Europe Is Buying Up Cheaper Brazilian Ethanol Amid Energy Crisis

Europe is loading up on cheaper Brazilian ethanol, tripling imports in order to cope with the energy crisis triggered by the war in Ukraine.

Prices for natural gas and power are so high in Europe that some ethanol makers have considered shutting down plants. As in other countries, it’s a requirement that ethanol be blended with gasoline in Europe. Luckily, Brazil is stepping in with a more affordable alternative, which could bring down the cost of driving.

Brazilian ethanol shipments to Europe through September were three times higher than the previous year. The buying binge especially took off starting in July after a policy change caused biofuel prices to plunge in Brazil.

Demand is so great that companies are boosting production of alternative types of ethanol to keep up. While the majority of Brazilian production comes from cane juice, it can also be made from the fibers leftover after the cane is crushed. Such ethanol has lower carbon emissions and doesn’t compete with food production. Raizen, a joint venture between Cosan SA and Shell Plc., is building three new plants to increase its output of ethanol made from these residuals by eight times through 2024. Already, 80% of those volumes have been sold through forward contracts.

“There is more demand than we can serve right now,” Raizen’s trading vice president Paulo Neves said.

The exports will likely continue over the next year, said Luiz Gustavo Figueiredo, commercial director at producer Usina Alta Mogiana, with Brazil’s production capacity set to rise amid growing investments in biofuel made from corn.