BP Buys Bunge’s Sugarcane Business in Brazil

BP Buys Bunge’s Sugarcane Business in Brazil
Photo: Reuters 21.06.2024 424

BP is increasing its focus on Brazil as part of its betting on biofuels as one of the energy transition paths.

On Thursday (20), the British oil company agreed to acquire the 50% stake held by Bunge in the sugar and ethanol company BP Bunge Bioenergia, a joint venture created by the two companies in 2019.

The company also halted the development of two sustainable aviation fuel (SAF) facilities, one in the United States and another in Germany, and will study the continuity of three other renewable fuel projects, two in Europe and one in Australia.

It was a “tough” choice, Nigel Dunn, BP senior vice president of biofuels, told Valor. The decision was based on the economic gain of each business. According to Mr. Dunn, the sugarcane operation has an “extremely appealing” return compared to SAF facilities in the U.S. and Germany.

Incorporating the sugarcane business into BP fits into the oil company’s goal of seeking more than 15% return from its bioenergy operations and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2 billion by 2025. BP Bunge Bioenergia became profitable since the 2020/21 harvest, and in the following two seasons, the two partners received R$495 million in dividends each.

BP should pay Bunge $700 million to $800 million—BP did not disclose the exact amount but the U.S. trading company said it expects to receive some net $800 million upon completion of the operation. In addition to paying for Bunge shares, BP will also take on the part of the debt corresponding to the partner, a $1.4 billion deal. The joint venture currently has $500 million in net debt and $700 million in lease obligations.

With Bunge exiting the business, BP plans to accelerate some investment plans to increase efficiency and diversify operations. According to Mr. Dunn, the plan is to make its global fuel trading capacity available to operations in Brazil within two years.

In the medium term (up to five years), the plan is to invest in eliminating industry bottlenecks and building biogas plants. The current management is already studying these projects and their engineering.

These allocations should receive priority over investments to fill the installed capacity. Of the 32 million tonnes of sugarcane crushing capacity in the company’s 11 mills, the joint venture processed 28.7 million tonnes in the last cycle, or 4% of the crushing in the Center-South region. It expects to crush 29.3 million tonnes in the current cycle (2024/25).

Plans are even more ambitious in the next five years. BP plans for Brazil include investing in SAF production capacity from ethanol—a technology known as ATJ (alcohol-to-jet).

For medium-term projects, Mr. Dunn believes the business will not require external capital. As for a project in ATJ, the executive admits that BP may allocate funds.

“These projects demand hundreds of millions of [dollars] investment. That would require capital injection from BP. However, BP has a strategy to fund [energy] transition and bioenergy. We no longer want to be an international oil company, we want to become an integrated energy company,” 

he said.

According to Mr. Dunn, BP believes it makes more sense to build SAF facilities close to where demand is, citing Europe and the United States, which have policy mandates involving the blend of biokerosene with fossil kerosene for aircraft.

In Brazil, the Fuel of the Future bill, under discussion in Congress, could act as a boost to BP’s plans. “If we have a [policy] mandate here, it will be more attractive. Mandates are an assurance that there will be demand,” he said. Furthermore, Brazil may have the advantage of supplying SAF obtained from ethanol, with a lower carbon footprint than other raw materials, he pointed out. Without a policy mandate, SAF cannot compete with aviation kerosene as it is three times more expensive.

BP’s advancement in Brazil’s sugar and ethanol sector marks not only the exit of large trading companies—Bunge was the last of the four dominant agricultural trading firms, known as the ABCD (ADM, Bunge, Cargill, and Louis-Dreyfus) to divest its assets. It also marks the increase in the participation of oil companies in the area, as they try to avoid being blamed for global warming. Anglo-Dutch Shell has 50% of Raízen, the largest company in the sector, which crushed 84 million tonnes of sugarcane in the last harvest.

Arab fund Mubadala, the owner of the Mataripe refinery in Brazil and with multiple investments in oil in the Middle East, Russia, and Southeast Asia, is now the controlling shareholder of Atvos, the third largest sugarcane processor in the country.

Sources: Valor International, Reuters

agricultural markets  Brazil 

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