Shell and Cosan: Fuelling a Lower-Carbon Future With Biofuels

THE HAGUE, The Netherlands and SAO PAULO, June 2, 2011 /PRNewswire/ --

Shell (NYSE: RDS.A) (NYSE: RDS.B) and Cosan today launched a multi-billion dollar joint venture that will become a leading producer of the low-carbon biofuel, ethanol made from sugar cane. Named Raizen, this major retail and commercial fuels company will operate in Brazil, one of the world's fastest-growing markets.

To view the Multimedia News Release, please click:

http://multivu.prnewswire.com/mnr/prne/shell/48921/

In one of the biggest biofuels deals to date, Shell is combining its extensive retail experience, global network and research in advanced biofuels with Cosan's technical knowledge of producing biofuels on a large scale. Raizen will produce and sell over 2 billion litres a year of the lowest-carbon biofuel commercially available - ethanol made from Brazilian sugar cane.

Shell is already one of the largest distributors of sustainable biofuels: now it is moving for the first time into production. The deal with Cosan is a major development in Shell's strategy of investing for selective growth in its fuels business.

Raizen will distribute biofuels and over 20 billion litres of other industrial and transport fuels annually through a combined network of nearly 4,500 Shell-branded service stations. In Brazil it becomes the third largest fuels company. Plans would extend the company's reach in future years to export more ethanol to other key markets.

Low-carbon biofuels will be the most practical and commercially realistic way to take carbon dioxide (CO2) out of transport fuel in the coming years and will be a vital part of the future energy mix.

The joint venture also combines Shell's expertise and technology partnerships in advanced biofuels with Cosan's experience in the commercial production of low-carbon biofuels. This has the potential to accelerate the commercial production of biofuels from crop waste and inedible plants.

Raizen's 24 mills can process up to 62 million tonnes of cane into sugar or ethanol each year, with the flexibility to adapt to market demand.

"We are building a leading position in the most efficient ethanol-producing country in the world," says Peter Voser, Shell Chief Executive Officer. "Low-carbon, sustainable biofuels will be increasingly important in the global transport fuel mix."

"This is a turning point in the search for alternative energy sources," says Rubens Ometto Silveira Mello, Cosan's Chairman of the Board. "Raizen is one of Brazil's largest companies and is ready to offer international markets a clean, renewable and economically viable solution."

Meeting demand

New energy policies in Europe and the USA are calling for more renewable, lower-carbon fuels for transport. Biofuels make up around 4% of transport fuel in Europe, and 3% in the USA. Globally biofuels currently meet around 3% of road-transport fuel demand. Shell expects this to rise to about 9% by 2030.

Brazil leads the world in the use of biofuels for transport. They are likely to make up more than 40% of the country's transport fuel mix by 2030, double today's proportion. Raizen's current annual production capacity will be enough to meet nearly 9% of Brazil's current ethanol demand.

At the pump Brazilian motorists are offered the choice of pure ethanol or a blend of petrol (gasoline) and ethanol. Around 90% of the country's new cars can run on either fuel type.

"The Raizen business model, which combines Shell and Cosan assets and has direct access to consumers, is a breakthrough in the biofuels sector," says Marcos Marinho Lutz, Cosan Chief Executive Officer.

The sugar cane-to-ethanol process used by Raizen is the most efficient in turning biomass into fuel. Brazilian sugar cane yields 7,000 litres of ethanol per hectare of cane compared to, for example, 3,800 litres for a hectare of corn in the USA and 2,500 litres for a hectare of wheat in Europe, according to Unica, the Brazilian sugar-cane industry association.

"Sugar cane is the most efficient plant we know in converting sunlight into energy," says Professor Edgar de Beauclair, of the Crop Production Department Sao Paulo State University.

Better biofuels

Turning sugar cane into ethanol offers a number of environmental benefits over other biofuel production processes. As it grows, sugar cane generally absorbs CO2 at a greater rate than other biofuel crops such as soy.

Ethanol made from Brazilian sugar cane produces around 70% less CO2 than petrol, when the cultivation and production processes are taken into account. Since 2003 the use of ethanol in Brazil has avoided over 103 million tonnes of the CO2 that the petrol it has replaced would have produced, according to Unica.

By-products from turning sugar cane into ethanol are recycled as organic fertiliser. Plant waste, called bagasse, is burned to produce power for the processing mills and surplus energy is supplied to the national grid.

