Identify the fuel source to operate the plant
From the year 2000 to 2010, ethanol processing from corn in the United States was a booming industry. Within a decade, a couple of hundred processing plants were built in the US. Limited by the Renewable Fuels Standard, national production has now topped out at 15 billion gallons per year and is not expected to grow beyond that in the near future. The US ethanol industry, while prosperous, has become developed and saturated leading some in the industry to looking at other markets for growth. One of those markets is Brazil.
Brazil has a well-established ethanol market, however, rather than being processed from corn, it is processed from sugarcane. Sugarcane has been raised in Brazil, since when the country was first colonized almost 500 years ago. Ethanol from corn has been marginalized by Brazilians up until recently, as ethanol from sugarcane has more efficient energy output. A change has occurred where, developing areas of grain production, unsuitable for sugarcane, have grown tremendously in the past few years both in the number of acres and in productivity per acre. Due to the poor internal infrastructure and high freight cost, the result has been a major supply glut on the market with cheap corn. It has actually been cheaper for Brazil to import ethanol from the United States than it is to transport the corn across the country. Brazil imported 1 billion gallons of ethanol from the United States in 2013.
The business opportunity now exists where there is a cheap source of fuel in the form of corn, due to poor infrastructure and improved corn production which will not change any time soon. Additionally, there is a mature ethanol consuming market that has no misconceptions about using ethanol in its vehicles as is sometimes the case in the United States.
An opportunity exists for US ethanol industry leaders to develop a corn-based ethanol processing industry in Brazil. We have the capital and the technical know-how in the US, but we must research a great deal of information and develop the necessary contacts to make such an investment.
The three main options that I see are: 1) build our own plant; 2) buy out an existing plant; 3) partner with or do a joint venture with an existing plant.
I see building our own plant as the only viable option at this point because we have to go where the corn is. We must be within a certain distance of the major production areas, and there simply are not enough existing plants yet in existence. Initial research has shown that only two plants in the northern area of Brazil have begun researching with corn-based ethanol but only as a supplement to sugarcane-based ethanol. A third plant is expected to be built in 2015 solely for corn-based ethanol.
Buying out an existing ethanol plant could prove to be too expensive as it is not expected that they have any desire to sell. We have yet to identify the primary locations for the plants, so we are not even sure yet that their location is ideal. We could look to partner with someone, but this is such a new concept, that few to no local partners have any experience with this and so I don’t think they would add as much. We are essentially talking about creating a new industry in a remote part of the country. I think if we do our research, building our own plant where we need it, and being a wholly-owned entity where we can learn at our own pace is our most likely option.
There are several steps to take place for this to happen. We would likely enact feasibility studies by local consultants who have more experience on the ground than we do. We would have to undertake multiple site visits to meet with the few refineries that are beginning to enter this industry. With these site visits, we would also have to identify the right area to locate the plant as well as develop government contacts as we will likely need certain permits and/or licenses. We will also need to identify the fuel source to operate the plant. Initially, this seems like our greatest challenge to overcome since US refineries use natural gas, which is not available in Brazil. We would also look to develop options for financing, but we would be very conservative as I don’t expect this to happen anytime soon, especially for foreign entities. We would also need to develop a distribution network for the sale of our ethanol
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