DOW JONES NEWSWIRES: BRAZIL ETHANOL CAN REPLACE 10% WORLD GASOLINE IN 20 YRS

My comments on the piece below:

The large sums described in the article below will probably arrive in the form of either direct foreign investments, such as those made by Cargill and A.D.M. in 2006, or via hedge funds, like Infinity BioEnergy and Clean Energy Brazil.

These investments may soon make their way toward the development of ethanol-related projects in Brazil and other tropical countries. Investors should, however, be able to navigate the choppy waters of Brazilian business, which, though bearing a resemblance to its American and European counterparts, is different in many regards.

If any disputes arise, for instance, foreigners will discover that recourse to the law exists and generally works, but may take a maddeningly long time. Solving this and other medium-term institutional roadblocks, then, is of paramount importance to Brazil if it wishes to attract large foreign investments (which may have to come anyway, for lack of energy alternatives).

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By Grace Fan, Dow Jones Newswires
5511 3145 1489; brazil@dowjones.com

SAO PAULO (Dow Jones)--If the right investments are made, Brazil could replace 10% of the world's gasoline with its bio-friendly cane-based ethanol in 20 years' time, according to a study conducted by a university in Sao Paulo at the request of the country's Ministry of Science and Technology.

However, "what will be necessary is the investment of BRL20 billion ($9.5 billion) per year until then to do so," Luis Augusto Barbosa Cortez, the vice-coordinator of the study at the State University of Campinas, or Unicamp, said Monday in a phone interview with Dow Jones Newswires.

The study has been conducted over the past two years at University of Campinas with participation by Transpetro, the distribution branch of Brazil's state-owned oil firm, Petroleo Brasileiro SA (PBR).

About 20% of the BRL20 billion per year will be needed to invest in ethanol infrastructure, such as warehouses, ethanol-dedicated pipes and improvements in ports, he said.

The rest will be needed to construct new mills as well as to purchase industrial and agricultural equipment, Cortez said. The amount doesn't include the investments needed to ramp up agricultural production, however.

If such investments occur, Brazil could be able to boost its ethanol exports to 200 billion liters by 2025 from roughly 3.4 billion liters in 2006, the study said. However, the country's planted area for sugarcane - currently at 5.4 million hectares for sugar and ethanol output - will need to expand to a hefty 30 million hectares.

These studies don't account for the possibility of converting excess sugarcane mass, or bagasse, into ethanol via new cellulosic technologies - a technological breakthrough expected in coming years that may allow Brazil's planted area to grow at a less-rapid rate, said Cortez.

However, Brazil currently has some 200 million hectares of degraded pastures, where agricultural crops can be planted without knocking down a single Amazon tree.

The majority of the BRL20 billion in investments would have to come from private companies and investors, with the rest coming from Brazil's state-owned development bank, BNDES. Brazil is the world's No. 1 sugar producer and exporter. It is also the world's No. 2 ethanol producer after the U.S., but No. 1 ethanol exporter.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.