Noble Group may invest in ethanol projects in Brazil as biofuels market globalises

The biofuels market is becoming a truly global one as countries move away from relying on petroleum from instable regions and switch to ethanol, biodiesel and biomass. Hong Kong-based Noble Group Ltd., which accounts for 10 percent of all ethanol exports from Brazil, is one of the major players in the market and may start investing in production plants in the South American nation to benefit from this forecast rising global demand.

"We want to position ourselves as a significant player in the global ethanol market", Hong Kong-based Noble's Chief Operating Officer Ricardo Leiman said. "The big opportunity in Brazilian ethanol is not only its domestic market but all these global markets."

Brazil, the world's biggest producer of sugar and ethanol, said last month prices of the fuel rose 20 percent in the past year. Investors including Bill Gates, Richard Branson, George Soros and Vinod Khosla are pouring millions of dollars into biofuel companies on optimism that demand for alternative fuels will gain.

"Demand for ethanol will only be higher with many countries trying to move away from fossil fuels produced in unstable regions," said Roger Groebli, head of equity research at ABN Amro Bank NV in Singapore, who personally holds shares in Noble. "I believe the vision of Noble, and I think in the medium-to-long term this is a very solid strategy to get market share."

Tropical commodities
Noble wants to grab a larger share of trade in materials such as iron ore, sugar, corn and cocoa as economic growth in Asia, led by China, stokes demand for commodities. China's economy expanded 11.3 percent in the second quarter, the fastest rate in more than a decade. Ethanol is made from corn or sugar and is blended with gasoline. Grain-based ethanol and other alternative fuel sources have the potential to supplant U.S. gasoline needs during the next 25 years, venture capitalist Khosla said Sept. 21. His fund, Khosla Ventures, invests in corn-based ethanol plant construction.

Countries in Asia will look to biofuels to improve local farmers' livelihood, reduce pollution and oil imports, said Noble's Leiman. China and India both have started producing and using fuel-grade ethanol on limited scale, while Japan and South Korea may follow suit, he said:

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Noble will have agreements with suppliers in the U.S. to market 1 billion gallons of ethanol a year by 2008 if all planned plants get financing, he said. It's also a market maker for the ethanol contract traded on Chicago Board of Trade.

$1 Trillion
The world needs to spend $1 trillion a year developing alternative fuels, starting 20 years before the peak in conventional oil production, in order to mitigate fuel shortages, a U.S. Energy Department study this month showed. Brazil plans to begin operating 12 new sugar and ethanol mills this year and 17 new mills in 2007, Agriculture Minister Luis Carlos Guedes Pinto said last month.

Demand for biofuels has been aided by surging crude oil prices, which rose to a record $78.40 a barrel on July 14. Still, U.S. average ethanol prices last sank below $2 a gallon for the first time since January as gasoline futures dropped amid abundant supplies of the motor fuel. Sugar prices have fallen by 16 percent this year in New York.

Valuation of ethanol projects in Brazil has ``stabilized'' after the recent fall in ethanol and sugar prices, so ``if we find right projects and right partner, we will most likely do a transaction,'' Leiman said.

Crude Decline
The decline in crude oil prices hasn't dampened Noble's optimism for ethanol, Leiman said. ``We still like ethanol. We are long-term investors so price fluctuation in the short-term doesn't really make too much of a difference to us.''

Seasonal factors including the end of the driving season in the U.S. led to lower gasoline prices, Leiman said.

U.S. ethanol companies are expanding distilleries or building new plants after refiners this year switched to making gasoline for use with the fuel instead of methyl tertiary butyl ether, or MTBE, following changes in fuel rules in last year's energy bill.

Ethanol demand in U.S. will reach 16.6 million tons this year ``independent of oil and gasoline prices,'' Noble's Leiman said.

Global ethanol demand will grow by 51 percent to 54.5 million tons by 2010, in which U.S. will remain the world's biggest consumer at 26.6 million tons a year, Leiman said.

Brazil will continue to be the world's major low-cost ethanol producer and exporter while Asia's demand will grow to 7.5 million tons by 2010. It's using less than 2 million tons.