Car owners in this giant city of 11 million people are giving the oil
companies fits. Ethanol outsells gasoline here by a large margin. This year, it
became the most popular fuel throughout Brazil.
Petróleos Brasileiro SA, or Petróbras, is trying to hold on to its customers.
The Brazilian national oil company has held gasoline price increases to just 10
percent in the last three years. Other gasoline retailers, from ExxonMobil to
Shell, have held back as well.
"Competition from ethanol is stiff," said Almir Guilhereme Barbassa, Petróbras'
chief financial officer. "In the long run, we have to consider ethanol is going
to be more and more competitive, so we have to be prepared to sell our gasoline
to international markets."
Even with the competition, fuel isn't cheap in São Paulo. Taxes are high. After
converting from Brazilian reais to dollars and liters to gallons, regular
gasoline goes for about $5.08 a gallon.
Ethanol sells for about $2.65 a gallon.
Ethanol is alcohol distilled from plants. U.S. ethanol is made from corn. In
Brazil, sugar cane is the crop of choice.
Alcohol as a fuel is only about two-thirds as efficient as gasoline, which
reduces its price advantage in São Paulo to 74 cents a gallon less than
gasoline.
Because of the falling value of the U.S. dollar, Petróbras hasn't had to eat a
lot of the price increases for oil that shot gasoline up in Dallas by more than
50 percent in the last three years.
After sifting all the variables of currency, fuel efficiency and unit
conversions, motorists here recognize that ethanol is the better bargain. That's
without even considering the geopolitical consequences of relying on oil.
It's fashionable to trash ethanol these days. Corn prices have skyrocketed as
ethanol makers consume a growing share of the U.S. corn crop. That is
contributing to higher food prices around the world. A U.N. official has called
biofuels a "crime against humanity."
Time magazine, linking higher food prices to more tree clearing for soybean
farms, last week blamed ethanol for the destruction of Brazil's Amazon rain
forest. The article argued that it makes less sense to produce ethanol than to
drill for oil.
While that logic undoubtedly pleases the oil industry, it's not embraced by
Petróbras. The company is investing in pipelines to take ethanol to the
Brazilian seacoast for exports. It's created a biofuels subsidiary that's
investing in ethanol projects and biodiesel plants.
These biofuel investments amount to $1.5 billion – real money, but small change
compared to the $112.5 billion Petróbras plans to spend on oil projects over the
next five years.
But these renewable energy investments could help Petróbras offset some carbon
emissions from its refineries and petrochemical plants.
"We think we may get some carbon credits for that," said José Gabrielli, the
company's president.
Brazilian sugar cane crushed and distilled into ethanol occupies a little more
than 1 percent of the country's arable land. And it's grown "3,000 kilometers
from the Amazon," Mr. Gabrielli said.
As with competitors everywhere, ethanol producers are wary of Petróbras. The oil
companies were forced by the Brazilian government to install ethanol tanks and
pumps at all gas stations in the country during the 1970s.
While Petróbras is building ethanol pipelines, the sugar companies are looking
to build their own to have an alternative if the oil company ever applies the
screws.
The 350 members of the Brazilian Sugar Cane Industry Association are pulling in
$20 billion a year now. Some are thinking of opening their own retail fuel
stations.
"We're more than a flea on their back now," said Jose Velasco, the association's
chief Washington representative.
That's a level of competition that doesn't yet exist in the United States.
At the moment, corn-based ethanol loses the price/efficiency test.
And while stations that sell E85 (an 85 percent ethanol/gasoline mix) are
spreading, there's a long way to go before U.S. gasoline refiners feel enough
heat from alternate fuels to hold back on price hikes.