Royal Dutch Shell, Europe's largest oil company, has signed a $12 billion joint venture agreement with Cosan SA, Brazil's biggest ethanol manufacturer, to produce and distribute ethanol from sugar cane, the two companies announced Wednesday.
The binding agreement represents the largest investment by a major oil company in Brazil's ethanol industry. The deal, first unveiled in February, still requires regulatory approval.
Cosan will contribute its existing capacity to crush 60 million tons of sugar a year at its 23 mills, producing 2 billion liters (528 million gallons) of ethanol, said a joint statement.
Shell's contribution will be $1.6 billion in cash, its equity in Iogen Energy and Codexis, two biofuel research companies, and its Brazilian aviation fuel business, including one recently acquired from Cosan.
Both would put their Brazilian retail sites into the distribution network — a total of nearly 4,500 outlets. They also will explore a worldwide expansion of production and sales.
Shell, based in The Hague, announced last year it was dropping all research and investment in solar and wind energy, deciding to focus on biofuels that most closely fit its existing network. Although it is a large player in biofuel research, its investments are a tiny fraction of its oil business, which produced nearly $4.4 billion in net profit in the second quarter of 2010 alone.
Cosan already sells fuel through Esso and lubricants under the Mobil brand. But a tie-up with Shell gives it a partnership with a global oil major with operations in more than 100 countries and some 45,000 service stations.