Brazil's Fuel of the Future biofuel ramp-up mandate may soothe fuel deficit: industry sources

The Brazilian government's new Fuel of the Future program aimed at boosting the use of biofuels could ease the country's fuel deficit, even as increasing overall demand means imports continue to rise, industry sources said.

"There is space for everyone, fossil fuels and renewables. The increase of ethanol in gasoline and biodiesel in diesel can even reduce the refining deficit," fuel importers' consortium Abicom chief Sergio Araujo said Sept. 18.

Brazil's Congress on Sept. 11 passed a bill, known as PL 528/2023, to implement the new program as part of the country's energy transition plan. It sets rules to expand the use of biofuels and establishes regulatory regimes for sustainable aviation fuel, biomethane, biorefining and carbon capture in Latin America's largest economy. The bill is still pending President Luiz Inácio Lula da Silva's final approval before it can become law, and he is expected to sign it soon.

Among other energy transition initiatives, two of the Fuel of the Future program's key initiatives will result in substantial changes to current fuel consumption.

The program will raise the range for anhydrous ethanol blended with gasoline sold at the pump to 22%-35%, up from 18%-27.5%. Brazil currently blends 27.5% anhydrous ethanol with gasoline sold at the pump, but is expected to raise the mandate to 30%. Additionally, it will increase the blend content of biodiesel in diesel to 20% by 2030.

The final passage of the green package represents a legislative victory for Lula as his administration amps up efforts to expand Brazil's use of renewable energy and biofuels, which had trended downward during former President Jair Bolsonaro's four years in power.

In practical terms, the program replaces previous initiatives, such as the RenovaBio program for biofuels, providing incentives for renewable energies and attracting investments to make biofuels competitive when compared with fossil fuels.

Supporters of the legislation within the biofuels industry saw its approval as a bittersweet victory because of the time it took to pass Congress. But it has been met with almost universal acclaim. The bill has also received some praise from refiners, despite its direct call to phase down fossil fuel production.

"Refining is not just the refining itself. It is an entire chain. It is a natural transformation for our sector to migrate to biorefining," said Evaristo Pinheiro, president of Refina Brasil, an association of private refiners that represents more than 20% of the Brazilian refining market.

Evaristo said Brazil is short around 650,000 b/d in refined products output to meet domestic demand.

"If GDP grows by 2% per year until 2035, this need will increase to 1 million b/d. Brazil will still need to invest in refining," Evaristo said Sept. 18.

Meanwhile, the new program is not expected to reduce demand for imported refined products, Abicom chief Araujo said. "Even with the green alternatives, we are discussing, a 50% increase in imported diesel demand is expected by 2032," he added, pointing to research from Brazil's Energy Research Office, or EPE.

S&P Global Commodities at Sea data showed Sept. 13 that 11.08 million barrels of gasoil/diesel were scheduled to be discharged at Brazilian ports in September, the largest volumes in at least a year.

The most recent data from Brazil's National Petroleum Agency, or ANP, pointed to record-high year-to-date diesel and biodiesel sales in the local market. From January to July, sales amounted to 38,571 cu m, up from 36,924 cu m in the same period of 2023 and from 36,045 cu m in 2022.

Brazilian sugar-alcohol trade association UNICA expects the rise in anhydrous-gasoline blending to require extra production of 1.5 billion liters/year, or about 5% of the total current ethanol processing – a target that the sector maintains it has the conditions for ensuring an adequate supply. Most analysts agree that ethanol production in the ongoing 2024-25 season is projected to lag slightly behind last year's record-breaking 35.61 billion liters.