To further improve productivity, Raizen will use its own advanced geographical information system to monitor its land. This allows its scientists to make accurate predictions about crop yields and adjust fertiliser or pest control, for example, to help boost production.

"Brazilian sugar-cane ethanol is one of the most sustainable and lowest-CO2 biofuels available," says Mark Gainsborough, Shell Executive Vice-President Alternative Energies. "We expect the development of advanced biofuels to benefit from Cosan's feedstock and its expertise in large-scale biofuels production. This has the potential to accelerate the future commercial viability of cellulosic ethanol."

The deal includes part of Shell's interest in the firm Iogen, which uses enzymes to break down plant waste into ethanol, as well as Shell's interest in Codexis, developers of "super-enzymes" for the faster conversion of plant waste into transport fuels.

Sustainable production

Raizen will work to improve the sustainability of its operations. Sugar cane for ethanol requires little water to be added because Brazil's tropical rainfall provides natural irrigation. In the industrial process Raizen has been introducing a system that recycles up to 90% of water used.

Raizen supports the development of varieties of sugar cane to suit regional climate and resist disease. To protect cane from pests, it breeds and releases natural predators, further reducing the use of chemical pesticides.

As a member of Bonsucro, formerly the Better Sugarcane Initiative, Raizen has joined with other producers, non-governmental organisations and other experts to establish an EU-approved certificate for sustainable sugar-cane production. This covers areas such as human rights and the impact of activities on biodiversity.

Raizen is working towards achieving certification for all ethanol produced by its own operations over the coming years. It also plans to have certified all ethanol produced from suppliers' cane.

Current sugar-cane production in Brazil takes up 8.1 million hectares, around 0.9% of the country's land. Government legislation forbids industries from entering sensitive areas such as rainforests or land needed for other food crops, and from displacing food crops into other sensitive areas. National laws also recognise the rights of indigenous communities and their claims to land ownership. The main sugar-growing areas are hundreds of kilometres from the Amazon rainforest.

Raizen is well advanced in phasing in mechanised harvesting, ahead of requirements due to come into force in the main Brazilian sugar-cane growing state of Sao Paulo in 2014. It already uses machines on around 64% of its suitable land (with a slope of less than 12%). CO2 emissions can be reduced because it avoids the need to burn the hard straw, a necessary step in manual cutting.

Cautionary Note

The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this press release "Shell", "Shell group" and "Royal Dutch Shell" are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words "we", "us" and "our" are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. "Subsidiaries", "Shell subsidiaries" and "Shell companies" as used in this press release refer to companies in which Royal Dutch Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which Shell has significant influence but not control are referred to as "associated companies" or "associates" and companies in which Shell has joint control are referred to as "jointly controlled entities". In this press release, associates and jointly controlled entities are also referred to as "equity-accounted investments". The term "Shell interest" is used for convenience to indicate the direct and/or indirect (for example, through our 24% shareholding in Woodside Petroleum Ltd.) ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest.

This press release contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management's expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "objectives", "outlook", "probably", "project", "will", "seek", "target", "risks", "goals", "should" and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this press release, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for the Shell's products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including potential litigation and regulatory measures as a result of climate changes; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this press release are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional factors that may affect future results are contained in Royal Dutch Shell's 20-F for the year ended 31 December, 2010 (available at http://www.shell.com/investor and http://www.sec.gov - opens in new window). These factors also should be considered by the reader. Each forward-looking statement speaks only as of the date of this press release, 2 June 2011. Neither Royal Dutch Shell nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this press release. There can be no assurance that dividend payments will match or exceed those set out in this press release in the future, or that they will be made at all.

The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this press release, such as resources and oil in place, that SEC's guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website http://www.sec.gov - opens in new window. You can also obtain these forms from the SEC by calling 1-800-SEC-0330.

    
    For more information, interview requests or photography, please contact:

    Shell Media Relations
    David Williams +31-70-377-3600

    Shell Investor Relations
    Europe - Gustavo Bursztyn: +31-70-377-3996
    United States - Ken Lawrence: +1-713-241-2069

    http://www.shell.com

    Cosan Media Relations
    Daniela Christovao +55-11-3897-9797

    http://www.cosan.com.br

Video: http://multivu.prnewswire.com/mnr/prne/shell/48921/

SOURCE Royal Dutch Shell plc & Cosan S.A.(Bovespa:CSAN3)