Renewable Feedstocks for Chemicals – A Source of Sustainable Competitive Advantage for Brazil
Feb 15, 2016
Feedstock price, feedstock availability and domestic market size are three main natural competitive factors that make the difference in the selection of location for global chemical investments. Traditional feedstocks, specifically oil and gas, are the most competitive for the production of several petrochemical building blocks and commodities (i.e. methanol, urea and ethylene). However, it is important to remember that petrochemical use of these feedstocks represents only about 6 percent of their global consumption, with heating and fuel applications predominating.
However, renewables are increasingly being viewed as feedstock sources for higher value-added chemical products, not only because they are “green”, but also because they allow for competitive and/or different chemical routes. Additionally, new technologies developed for agriculture, biology, and chemical processes make using these “green” feedstocks more efficient and thus an easier economic choice.
Presently, the Brazilian chemical industry faces some competitive challenges as compared to other regions such as the United States due to the need to rely on imported naphtha and natural gas as feedstocks. Additionally, Brazil is facing an economic and political storm, which is severely impacting its major chemical players and hiding the positive aspects that remain for the chemical industry, despite the storm.
In fact, Brazil has significant comparative advantages in the use of renewable materials as raw materials for many diverse segments such as food additives, cellulose derivatives, cosmetics, aromas and fragrances, solvents, and green fuels. The sources of these advantages are twofold. First is the high national agricultural productivity for feedstocks such as sugarcane, corn, soy and wood used for cellulose. Second is the country’s biodiversity. Additionally, a large and growing domestic market (more than 200 million inhabitants) is also deemed to be a comparative advantage.
Brazil’s advantage in renewables was noted in a recent study sponsored by Banco Nacional de Desenvolvimento Econômicoe Social (BNDES) called the “Potential for Diversification of the Brazilian Chemical Industry” (Brazil is already the 6th largest chemical producer in the world). Completed in 2014, the study pointed out a number of possible chemical end markets for renewables which presented interesting opportunities for investment and value addition. As shown in the table below, markets such as crop protection, food additives, cosmetics and flavors and fragrances present intriguing opportunities for chemical production from renewables.
Table 1 - Competitiveness of the Primary Main Focus Segments
Source: BNDES - Study of the Potential for Diversification of the Brazilian Chemical Industry
While the above market segments are more specialized in nature, Brazil’s advantages in “commodities” present additional opportunities. Among renewable commodity products, ethanol produced in Brazil is one of the most attractive, and can form the nucleus for bio-refineries, the industrial structure that promotes competitiveness.
Brazil is already the largest world producer of ethanol from sugarcane and the expected developments for second generation (2G) cellulosic ethanol, along with new enzymes that are able to ferment C5 and C6 sugars produced from cellulosic, are opening doors for a new world in competitive biotechnology and chemistry. The following graph illustrates the increase in ethanol productivity expected in the near future in Brazil.
Source: BNDES, April, 2015
Three second generation ethanol producers are already operating in Brazil – Abengoa, Raizen, and GranBio – with a total combined production capacity of 205 million liters per year.
Brazil will continue to offer outstanding opportunities in the chemistry of renewables, supported by a relevant domestic market. The Brazilian government is promoting further incentives for investors, with the start-up of an ambitious financial program, through BNDES and Financiadora de Estudos e Projetos (FINEP), called Plano de Desenvolvimento e Inovação da Indústria Química (PADIQ). This plan promotes and supports business plans in selected chemical segments, based on the opportunities already disclosed on the referred BNDES Diversification Study. Renewables are among the main objectives of the first PADIQ public call, issued in November 2015, with an application due-date of April, 2016.
PADIQ will finance, under very competitive conditions, business plans selected with criteria that combine a plan’s “technology intensity” and the applicant’s ability to execute. Supporting instruments from BNDES and FINEP may include research grants, long term credit lines for industrial activities and equity participation in innovative companies, emphasizing R&D and Innovation. In fact, The Brazilian Government is now sharing with investors the natural risk of development in technological vanguard segments.
As a result of long term natural advantages (available land, climate conditions, and wide biodiversity), the presence of traditional sugar and cellulosic industries, and recent programs to support R&D and bio-refineries activities, Brazil is recognized as a highly desirable location for business development in renewables.