BP Plc has agreed to take full control of its Brazilian ethanol joint venture with agribusiness giant Bunge Global SA while scaling back some new biofuel projects in the US and Europe, Bloomberg reported on June 20.
The acquisition of 50% of BP Bunge Bioenergia SA, as the venture is known, will give BP the capacity to produce about 50,000 barrels a day of sugar-cane ethanol, the London-based company said in a June 20 statement. The stake has an enterprise value of nearly $1.4 billion.
Meanwhile, the company said it is pausing plans on renewable diesel and cleaner jet fuel projects as it seeks to simplify its portfolio and focus on “value and returns.” BP will not proceed with plans for standalone biofuels production units at its Cherry Point refinery in the US and its Lingen plant in Germany, spokesman David Nicholas told Bloomberg.
The deal with Bunge, which will give BP full control over 11 sugar cane mills, will expand the British company’s ability to tap the huge potential for advanced biofuel production in Brazil. Sugar-cane ethanol, which typically has a lower carbon footprint than that for the ethanol made of corn in the US, is seen as a key ingredient for so-called sustainable aviation fuel, the main bet to decarbonize air travel.
The transaction seems to have a “reasonable valuation” and should help secure BP’s 2025 earnings target for its bioenergy business, Biraj Borkhataria, an analyst at RBC Capital Markets, told Bloomberg.
Bunge has long been looking to divest from the joint venture, with CEO Greg Heckman saying in 2020 that a sale of the stake to BP was a possibility. Brazil’s sugar cane industry has been struggling with poor profits on the ethanol business as weak demand and a supply glut damped prices in the local market.
“This business is not core to Bunge’s long-term strategy and this transaction will allow us to focus and invest in our core businesses while also further strengthening our balance sheet,” Heckman said in a June 20 statement.
The deal, which Bunge said should yield net proceeds close to $800 million, comes at a time when the crop trader is seeking to complete its $8.2 billion acquisition of Glencore Plc-backed Viterra, which was announced a year ago. It raises questions about what the company plans to do with Viterra’s sugar business in Brazil once the acquisition is completed.
Subject to regulatory approvals, BP expects the transaction to close by the end of 2024. BP shares were up 1.2% as of 4:09 p.m. in London. Bunge climbed 1.4% in New York.
BP has pledged to achieve net zero emissions by 2050 and gradually shrink its oil and gas production in the coming decades. It has been investing heavily in renewable electricity – mainly wind and solar – as the main source of clean energy. However, biofuels also have a major role to play in decarbonizing transport as long as battery power remains unsuitable for air travel.