Brookfield decided to enter the biogas and biomethane market in Brazil in 2024. The Toronto-based asset manager is in advanced negotiations to buy a stake in a project with investments that could reach $300 million (nearly R$1.5 billion).
Brookfield did not disclose the name of the possible partner but said the target company hired a bank to explore proposals from investors. The two companies are currently in the negotiation stage, according to Brookfield. Andr Flores, director of renewable energy and transition at Brookfield, says the plants under negotiation should convert biogas into biomethane, which has a higher value added.
“We see landfills at a more mature stage, with large projects in operation. In a second stage, it would be something linked to the sugarcane industry,” said Mr. Flores. According to him, the idea is to close the deal with a capital-intensive industry with accelerated growth that is open to entering a partnership. “[Our current talks] are with partners to build a series of projects over the next two or three years.”
Biomethane, also known as renewable natural gas (RNG), is a purified version of biogas, a mix of gases that originate from the natural breakdown of organic matter through the process of anaerobic digestion.
Companies such as Orizon and Solvi, which have been operating in the sector for a long time, are also on Brookfield’s radar. The amount to be invested involves debt of between 50% and 60%. To make up the difference, the asset manager will tap funds earmarked for developing economies. “We are raising an energy transition fund to invest in Brazil and emerging markets,” the executive added.
Biogas operators are generally from other sectors, such as landfills, sugarcane production, or agriculture. Brookfield’s vice president of investments in renewable energy and transition, Rodrigo Solera, said the current discussions are revolving around the possible creation of a subsidiary or other type of business arrangement.
The trend marks the entry of major players in the segment. Last week, oil giant Petrobras announced that the green hydrogen market is part of its strategy to return to producing fertilizers and said the company intends to use biomethane as a way to go green and diversify hydrogen production routes.
Cosan’s gas company Compass announced in 2023 investments of R$355 million in a joint venture with Orizon to produce biomethane at the Paulnia landfill, in So Paulo. On the consumers’ side, there are also important movements, such as Nestl and PepsiCo replacing fossil fuels with biomethane in factories. However, the challenge revolves around the regular supply of the product, as only six companies in the country are authorized by the National Agency of Petroleum, Natural Gas, and Biofuels (ANP) to sell biomethane. Another 18 projects are awaiting authorization from the agency.
The use of the gas pipeline network is also limited and access in some regions lacks regulation. Another issue is the delay in the procurement of imported equipment since Brazil does not have a domestic production chain, with just one factory recently opened by ZEG Biogs.
The main factors influencing natural gas costs include Brent oil, Brazil’s foreign exchange rate, and the General Market Price Index (IGP-M). As for biomethane, its costs are primarily determined by the production and purification expenses of the biomethane molecule, which are influenced by the Extended Consumer Price Index (IPCA). While biomethane generally carries a slightly higher cost than natural gas, its environmental benefits make it appealing.
The production of biomethane aimed at the domestic industry and commercialization in Brazil is only 985,000 cubic meters per day. Renata Isfer, president of the Brazilian Biogas Association (ABIOGAS), defends the creation of a guarantee of origin certifications market and the mandatory purchase of biomethane following a growing curve in 2026 with a percentage of 1% of the gas volume commercialized until it reaches 10% by 2034. The latter idea faces resistance from sectors linked to gas production and sale.
“We need tax incentives through a discount on tariffs, proper funding, and a policy ensuring a share in the natural gas market, as seen with other biofuels,” said Ms. Isfer.
She says the product could also be an alternative to diesel, as long as there is a public policy for corridors using CNG and biomethane on Brazil’s roads to help decarbonize the transportation sector.
https://valorinternational.globo.com/business/news/2024/03/12/brookfield-seeks-partner-to-produce-biomethane-in-brazil.ghtml