Brazil's national oil company is sitting on an energy bonanza...
But while Petrobras (NYSE:PBR) has gotten tons of press for its deepwater offshore discoveries in the past two years, 80 billion barrels of undersea hydrocarbon potential doesn't impress the Green Chip Top Stocks team.
Instead, this spring's 87% investment increase in Petrobras's sugar ethanol operations has us rapt.
Petroleo Brasileiro, as the company is officially named, has played a key role in the country's Pro-Alcohol biofuel promotion program ever since the oil-shocked 70s. With skyrocketing prices and total reliance on foreign supply, the military government decided to develop domestic fuel alternatives.
A generation of dithering in "developed" countries has made Brazil, now a thriving democracy with the world's 10th largest national economy, the envy of economic pacesetters like the U.S. and Japan.
Brazilian government officials and Petrobras execs now have the ears of Department of Energy officials in deciding what it takes to integrate biofuel throughout the energy economy.
And Petrobras is putting its money where its mouth is with a new business plan, spending 2.4 billion dollars to advance production both at home and abroad.
In fact, out of 3.6 billion liters of its output goal for 2013, 1.9 billion will go to foreign markets. That's more than half of the target.
To achieve that by 2013, Petrobras will either build, enhance, or buy 7 ethanol and biodiesel plants.
The company will spend over half a billion bucks―$530 million―on research and development, showing they're not content to sit on generations-old fuel technology.
Frankly, if they did, we wouldn't lend them any more credence than we did fly-by-night U.S. corn ethanol companies. We stayed away, and they eventually got unwound by the market.
In this case, Brazilian ethanol not only looks promising to its proud parent Petrobras, but also to foreign partners like Portugal's Galp Energia.
Petrobras Recognizes the Peak Oil Reality
Galp is also a collaborator in the Tupi deepwater operation mentioned above, and even though fresh reports in early March say Tupi's oil can be produced profitably at $40 oil, Galp is going for ethanol.
Maybe that's because Galp and Petrobras's other partner in Tupi, Britain's BG Group, know Tupi may peak as soon as 2015...
That's just two years after Tupi's petroleum production is first expected to hit high gear!
As Petrobras straddles the energy peak with one foot in fossil fuel and the other in ethanol, it's not a pure play on clean energy.
However, Petrobras has all the marks of a comprehensive worldwide power player.
Among the foreign markets Petrobras is targeting for over half its 2013 output, the new business plan has Petrobras prioritizing Latin America and Africa. With ties to Galp in Portugal and other former Portuguese colonies like Angola and Mozambique, Petrobras can do a lot of good in developing Africa's clean energy economy.
In richer Japan, Petrobras is engaged in a joint project called Brazil Japan Ethanol (incidentally, there are over 1.4 million Brazilians of Japanese descent).
Japan, with 3 times the GDP of Brazil, is taking baby steps when it comes to ethanol. They're trying to incorporate E3, a 3% ethanol blend, into their gasoline.
Petrobras, meanwhile, is emphasizing "second generation" feedstock, i.e. utilizing waste from the initial sugar-to-ethanol refining process.
Brazil and Petrobras have stayed a step ahead, and we don't expect them to give up that position any time soon.
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