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Cablegate: Brazil Biofuel Update, August 2006

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DE RUEHBR #1774 2351317
ZNR UUUUU ZZH
P 231317Z AUG 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 6451
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 2729
RUEHSO/AMCONSUL SAO PAULO 7838
RUEHRG/AMCONSUL RECIFE 5329
RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS

UNCLAS BRASILIA 001774

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: SENV TNGD KSCA EAGR BR
SUBJECT: BRAZIL BIOFUEL UPDATE, AUGUST 2006

USD 1 BILLION BIODIESEL BOOST
-----------------------------
1. A consortium headed by the French bank, Societe Generale, has
announced a USD 1 billion outlay in projects to expand the ethanol
market in Brazil. The bank estimates it will invest USD 20 billion
in the ethanol sector over the next five years. Furthermore, it has
declared its intention to increase its 10% share of the consortium's
overall investment in the next couple of years.

SEVEN NEW STATES WILL USE LESS POLUTIVE DIESEL
--------------------------------------------- -
2. By the end of the month, the Brazilian parastatal oil company,
Petrobras, will be selling a less pollutive form of diesel in seven
additional state capitals. The new fuel, which is already sold in
five of the most polluted cities of the country, emits 75% less
sulfur than conventional diesel. The company has invested USD 750
million into the creation of the environmentally friendly fuel that
was first sold in commercial scale in 2005. Petrobras has allocated
an estimated USD 1.7 million through 2010 to reduce the amount of
sulfur in diesel.

EXTENSION OF THE ETHANOL DUCT
-----------------------------
3. In September 2006 Petrobas and the state government of Mato
Grosso (MT) will sign a memorandum of understanding (MOU) to extend
the Sao Paulo - Goias ethanol duct. The pipeline will link
producers in MT with the port of Ilha D'Agua in Sao Paulo. When
finished, the duct will be 1,300 km long and have the capacity to
transport four billion liters of ethanol per year. Petrobas is
still analyzing the cost of the extension. Increasing demand makes
the project all the more viable. There are currently two million
flex cars (cars that can run both on ethanol and gasoline) on the
road in Brazil, and these cars account for 77% of the vehicles sold
this year (2006). Once finished, the pipeline should decrease the
transportation cost of ethanol by sixteen times, according to Igor
Montenegro, president of the ethanol industries syndicate from the
state of Goias.

CARS AND BUSES THAT RUN ON ELECTRICAL POWER
-------------------------------------------
4. Automobile makers are developing cars that can run on electrical
energy. The first prototype should be ready by year-end. Initial
estimates put the cost for the vehicle between USD 20,000 and
25,000, although prices are expected to fall over the next five
years. In the state of Sao Paulo, the bus company Electra already
has 38 hybrid buses (that run on both diesel and electricity) and
expects to increase its fleet to 119 busses over the next few years.
Automakers are also testing the viability of electric-ethanol cars.


BIO-OIL BEING PRODUCED IN BRASILIA
----------------------------------
5. The federal University of Brasilia (UnB) has developed a new
renewable fuel called bio-oil. The fuel is made of vegetable oil.
According to researchers from UnB, bio-oil and conventional diesel
are very similar and engines that run on either fuel have equal
efficiency. Bio-oil, however, does not emit sulfur. One advantage
of the new fuel when compared to the biodiesel is that the former
does not need the addition of ethanol or petroleum. Researchers
involved in the projects believe that bio-oil could be used for
communities that are located in remote areas of the country and have
difficulties acquiring regular diesel.

THREE TIMES MORE GAS
--------------------
6. Brazil could triple its 320 billion cubic meter natural gas
reserves, according to Petrobras' Director Ildo Sauer. Sauer
affirmed, during a speech, that recent discoveries could amount to
an additional 820 billion to 1 trillion cubic meters of gas
reserves. If these numbers are confirmed, Petrobras would have
enough natural gas to supply the country's demand for the next 30
years. Petrobras estimates Brazil's national consumption will reach
121 cubic meters by 2010. Of that Brazil will produce 71 million
cubic meters and Bolivia 30 million , while other countries will
supply and 20 million cubic meters in its liquid form. The company
plans to invest USD 22 billion in gas production by 2011 and its
main goal is to become as independent as possible of Bolivian
natural gas.

SOBEL

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