Cosan and Shell combine to establish a profitable position in sustainable biofuels.

Royal Dutch Shell and Brazil’s Cosan have signed a $12 billion (£7.5bn) memorandum of understanding (MoU) with the two firms forming a joint venture to produce sustainable biofuels in Brazil.

The non-binding memorandum will see Shell and Cosan combine to produce ethanol, sugar and power, as well as the supply, distribution and retail of transportation fuels.

Both companies will contribute specific resources to the project and, in addition, Shell will contribute a total of $1.625bn in cash over two years.

Cosan, whose brands include Mobil and Esso, is the third largest sugar producer and fifth largest ethanol producer in the world. Its joint venture with Shell will mean it is in a prime position to establish a scalable and profitable position in sustainable biofuels.

According to a joint statement, the resultant annual production capacity would be in excess of 2 billion litres and would mean the venture would boost Cosan’s position from fifth to one of the largest ethanol producers.

Of course, both Shell and Cosan would also benefit from enhanced growth prospects and market position in Brazil.

Mark Williams, Royal Dutch Shell’s Downstream Director, said: “Today’s 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. The joint venture would also enable Shell to set up a material and profitable bio-fuels business, with the potential to deploy next generation technologies.”

Cosan’s Chairman, Rubens Ometto Silveira Mello, commented: “Cosan’s vision is to become a global leader in clean and renewable energy. Our size, degree of sophistication and stage of development means we need a partner that not only shares our vision, but also has access to international markets to help us deliver our growth potential.”