BP Plc, the second-biggest European oil company, will spend $350 million to double the capacity of its Tropical ethanol project in Brazil as other producers hold off on investments.
The company will develop 35,000 hectares (86,487 acres) of plantations and a new mill capable of crushing 2.5 million tons of sugar cane a year into sugar and ethanol at the site in Edeia, Mario Lindenhayn, chief executive officer of London-based BP’s Brazil biofuel unit, said today in a phone interview.
“BP is in it for the long-run,” Lindenhayn said. “Our decisions are long-term.”
Brazil is the largest producer of ethanol after the U.S., according to the Energy Information Administration. Brazil’s sugar-cane industry has been reluctant to invest in new mills since 2010 because of low margins on ethanol sales, said Salim Morsy, an analyst at Bloomberg New Energy Finance. High sugar prices and a bad harvest caused Brazilian ethanol production to drop about 20 percent last year.
BP announced when it took full ownership of the Tropical project last year that it would expand the facility.
“Here’s a company confirming it’s investing in new capacity and that’s something we haven’t seen in some time,” Morsy said in a phone interview today.
The investment announced today will double the facility’s capacity to 5 million tons by the end of 2014 or early 2015.
BP bought three mills in the states of Goias and Minas Gerais last year, including the Tropical plant, and has since invested 400 million reais ($192 million) in expanding plantations and boosting efficiency at the projects, Lindenhayn said.
Royal Dutch Shell Plc is the largest European oil company by sales.