Speaking of the Market: BBF expands investments with an eye on biofuels

Aware of the future demand for biofuels, Brasil BioFuels will build a green diesel (HVO) and sustainable aviation fuel (SAF) biorefinery with a capacity of 500,000m³ per year that will operate from 2025.
March 15, 2023
image of industrial plant to produce palm oil from the grupo BBF
Author Argus

Aware of the future demand for biofuels, Brasil BioFuels will build a green diesel (HVO) and sustainable aviation fuel (SAF) biorefinery with a capacity of 500,000m³ per year that will operate from 2025.

The group that operates in the northern region of the country will deliver new thermoelectric power plants this year powered by biodiesel from palm oil and will also start planting cocoa in the shade of palm trees.

Join Alexandre Melo, reporter for Argus Brasil Combustíveis, and Milton Steagall, president of Brasil BioFuels. They talk about the prospects for BBF's energy business and the scenario for the biodiesel market in the country.

AM - Hello and welcome to 'Falando de Mercado', a series of podcasts brought to you weekly by Argus on the main events impacting the commodities and energy sectors in Brazil and around the world. My name is Alexandre Melo and I'm a reporter for Argus Brasil Combustíveis. In today's episode I talk to Milton Steagall, president of Brasil BioFuels, a producer of palm oil, biodiesel, renewable inputs and a generator of thermoelectric energy and biotechnology in the northern region. BBF will expand its operations from 2025 with a biorefinery for green diesel, known as HVO, and sustainable aviation fuel, SAF. Welcome, Milton.

AM - BBF will invest R$2.2 billion to produce HVO and SAF in a plant with a capacity of 500,000m³ per year from 2025. How is Brazil preparing for this new biofuel frontier? So far, we have this one in Manaus and another by Petrobras in Cubatão.

That's right. I think the Brazilian government has taken the lead and made the specifications for these fuels. We have everything we need to take the lead in this market, which is investing heavily, especially in Europe and the United States. In the US, the strategy has been to reformulate old refineries to process vegetable oil and this has proved to be an expensive process, although it is faster because it uses idle or old units. But the efficiency of these assets has yet to be proven. What's new is the global demand for these two fuels and Brazil, as a major producer of vegetable oil, has everything it takes to lead the race for these fuels, which we'll call 4.0.

AM - Where will the resources for this investment come from and how soon do you expect to see a return? It is a long-term project. Together with the R$2.2 billion investment that you mentioned, it is under discussion with a consortium of banks. There is also the agricultural part of the palm, so that we can have the vegetable oil inside our homes. We have observed that in the markets that already produce these biofuels the big question is the price of the raw material. All the companies that work with the hydro processing of oils and fats depend on commodities and even the used cooking oil, which has a premium in Europe and in the USA, is costing more than the virgin vegetable oil. The origination of the input is critical for those who want to advance as a producer of HVO SAF and have the investment. If I build an asset without the raw material I am exposed to the commodity. It's hard to get the investor to invest in the project when you can't justify that 80pc of the cost of the raw material what price this will have bought to the final value of the product priced by the market. The BNDES [National Bank for Economic and Social Development] will lead the consortium of banks.

AM - BBF has 75 thousand hectares of planted palm area. How does the company intend to increase the scale? Agropalma, from Alfa Group, has 39 thousand hectares of its own and is for sale. Could this be a way to increase the group's muscularity?

What is important to note is that Brazil passed legislation in 2010, which is the agro-ecological zoning of oil palm cultivation, which made 31 million degraded hectares in the Amazon rainforest available for oil palm cultivation. Embrapa [the Brazilian Agricultural Research Corporation] classifies these areas as preferential, regular and marginal. It's very important to add area and not just think about what already exists. If we don't want to compete with food, we need to separate things. The project with [fuel distributor] Vibra Energia, in which BBF is committed to developing 100,000 hectares of oil palm, are new areas. Our aim is to recover areas and provide employment for the region's population of 30 million people. In Roraima, it is estimated that between 15,000 and 30,000 miners will have to leave Yanomami land. People are leaving this illegal activity, but it provides a living for their families. Where will they be relocated if there are no jobs available in a region as large as the Amazon? That's why the project is important. Between the palm cultivation we can plant in the degraded areas and December 2007, I will be employing almost 15,000 people. The areas deforested after this period will be integrated into cocoa cultivation, which is native and perennial and cannot be mechanized. Despite the peculiarities of each crop, the treatments are similar. Cocoa needs shade in the first two to three years of its life, so planting it in a consortium with the palm crop, especially on the edges of the quadrants [will be the strategy]. They are two commodities: cocoa is traded on the New York Stock Exchange and palm on the Rotterdam Stock Exchange. Not that BBF isn't on the lookout for possible M&As [mergers and acquisitions]. The purpose of the project is to expand the area planted with oil palm because Brazil is a small player in oil palm plantations and we have the potential to take advantage of it and gain global prominence in this area.

AM - Milton, can you give more details about this cocoa project?

When he acquires an area to plant oil palm, he does the georeferencing and finds the areas that are in line with the present decree. The areas that were deforested, but are outside the zoning cannot be left degraded. If it is within the asset that the company absorbed, it needs to give an environmental response. The way to recover is by planting cocoa. It is a situation that solves not only the environmental problem, but also gives an answer to the labor issue. If with the palm we needed to build a crushing industry to extract the palm oil and we built a thermoelectric plant to burn the bagasse and generate energy for a region that is so lacking in electricity, with cocoa it will be the same thing. We will use part of the steam used in the oil extraction to dry the cocoa. There is a lot of synergy [between the activities] and we can develop the workforce, with people leaving the field to become machine operators and logistics planners, for example.

