Brazil fuel distributor Raízen signed the first biogas contract in the country's soon-to-be opened natural gas market. The deal was made with fertilizer producer Yara, which will produce hydrogen and green ammonia from third-generation biogas.
The five-year, 20,000 m³/d (706,000 cf/d) deal is just a small part of the total 3mn m³/d of biogas processing potential Raízen foresees in the next decade, but it is also seen as a test for the market and the use of shared gas infrastructure. Argus spoke with Raphaella Gomes, chief executive at RaízenGeo and head of Raízen's biogas business, about the deal and the environment for biogas amid the natural gas sector opening. Edited highlights follow.
Raízen's biogas is produced from vinasse [a sugarcase processing byproduct] and filter cake. How is Raízen preparing for crop-related risks to these feedstocks? What instruments are you considering to take advantage of times of high gas production?
Biogas allows options. When our power regulation is more mature, with an actual hourly spot price, we can allow "peak-shaving" facilities to enter the power market and level power demand peaks, since biomass is dispatchable.
We can also have several applications for our products, replacing several different fuels we produce. Those options allow Raízen to have a portfolio to better allocate its products.
Raízen generates second-generation ethanol from sugarcane biomass all year long. And this process generates residues that can be used to produce biogas. So, our biogas production comes to complement and stabilize this production curve.
Biogas can bring environmental qualities to our natural gas chain in Brazil. How is Raízen taking advantage of these characteristics?
When the biomethane is produced from the residue of a residue, the second-generation ethanol, it can be considered a third-generation fuel, with a very low carbon footprint. It has a 90pc lower footprint than natural gas. The valuation of this environmental attribute is important.
We are using our expertise with ethanol for biogas and certifying that this biomethane can meet international standards. They will not be standard contracts that you find in the market now. We will create our own certification process.
Raízen products are internationally accepted and this allows our end users to show the environmental attributes our biogas has.
Natural gas markets around the world are tight. In Brazil, the gas market opening is picking up speed with new contracts announced every day. But what can explain Yara's choice for biogas now, when natural gas producers are offering their products — especially to fertilizer companies?
We see several competitive advantages for biogas. Logistically, we are on top of a gas reservoir in our biogas plants in the Sao Paulo State, close to the consumer. Our price is sold in local currency, taking away the risk of the exchange rate. Also: fluctuation. Our product price is not fluctuating with Brent prices or Henry Hub, but only to a Brazilian index.
But besides that, I see that Yara perceived the opportunity to be the first to attempt this kind of project, with biogas, to position Brazil as a producer of green ammonia and green hydrogen, which can find markets outside the country. There are two ways to produce green hydrogen, and using natural gas for this is an established method. Using biomethane is an established method to make green ammonia.
Brazil's biogas potential is 120mn m³/d. We are sitting on the top of renewable gas and there is an opportunity to position the country in this industry.
Even with the opening of the Brazilian gas market there are difficulties, such as regulation and shared access to pipelines. What challenges do Raízen and Yara face in making this contract a reality?
Certainly, there are several challenges. It is not for nothing that this is the first contract of this kind and it does not mean all challenges are overcome. It takes some amount of courage from both Raízen and Yara to make this move.
One thing is that we sized this first contract in a way to test the model, the regulations and the connections. Yara is connected to the Comgás distribution pipeline and we must build a pipeline from our plant to the Comgás pipeline. We are seeing the regulation in the Sao Paulo state working along with us, to allow for the first gas contracts to be signed.
Is Raízen confident about the natural gas market opening?
We are seeing a great demand for products that support the path to decarbonization. There is increased demand for products that help with the energy transition.
And Brazil can be the lead actor in this story. We have abundant energy and we are a people with innovative thinking. We must create this industry. It is a whole new industry in Brazil, and it is not simple to find and develop suppliers.
