Shell Oil Bets $2 Billion on ... Sugar?

sugarcane

Add Shell to the growing list of oil companies investing in alternative fuels. The oil company announced this week that it finalized a massive deal with Cosan SA Industria & Comercio, the world's biggest sugarcane producer, for a biofuel venture in Brazil.

Shell is expected to contribute $1.95 billion, along with 2,740 service stations. Cosan will throw in 23 sugar mills, power plants that produce energy from sugarcane waste, and 1,730 service stations. When all assets involved are taken into account, the venture is worth approximately $12 billion.

It's a fairly safe bet—Brazil's ethanol fuel program is 30 years old, and sugarcane ethanol represented 17.6% of the country's total energy consumption in the transport sector in 2008. Brazilian sugarcane also has a high EROEI (the energy returned on energy invested); for every unit of fossil fuel input, eight units of sugarcane ethanol energy are outputted.

The multi-billion dollar venture brings Shell into the big leagues of biofuel-producing oil companies. Last year fellow oil giant Exxon invested $600 million in algae biofuel technology from Synthetic Genomics. BP bought Verenium's biofuel business earlier this summer for $98 million. Chevron also recently partnered with Weyerhaeuser Company for a joint venture, dubbed Catchlight Energy, which will produce biofuels made from forest-based biomass. The remaining Big Oil companies, including ConocoPhillips ($22 million for biofuel research) and Total (undisclosed investments in biofuel startups Amyris and Coskata), have made relatively minor biofuel investments.

But Shell's biofuel gamble may be the biggest thus far. If it succeeds, other oil giants may yet creep out of the woodwork with multi-billion-dollar deals.

Ariel Schwartz can be reached on Twitter or by email.

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