AM - Will the mandatory blend of biodiesel to diesel increase from the current 10pc in this government? What is the outlook for the industry?

The validity of the arguments for reducing the biodiesel mixture has expired. We should recover the mixture because the country imports expensive diesel oil. The price of soy has fallen considerably: from around R$200 per sack to a little over R$150 per sack. There is a synergy to increase the addition and decrease the importation of diesel oil. The Brazilian industry has the capacity to meet the demand without any hiccups. The capacity of the biodiesel plants is around 50pc. This way, we will increase the production of meal instead of exporting soy in natura, adding value to the product and increasing the inputs for the confinement of animals such as cattle, poultry and pigs. This helps to combat the rise in prices because it puts more product on the market. I believe the government will increase the mix. People talk about 12pc and I hope that by March next year it will be at 15pc.

AM - The company has a biodiesel plant in Rondônia and is building another in Amazonas. When will the unit start operating and what will its capacity be? Will certifications be sought to export biodiesel in the future?

We have a biodiesel plant in the municipality of Ji-Paraná, in Rondônia, where we are finishing a capacity expansion to 200m³ per day. This unit that is being built in Manaus [AM] is an ethanol-based process, a patent that Finep [Financier of Studies and Projects] proposed the study in 2012 and we won that grant and registered two patents. The very entity that will finance the construction for us to produce ethanoic biodiesel, which is 100pc renewable because it uses fat, oil, and ethanol as inputs and all the catalysts are biodegradable. The interesting thing is that in this unit we will install the biochemicals part, [from the business arm] BBF BioTech, which are products we will have for the cosmetics, health care and bioinsecticide areas. Certification is mandatory because we will need it for these products to compete with petrochemicals.

7:00 PM - Let's talk about electric energy, Milton. BBF has 25 thermoelectric plants and is building another 13 that are also powered by palm oil biodiesel. How is BBF's strategy in this business area?

Most of these plants will start operation this year. The biggest one, which is Forte São Joaquim [in Roraima] should start operating by the middle of the year with [installed capacity of] 56 MW and another ten plants in Pará that are in a transition phase, substituting six former Guascor plants and four new ones being built from scratch. By the middle of the year ten biomass power plants will be operating in Pará and two in Amazonas, in Tefé and Atalaia do Norte. These are in the phase of hiring the equipment because we have already obtained the operating licenses.

AM - The water reservoirs are fuller this year. Do you believe that even so thermoelectric generation will be necessary? Will the price of electricity generated with biomass be competitive? Today, the BBF works exclusively in the isolated system, so the hydroelectric cycle does not enter into our equation. But your question is good because we will have a capacity auction at the end of the year that is precisely to deal with what you have said. As we have a lot of wind and photovoltaic installed capacity there is intermittency. The system needs energy in the base to balance this alternation of when wind and solar sources come in at times when the hydroelectric plants cannot fulfill their role due to rainfall below expectations.

We should debut this year a new energy contract model within the BBF that is capacity auctions. There are great opportunities for us to do generation on demand. There are contracts with an obligation to dispatch and those that dispatch when there is a demand from the National System Operator [ONS]. The thermoelectric unit is stopped, which in our case will be crude oil. When the NOS orders, we start the engines and start generating energy. When it determines the shutdown because other sources have entered, we are on standby to provide the basis for the system to remain in balance. Today, the price of gas is very high and the supplier wants the consumer to use this input. As the thermoelectric plants work on demand, many times the plant operator will pay for an input that he will not use. In our case, as we are obliged to use raw materials, we create a flow convergence to use, we replenish the volume and if not used, it is destined to other clients.

AM - I appreciate the news shared exclusively with Argus, Milton. Finally, BBF had revenues of R$1.5 billion in 2022. What is the perspective for growth this year? Do the company's shareholders have plans for an IPO?

I don't know if I've managed to give you the full scope of what BBF does. We talk about palm oil and cocoa. You can imagine the area I have to plant this cocoa. I have no doubt that in two years' time you'll talk to BBF and mention that we're the largest cocoa producer in Brazil and the world. There are so many things that we can't price at BBF. Many banks and financial agents tease us about this, but I believe we have a spectacular outlook, but we will take it one step at a time. We want to deliver these biodiesel plants and the thermoelectric plants. We're going to dive headfirst into this project with Vibra to be the green diesel and SAF producer in Latin America, with a project that will be an example to the world and say: we're recovering the forest, generating employment in a [deprived] region. In the Amazon region, it's difficult to have large projects that make progress in terms of sustainability. I hope we can take these steps. The palm cannot be mechanized and works with few chemical products because it is a tree and different from a short crop like soy and corn. When all this is ready, in three or four years' time, we'll be able to multiply more aggressively and we'll need intensive capital and to think about an IPO so that we don't plant 100,000-150,000 hectares, but 10 million or 20 million hectares that the country has that are still sitting idle waiting for an adequate environmental solution.

AM - And what is the growth perspective for BBF in 2023?

We would come out of this almost R$1.5 billion in 2022, which was actually a little less, R$1.4 billion. We will reach R$2 billion in 2023 and it will be an escalation as all the projects come on stream.

AM - Thank you very much for the conversation, Milton.

This and the other episodes of our podcast in Portuguese are available on the Argus website at www.argusmedia.com/falando traço de traço mercado. Visit the page to keep up to date with what's going on in the global commodities markets and understand how it's unfolding in Brazil and Latin America. We'll be back soon with another edition of Falando de Mercado. See you later!"

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