BP expanding its biofuel business by 50% and what this means for investors


One of the world’s largest energy giants is making a massive move into the biofuel sector. Specifically, BP (NYSE: BP) is doubling down on a major biofuel joint venture agreement with agricultural trader Bunge in Brazil, a move which underscores what is potentially a dramatic shift in the energy sector just waiting to escalate further.

These two companies have come together to combine their ethanol and sugar businesses to create what is now the second-largest sugar cane crushing operation in the country, called BP Bunge Bioenergia.

Producing ethanol out of sugar cane, BP will pay the Brazilian Bunge $75 million and will also assume $700 million in debt associated with the deal for an equally owned stake in the joint venture.

Ethanol produces around 70 percent less greenhouse emissions in comparison to most hydrocarbon fuels and is one of the primary ways that energy companies are diversifying into cleaner, carbon-free energy sources.

Many major companies have begun moving into this direction as experts within the energy sector predict within the next couple of decades, a massive portion if not the majority of the world’s power will be produced from these renewable, green-friendly sources. However, this move from BP was well above what most had expected from the company and represents how seriously energy companies are treating this upcoming shift in the market.

“This is another large-scale example of BP’s commitment to play a leading role in a rapid transition to a low carbon future,” said BP CEO Bob Dudley. “Biofuels will be an essential part of delivering the energy transition and Brazil is leading the way in showing how they can be used at scale, reducing emissions from transport.”

Some countries, such as Brazil and the U.S., have mandated a minimum amount of ethanol that is blended with gasoline, ensuring that there will always be demand for biofuels within said country.

America under the Trump administration has recently increased the portion of ethanol used in its gasoline in a bid to help out struggling farmers, who’ve had to face a terrible planting season. Conversely, an increase in the portion of ethanol used will hurt oil producers, so there’s often a harsh battle between environmental groups backed by farmers against the oil lobby, which is quite powerful in the U.S.

Brazil happens to be one of the world leaders in biofuels, and already is the world’s leading biofuel market as a share of its fuel mix. In terms of overall ethanol market size, it’s second in the world behind the U.S., having adopted policies as far back as the 1970s to use more biofuels as a means to diversify away from the sky-high oil prices at the time.

Biofuels, alongside other green energy alternatives such as solar, wind, and geothermal, are considered excellent long-term investments in the energy sector as demand for these sources are expected to grow. While not often put in the same category, uranium is also seeing an increase in demand and could be another niche opportunity for investors in that sector.

BP Company Profile

BP is an integrated oil and gas company that explores for, produces, and refines oil around the world. In 2018, it produced 2.2 million barrels of liquids and 7.7 billion cubic feet of natural gas per day, including volumes from its 20% ownership interest in Rosneft.

At year-end 2018, reserves stood at 19.9 billion barrels of oil equivalent, 5% of which are liquids. The company operates refineries with a capacity of 1.9 million barrels of oil per day. – Warrior Trading News