BioVerde is in talks to sign its first supply contracts with European fuel distributors, in Italy and Spain, and expects to begin shipments within 90 days, President Ailton Braga Domingues said in a telephone interview.

With biodiesel production capacity in Brazil more than double the domestic demand, Sao Paulo-based BioVerde is eager to gain access to new markets. While high freight costs and a strong local currency have made Brazilian biodiesel uncompetitive abroad, the company says exporting is viable because its plants are near the coast instead of deep in the jungle.

“Our strategy was always different from other companies,” Domingues said. “Freight costs make this kind of strategy impossible for a plant in Mato Grosso and Goais” states, in Brazil’s interior.

BioVerde received export permits from Brazil’s fuel regulator Agencia Nacional do Petroleo, Gas Natural e Biocombustiveis on June 15. Domingues said he expects to deliver to European distributors 10 million liters (2.6 million gallons) a month by the middle of 2012 and 33 million liters a month in four years.

‘Bigger Role’

“Brazil has the agricultural capacity to play a much bigger role than it does now,” Domingues said today in an interview. “We want to become Brazil’s biggest exporter of biodiesel.”

The company has one refinery online in Sao Paulo state, in Taubate, and is spending 150 million reais to retrofit another site, in Sorocaba, to produce 400 million liters of biodiesel a year, he said.

It’s expected to go into operation this year and will overtake Archer Daniels Midland Co.’s plant in Rondonopolis, currently Brazil’s largest with annual production capacity of 344 million liters, according to Bloomberg New Energy Finance.

Brazil has the third-largest biodiesel industry, after the U.S. and Germany, with about 60 refineries that can produce 5.9 billion liters a year, according to ANP.

Brazil’s two biggest biodiesel producers, Granol Industria, Comercio E Exportacao SA and Caramuru Alimentos SA, and at least six other companies have secured export permits. Some of them have concerns about selling the fuel abroad.

Higher Prices

“I’ve been working in this industry since 2005,” Marcelo Freiria, sales manager for Sao Paulo-based Granol, said in a telephone interview. “And not once have I been offered a price,” from a European distributor “that would justify me knocking on my director’s door and asking him to take it further.”

Biodiesel is selling for 2.05 reais ($1.28) a liter in Brazil, compared with about $1.20 a liter in Rotterdam, according to data compiled by Bloomberg. Shipping costs to export the fuel from Brazil to Europe may add an additional 12 cents a liter to the final price tag and fuel retail taxes in some countries may tack on another 26 cents, New Energy Finance analyst Roberto Rodriguez Labastida said.

Part of the reason for the price differential has been Brazil’s currency’s 45 percent gain against the U.S. dollar since 2008.

“Brazilian soybean oil,” the country’s staple feedstock “often sells for cheaper than European biodiesel,” Freiria said. “The business isn’t viable,” even at Granol’s Cachoeira do Sul plant that’s 300 kilometers (186 miles) from Rio Grande port in far southern Brazil, he said.

Not Competitive

Logistical problems and low European prices have meant it’s not been competitive to sell there, according to an official at Caramuru.

Last year, 61 percent of the 2.3 billion liters of biodiesel the EU’s 27 member states imported came from Argentina while almost 26 percent came from Indonesia, according to an e- mail from the EU’s statistics department Eurostat. None was imported from Brazil, according to the statement

With plants near the coast, about an hour’s drive from Santos, Brazil’s biggest port, BioVerde is better positioned than its competitors to reach European markets, Domingues said. Most of the industry is based more than 1,000 kilometers inland in the heart of soybean-producing country, he said.

“Our biodiesel has been tested and approved by European distributors,” he said. “Now it’s a question of negotiating the commercial conditions.”BLOOMBERG.

State-run oil giant Petrobras (PETR4.SA)(PBR.N) and General Electric Co (GE.N), which helped design the plant, are betting that increased use of ethanol generation by green-conscious countries will boost demand for the product.

Brazil, the top global ethanol exporter, is already in talks with Japan to develop biofuels power generation there.

“We have great expectations to show the viability and economy of generating electricity from … an alternative feedstock to fossil fuels,” Maria das Gracas Foster, head of Petrobras’ natural gas division, said.

Petrobras with the help of GE upgraded the 87-megawatt power plant to switch between running on natural gas or ethanol instantaneously. Brazil primarily relies on hydroelectric power but needs backup thermoelectric generation during the dry season.

John Ingham, Latin America Products Director for GE, said tests showed switching the plant to ethanol reduced carbon dioxide emissions without lowering energy output.

GE has around 770 turbines like those used in the Juiz de Fora plant, including many in Japan, that could be converted to run on ethanol, he said.

“A plant like that consumes a lot of ethanol, so it has to be in a place that makes sense (such as) places that have no access to gas, like Japan, some islands, or places that depend heavily on diesel like the Amazon region,” he said.

Brazil is expected to produce a record 27.8 billion liters of ethanol in the 2009/2010 season. It began its biofuels program 30 years ago and now mandates a minimum 20 percent of ethanol in gasoline.

Petrobras itself is only starting to enter the ethanol market. Brazil’s ethanol production comes from sugar cane milled by companies such as Cosan (CZZ.N) or commodities giants including Cargill Inc [CARG.UL], Bunge (BG.N) and ADM Co (ADM.N).

Domestic demand for ethanol is being driven by the popularity of the flex-fuel car technology that was launched in 2003 and now makes up around 90 percent of new vehicle sales. (Writing by Brian Ellsworth; Editing by Marguerita Choy).

By Denise Luna

Source: Reuters