LONDON (Reuters) – Major British independent oil firm Greenergy sees its future as an exploration company, but one that hunts for fuel in piles of stale pork pies and cakes rather than under the ground or from food crops.

The refined oil product wholesaler is still investing in the embattled European Union biodiesel sector, aiming to utilise ever more challenging waste products after abandoning, at least for now, the widely criticised use of virgin vegetable oils.

“We are investing more and more so we can take harder and harder wastes to process. By late spring or early summer next year we will be able to take almost any liquid you can imagine,” Greenergy founder and chairman Andrew Owens said in an interview on Wednesday.

The European Union’s biofuels industry has struggled to attract funds and expand during the eurozone’s economic crisis, hurt not only by a challenging investment climate but also questions about the sector’s environmental credentials.

Biofuels had been seen playing a central role in helping the EU achieve its target of meeting 10 percent of road transport fuel needs from renewable sources by 2020.

Political support has wavered as scientists raised concerns about the environmental impact of diverting food crops to biofuel production.

Greenergy’s biodiesel plant at Immingham in eastern England was built to use vegetable oils but in the last couple of years the company has built units to pre-treat and post-treat production to allow use of waste such as used cooking oil.

The plant now has the capacity to produce nearly 200,000 tonnes of biodiesel from waste products.

EXPLORING PIES

“We get pork pies, crisps, cakes, dairy products that are not suitable for sale anymore because they have got too old or been damaged in the factory and we can extract fats and oils to make biodiesel,” Owens said.

The move to waste was prompted partly high vegetable oil prices, which made it hard to process them into biodiesel profitably, potential extra regulatory benefits from processing waste and a company target to achieving 70 percent greenhouse gas savings across all its biofuels.

“We are focussed on trying to broaden the feedstock base. We are becoming an exploration company but we are not exploring oil fields, we are exploring pies,” he added.

Owens said the EU’s biodiesel sector faced two main challenges, a massive over investment in capacity across Europe and continuous political tinkering and uncertainty.

He said investment decisions had to be made based on “intuition and common sense” in the absence of a clear future framework for the industry.

“The problem with political decisions is that common sense isn’t always one of the biggest drivers towards the decision,” he said.

But Owens said he remained hopeful about the future of the EU’s biodiesel industry.

He said bioethanol, a substitute for gasoline that is generally produced from grains and sugar crops, was now the cheapest way for oil companies to comply with obligations to blend biofuels into motor fuel.

But the EU overall had too much gasoline and not enough diesel.

“The point that people should not forget is that Europe remains short of diesel. This remains an absolutely pivotal issue,” he said.

“Biodiesel fills a strategic hole in the energy balance which bioethanol doesn’t do to the same extent.”

(Reporting by Nigel Hunt; Editing by Anthony Barker).

SOURCE: REUTERS

SAO PAULO (Reuters) – Royal Dutch Shell plans to form an ethanol and fuel distribution joint venture worth up to $12 billion with Brazilian sugar and biofuel giant Cosan, becoming the latest global energy company to buy into one of Brazil’s fastest-growing industries.

The deal, announced on Monday, marks Shell’s first foray into ethanol production and follows moves by British oil company BP, which in 2008 took a stake in a big Brazilian biofuel project and unveiled $1 billion in investments.

Cosan shares jumped 12 percent in Sao Paulo, compared with a 1.1 percent gain by the benchmark Bovespa index. Shell shares rose 1.1 percent in London, outperforming a 0.3 percent rise in the Dow Jones European oil and gas index.

“It’s a vote of confidence from an oil major for the Brazilian ethanol industry,” said Jonathan Kingsman, managing director of the Lausanne-based Kingsman SA ethanol and sugar consultancy. “I expect more interest from the oil companies in Brazilian ethanol, both in production and distribution.”

The 50-50 joint venture will be the third-largest fuel distributor in Latin America’s largest country, with almost 4,500 filling stations nationwide. By joining forces, Cosan and Shell will be better positioned to compete with the two top players in the market, state oil giant Petrobras and Ipiranga, a unit of Brazil’s Grupo Ultra.

