BP, the global energy giant, has made a significant move in the biofuels sector by agreeing to acquire Bunge’s 50 per cent stake in their Brazilian joint venture, BP Bunge Bioenergia, for USD 1.4 billion. This acquisition reflects BP’s confidence in the growing demand for low-carbon biofuels and strengthens its position in the renewable energy market.
The deal, expected to close by the end of 2024, will give BP full ownership of Bioenergia, which has a substantial production capacity of around 50,000 barrels per day of ethanol equivalent from sugarcane. As part of the transaction, BP will also assume Bioenergia’s debt and lease obligations, totaling USD 1.2 billion. This means BP’s net cash outlay to Bunge will be approximately USD 800 million.
BP Bunge Bioenergia is a major player in Brazil’s sugar and ethanol industry, operating 11 mills across five states. The joint venture has the capacity to process 32 million metric tons of sugarcane per season and produces over 1 million tons of sugar annually, in addition to its ethanol output.
This acquisition comes at a time when BP is facing increased scrutiny from investors regarding its strategy, particularly after S&P Global recently revised down the company’s credit outlook due to slower-than-expected debt reduction.
However, BP maintains that this acquisition aligns with its financial goals, expecting to meet its bio-energy returns threshold of over 15 per cent while staying within its annual spending framework of around USD 16 billion.
The move also highlights the growing importance of biofuels in the energy transition. Ethanol, especially sugarcane-based ethanol, has a low carbon footprint and is seen as a potential feedstock for sustainable aviation fuel (SAF). This acquisition could position BP to capitalise on the increasing demand for low-carbon fuels in various sectors.
While BP is expanding its biofuels presence in Brazil, it’s simultaneously scaling back plans for new biofuels projects elsewhere. The company announced it’s pausing two biofuel projects at refineries in Germany and the United States, and reassessing three others. This strategic shift suggests a more focused approach to biofuels, concentrating on high-potential markets like Brazil.
The deal also marks a significant development for Bunge, which has been seeking to divest its sugar and ethanol assets in Brazil for several years. The transaction provides Bunge with an opportunity to exit this challenging market segment.
As the biofuels industry continues to evolve, this acquisition positions BP to play a major role in the production and distribution of low-carbon fuels, particularly in the strategically important Brazilian market. The move underscores the ongoing transformation of major oil companies as they navigate the transition to cleaner energy sources.