Shell and Cosan have signed a non-binding memorandum of understanding (MoU) with the intention of forming a $12bn (£7.5bn) joint venture (JV) in Brazil.
The JV is expected to be active in the production of ethanol, sugar and power and in the supply, distribution and retail of transportation fuels.
Under the terms of the MoU, both companies would contribute certain existing assets in Brazil to the JV, including sugar-cane crushing capacity, ethanol production capacity and other downstream assets.
In addition, Shell would contribute a total of $1.625bn in cash, payable over two years.
With an annual production capacity of about two billion litres, the JV would be one of the world’s largest ethanol producers. In addition, the inclusion of Shell’s equity interests in Iogen and Codexis would potentially enable the JV to deploy next-generation biofuel technologies in the future.
The deal would also enhance both companies’ growth prospects and market position in the retail and commercial fuel businesses in Brazil. With a network of about 4,500 retail sites and a total annual throughput of about 17 billion litres, the JV would have a leading position in the fuel retailing market in Brazil.
Mark Williams, Royal Dutch Shell’s downstream director, said that the announcement demonstrates the continued importance of Brazil to Shell.
‘We see joining with Cosan as a way to grow the role of low-carbon, sustainable biofuels in the global transportation fuel mix,’ he added. ‘The JV would also enable Shell to set up a material and profitable biofuels business, with the potential to deploy next-generation technologies.’