SAO PAULO, Brazil (AP) -- A U.S. biotech company is teaming up with Brazilian ethanol producers to turn sugarcane into diesel fuel in a joint venture that could churn out 1 billion gallons (3.8 billion liters) a year by 2015, executives announced Wednesday.

 

California-based Amyris Biotechnologies developed the new renewable fuel, which is similar to fossil fuel diesel and would be blended with traditional diesel, said Amyris chief executive John Melo.

 

Trucks toting most of the goods consumed and exported by Latin America's largest nation could be filled with a blend containing 50 to 80 percent of the synthetic diesel, mixed with traditional diesel, Melo said.

 

If successful, the venture would allow Brazil to reduce diesel use and imports. Biodiesel made from oil seeds and animal fat is already a required component of all Brazilian diesel, although only at a blend rate of 2 percent, which is due to increase to 3 percent in July.

 

Amyris is considering starting similar operations in Central America and India, and has completed a feasibility study to turn sugarcane grown in the southeastern United States into fuel that would be blended into jet fuel.

 

''We think of Brazil as the foundation,'' said Melo, who was an executive with British Petroleum before joining Amyris.

 

Brazil used nearly 12 billion gallons (45 billion liters) of diesel last year, and consumption is expected to rise to 21.1 billion gallons (80 billion liters) annually by 2020. Brazilian diesel made from sugarcane will be competitive with traditional diesel as long as oil stays above US$60 per barrel, Melo said.

 

Amyris owns 70 percent of the new Brazilian venture, while the rest is held by Brazil's Crystalsev, which is controlled by Santelisa Vale, the country's second largest producer of ethanol and sugar.

 

Melo and executives for the Brazilian companies involved declined to say how much will be invested to get the project running and producing 1 billion gallons a year. But they predicted production would start with a pilot program next year and reach high gear in 2010.

 

Amyris raised US$90 million in funding last year from venture capital firms Khosla Ventures, Kleiner Perkins Caufield & Byers and TPG Biotech, and a second round of fundraising is under way.

 

Investments required to make diesel in Brazil involve multimillion dollar additions to existing distilleries, where sugarcane is turned into the ethanol that powers eight out of every 10 new Brazilian cars.

 

Brazil is the world's largest ethanol exporter, and the second largest producer after the United States. Its sugarcane is seen as much more efficient than the corn used to make U.S. ethanol.

 

The joint venture, officially called Amyris-Crystalsev Pesquisa e Desenvolvimento de Biocombustiveis Ltda., may seek to eventually export gasoline and jet fuel substitutes, and diesel to the United States, said general manager Roel Collier.

 

While Brazilian ethanol exports are hurt by high tariffs in the U.S. and Europe, Collier said that Amyris believes its products would face no such barriers, because as a finished product, it is scientifically more similar to petroleum.

 

Amyris' fuel is also compatible with motor vehicle motors developed for petroleum-based fuels, Melo said. By contrast, vehicles that run on ethanol need engines specially made to use both the biofuel and gasoline.

 

Amyris was founded by Jay Keasling, a chemical engineering professor at the University of California.

 

The company's first creation was a new malaria drug made by replacing genetic material from E. coli bacteria with genes from wormwood and yeast. Amyris then developed a new breed of bacteria that produces malaria-fighting artemisinin, a chemical now found only in small traces in wormwood plants.