a model for what could be accomplished if Congress can overcome the resistance of the oil companies.
"Historically there's been a lot of skepticism, a belief that biofuels are uneconomic. But don't tell that to the Brazilians," said C. Boyden Gray, a Washington lawyer who was White House counsel for former President George Bush.
What works for Brazil won't necessarily work in the United States. The Brazilian government has for decades subsidized an ethanol delivery system that put pumps in every gas station. And Brazil has a much easier path to energy independence. It imports 240,000 barrels a day, or just over 10 percent of its oil. U.S. imports are running at 13.7 million barrels a day, or nearly two-thirds of oil demand.
Brazilians say their sugar cane ethanol is made for one-half to two-thirds the cost of U.S. ethanol made from corn.
One reason is Brazil has a better climate for biofuels. After the 18-month, frost-free growing season in Brazil, sugar cane yields high ethanol volumes. Corn and other crops grown between winter freezes in the U.S. don't have the same yields per acre of crop.
Second, Brazilian sugar mills use the cane husks as a boiler fuel, and they send surplus electricity into the national grid.
The ethanol plants popping up all over the U.S. corn belt don't yield as much energy because they are consumers of natural gas, coal and electricity. And U.S. farmers don't have Brazil's cheap land and labor costs.
Mario Gandini, manager of the Sao Martinho sugar mill and distillery, said his cost of producing ethanol is $200 per cubic meter -- which works out to 75 cents a gallon.
"We know no country can beat us in production costs," he said. Sao Martinho The giant Sao Martinho mill crushes 9.7 million metric tons of sugar cane a year, yielding 550,000 tons of sugar and 330 million liters (87.2 million gallons) of ethanol.
Mr. Gandini said it takes six hours to turn a cargo of cane into sugar, and 13 hours to turn it into ethanol.
The mill runs 24 hours a day for 200 days a year.
The mill has a 60 million-gallon tank farm for ethanol storage. São Martinho sells most of its ethanol to Petrobras, the Brazilian national oil company, but it also has export contracts with buyers in Japan, Sweden and Germany.
Pipelines and storage capacity at ports and refineries are the weak links in Brazil's dreams of massive ethanol exports. To fix that, foreign investors are expected to pour $3.6 billion into the business over the next five years.
Brazil's largest foreign ethanol customer is the United States, which bought 90 million gallons last year. Congress gives oil refiners and blenders a tax break of 5.1 cents a gallon for gasoline mixed with ethanol.
But it hasn't been enough of an incentive for Gulf Coast refiners to bring ethanol to Texas, even though the biofuel sells for far less than gasoline. John Felmy, chief economist with the American Petroleum Institute, said prices for ethanol may be lower -- but so is its energy content. A car travels about 30 percent farther on a tank of gasoline than on ethanol. And Texas gasoline suppliers use MTBE, a petroleum-based fuel additive, to achieve the cleaner-burning characteristics that ethanol delivers for Midwestern markets.
"You just can't switch overnight from MTBE to ethanol. You have to have a blending facility, rail cars and other types of transport to get it where you need it," Mr. Felmy said.
Oil embargo's impact
The Brazilian government started pushing ethanol as an alternative to gasoline after the 1973 Arab oil embargo. Sugar mills got big subsidies, and a national distribution system was built around existing gas stations to give motorists a choice at the pump.
At first, ethanol was blended with gasoline. (Brazil's gasoline today is at least 24 percent ethanol.) Next, it was sold as an alternative to gasoline. Brazilian automakers were told that half their new vehicles had to be ethanol-only cars.
A slump in global oil prices in the early 1990s led many sugar mills to curb ethanol production. Angry buyers unable to get biofuel moved back to gasoline.
Today, the nine automakers in Brazil (including General Motors Corp. and Ford Motor Co.) make "flex fuel" cars that can burn gasoline, ethanol or any mixture of the two.
Flex fuel sales are booming, and in April they accounted for nearly half of Brazil's new-car sales as high gasoline prices lure consumers back to ethanol.
(Flex fuel cars sell in U.S. markets as well, though not in significant volumes because of the limited availability of high-ethanol-content gas blends.)
Ethanol sales in Brazil are expected to reach nearly 5 billion gallons this year, which would displace 323,500 barrels a day of gasoline.
"Anyone with a flex-fuel car is going to fill up with ethanol," said William Burnquist, technology manager of Brazil's Sugar Cane Technology Center. "You get lower mileage, but the cost is so much less than gasoline."
U.S. ethanol production is also climbing fast and will consume about 15 percent of the corn harvest this year. But that has had less of an impact on oil imports.
"We're at a transition point," said Reid Detchon, executive director of the Energy Future Coalition. "The development of the ethanol industry in this country has been driven at least as much by agriculture as by concerns about oil. That's been successful in getting us to a little under 4 billion gallons. But if we want to be serious about replacing large amounts of imported oil, we have to be thinking 10 times that amount."
Brazil, the world's biggest sugar producer, is devoting most of its sugar cane to ethanol. Buyers from China and South Korea are taking a closer look.
Exports brought in $150 million last year, but "whenever there's more market, we'll increase production," said Mr. Gandini. "We can triple the area under cultivation."
Said Mr. Burnquist: "The ethanol market is a lot more attractive in the long run than the sugar market."
Jim Landers recently toured Brazil on a German Marshall Fund fellowship aimed at enhancing the understanding of trade issues affecting Europe and the United States.
CORN VS. SUGAR
Not all ethanol is the same. It's made from sugar in Brazil and chiefly from corn in the United States. Here's a snapshot comparison of how the fuels are used:
--U.S.
Ethanol is blended into gasoline at 10 percent concentrations and can be burned in regular gas-fired engines.
A small amount of ethanol is sold in concentrations of 85 percent for "flex fuel" cars that can burn either gasoline or ethanol.
Blenders get a tax break of 5.1 cents for every gallon of gasoline blended with ethanol.
In some markets, consumers get discounts of as much as 10 cents a gallon for gasoline with ethanol. Ethanol isn't blended into gas in Texas.
--BRAZIL
Ethanol is sold as a stand-alone fuel and also gets blended into gasoline at 24 percent concentrations.
Half the new cars sold in Brazil now are "flex fuel" vehicles that can burn either gasoline or ethanol.
Lower production costs mean pump prices for ethanol are more than $1 a gallon less than gasoline.
Source: Dallas Morning News research
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Source: Knight Ridder/Tribune Business News
