A new $12 billion joint venture in the offing between Royal Dutch Shell and Cosan is likely to scale up sugarcane ethanol production and distribution in Brazil and beyond, holding the potential to eventually deliver 4 billion to 5 billion barrels of the biofuel to motorists each year.

"Our size, degree of sophistication and stage of development means we need a partner that not only shares our vision, but also has access to international markets to help us deliver our growth potential," says Rubens Ometto Silveira Mello, Cosan's board chair.

 

For years Shell has been pursuing the commercial viability of second-generation biofuels made from the non-food portion of renewable feedstocks. Part of its interest took the form of stakes in the Ottawa, Canada-based cellulosic ethanol company, Iogen and the IPO-bound biocatalyst maker, Codexis, based in Redwood City. Now it will contribute its interests in both companies to the joint venture, allowing it to leverage their respective technologies.

 

The joint venture's pairing matches up Cosan's manufacturing capacity with Shell's distribution network in a way that “generates scale, efficiency and technology”, necessary to move Brazilian ethanol to global markets and overcome trade barriers, says Marcos Jank, president of the Brazilian Sugarcane Industry Association.

 

The fate of laws hindering the import of Brazilian biofuels to the United States as well as factors like the future price of oil, could have a big impact on whether Shell's new biofuels bet will pay off. Either way, the non-binding agreement places Iogen and Codexis much closer to the heart of a venture which will bring their expertise to bear on a project with potentially substantial upsides.