Cosan first branched out into the fuel distribution business in 2008 when it acquired U.S.-based Exxon Mobil Corp’s Esso chain of service stations for nearly $1 billion. Cosan also agreed in December to buy a local chain of filling stations called Petrosul for an undisclosed sum.

While the deal will not immediately add to Cosan’s existing cane crushing capacity of about 60 million tonnes a year, it will give it a deep-pocketed partner at a time when some of its smaller rivals are vulnerable to takeovers.

The companies hope to more than double ethanol output to up to 5 billion liters a year from about 2 billion now, Shell’s downstream director, Mark Williams, said in London, without giving a time frame. The increase would come from takeovers and organic growth, he added.

The deal is another feather in the cap of Cosan Chairman Rubens Ometto, whose family has been in the sugar business since 1936. On Ometto’s watch, Cosan went on an acquisition spree and expanded into fuel distribution and port terminals.

Ometto hopes to capitalize on Shell’s global clout to make ethanol a widely traded commodity.

“Brazil’s aim is to become an ethanol exporter. Shell has distribution facilities throughout the world that we could use in a much more integrated way,” Ometto said in Sao Paulo.

“This step will be very important to consolidate ethanol as a clean and renewable fuel … and help it become a global commodity.”

Oil companies and major global investors have been searching for partnerships in Brazil’s promising ethanol sector, which is still largely dominated by family companies with complex ownership structures.

Shell has been looking for opportunities in Brazil’s ethanol industry for years. About 90 percent of all new cars in Brazil are flex-fuel, running on any mix of ethanol and gasoline, making the country a huge market for biofuels.

Other foreign companies have also been delving into Brazil. U.S. agribusiness giant Bunge Ltd struck a deal in December to buy sugar and ethanol producer Moema for $452 million, while French commodities company Louis Dreyfus said in October it would take over the Santelisa Vale mill for an undisclosed sum.

COSAN EYES OVERSEAS MARKETS, TECHNOLOGY

The combined entity will have about 40 billion reais ($21.4 billion) in annual sales, Cosan Chief Financial Officer Marcelo Martins said on a conference call with analysts and investors.

For Cosan, the world’s largest sugar and ethanol producer, teaming up with Shell could give it access to a vast overseas distribution network and new technologies in ethanol production, an area where Shell has been investing. Shell’s network may help Cosan export more ethanol as output grows.

“We’ll have a partner with an absolutely huge international presence in fuels sales,” Martins said.

The so-called second-generation in ethanol production has yet to reach commercial scale, but some companies are betting on the use of cellulosic material such as bagasse or cane stalks and grasses to make biofuels, in part to move away from making fuel from foodstuffs.

Cosan, which recently obtained a court injunction to remove its name from a government black list of companies with workers in slave-like conditions, said it had 180 days to discuss the nonbinding memorandum of understanding exclusively with Shell International Petroleum Co Ltd.

As part of the transaction, Cosan will transfer its sugar, ethanol, fuel distribution and energy generation business to the merged entity, with assets valued at $4.93 billion and debt of $2.52 billion.

Shell will contribute its retail fuel and aviation distribution business, valued at up to $3 billion, and inject $1.63 billion into the merged company in up to two years.

Brazilian investment bank BTG Pactual advised Cosan on the transaction, while JPMorgan Chase advised Shell.

Cosan and Shell will have the option of buying each other’s stake in the venture after 10 years, with the price to be determined at the time of purchase.

Earlier on Monday, Cosan released its quarterly earnings for the three months ended December 31. It posted net income of 167.1 million reais, up sharply from 5.2 million reais a year earlier. ($1=1.87 reais)

Reporting by Elzio Barreto and Inae Riveras; additional reporting by Reese Ewing in Sao Paulo and David Brough, Nigel Hunt and Tom Bergin in London; editing by Todd Benson, Dave Zimmerman and John Wallace.

Source:  Reuters