Ethanol Market Overview ExCo67 – Helsinki – Finland

Tuesday, May 10th, 2011

Mark Thomas Lyra Business Development Director

Agenda

at a Glance

Shell’s Motivation

Ethanol Market Overview

Agenda

at a Glance

Shell’s Motivation

Ethanol Market Overview

Raízen Overview A history of growth and innovation

Crushing Capacity (mm Tons)

4.0 7.5

9.5

15.6

19.1

30.3 31.5

38.8 40.0 40.0

45.0

60.0 62.0

1936 1986 1988 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010

¹Current total crushing capacity

100.0

2011 2012 2013 2014 2015

Esso started operations in Brazil in 1912 Shell started operations in 1914

Today Raízen is among the top players in fuel distribution

• 3600 fuel stations

• 53 Logistical Terminals

• 19,000,000m³/ Year

Raízen Overview Raízen mills enjoy locations with logistical advantages

Favorable Geographic Position Efficient Logistics

State of São Paulo

The São Paulo State is responsible for: • 74% of the Brazilian sugar production

• 67% of the Brazilian ethanol production

• 69% of the total sugar cane crushed in Brazil

The São Paulo State consumes: • 68% of all ethanol produced in the country

• 50% of all sugar produced in the country

Note: Data as of 2008/09 harvest. Source: UNICA and newspapers.

Raízen’s total crushing capacity would rank it among the top producing countries in the world

1st

2nd

3rd

4th

6th

7th

8th

9th

Brazil

India

China

Thailand

Pakistan

Mexico

Colombia

Australia

497.959

355.520

106.316

64.365

54.752

50.680

40.000

36.000

Countries Crushing Capacity

5th Raízen 62.000

Raízen 100.000

Thailand 64.365

Source: Datagro

Sugar cane area managed by Raízen is about 700.000 hectares

This area is Equivalent to 730.000 Maracanã Stadiums

Large scale sugar cane cultivation results in lower costs

Raízen is committed to improving efficiency in this area

72% of the 2011/2012

Crop will be harvested mechanically

Raízen is the world´s largest sugar cane ethanol producer

• 2011/12 production

estimated at 2.2 Billion liters

•Trading activities

covering 30% of Brazilian Market

Raízen also owns an ethanol terminal in Santos

• Cosan has

66% stake

• 40.000 m3 static capacity (4 tanks of 5.000 and 2 tanks of 10.000 m3)

Raízen is Brazil’s largest Sugar Producer and is able to Supply half of US Yearly Consumption

4.3 million Tons of Sugar

Raízen co-generation capacity is enough to supply a city like Rio de Janeiro

• 300 MW – enough to support a city of 900K people

• At conclusion of installed

projects = 600 MW

• Equivalent to the consumption of a city like

Rio de Janeiro

Total electricity co-generation for export 2011

Social Responsibility

• Raízen has over 40.000 employees

• In 2010, the Cosan Foundation benefited over 60.000 members of the communities in which it operates

Leading market position

Consolidation is Related sectors in Brazil

Market Share of Top 5 Companies (1)

0% 100%

Pulp 72.6%

Dairy 77.4%

Cement 80.0%

Orange Juice(2 ) 91.5%

Steel(2) 93.0%

Soybean 95.0%

Beer 97.0%

Oil 100.0%

Paper 48.7%

Ethanol & Sugar 18.7%

1) Note: Beer. steel data as of 2005; orange juice as of 2004; cement. dairy. pulp and. paper as of 2003; soybean as of 2000

2) Percentage based on the four top players in the sector

Superior scale in a highly fragmented industry

Brazilian market share

Sugarcane crushed in 2008/2009

Moema

Carlos Lyra

Usaçúcar

São Martinho Guarani

Alto Alegre

Tércio Wanderley

Louis Dreyfus + Santelisa Vale

Others

9,3%

5.6%

2.4%

2.2%

2.2%

2.1 %

1.8%

69.7 %

2.1 %

2.1 %

mm ton

Raízen is the First Fully Integrated Player in the Sugar Cane Industry

Sugar cultivation

Sugar and Ethanol Production

Sugar and Ethanol Trading

Domestic and Export Logistics

Retail and Distribution

Agenda

at a Glance

Shell’s Motivation

Ethanol Market Overview

Sustainable Growth By 2050 there will be over 9 billion people and most of this

population growth will come from developing nations

• Global population has increased

more than 100% since 1950

• Population will increase more than

40% by 2050 Fonte: World Bank WDI (2008)

1950

1975

2000

2025

2050

OECD

Non OECD

1 billion people

Energy Consumption Developing countries are expected to

consumer more energy per capita

Gigajoule (GJ) per capita (primary energy)

400

300

200

100

0 0 10 20 30 40

GDP per capita (PPP, ´000 2000 USD)

USA

Europe EU 15

Japan

South Korea

China

India

Fonte: OECD Energy Balances (2006)

Energy consumption increases with economic growth

Greenhouse Gas Emissions The use of fossil fuels is directly linked to the

emission of greenhouse gases

Fonte: OECD (2008)

80

70

60

50

40

30

20

10

0 1970 1980 1990 2000 2010 2020

GtCO2 eq

2030 2040 2050

OECD

BRIC

ROW

A. OECD Enviromental Outlook Baseline

Share of CO2 (MM ton) per sector

Greenhouse Gas Emissions The transportation sector is responsible for a significant portion

21%

25%

30.000

20.000

10.000

0

1990 2007

Non energy use

Agriculture

Services

Residences

Transportation

Industry

Other

Energy Generation

Source: EIA (2009)

Emissions and Climate Change Business as Usual attitude could result in a significant increase in GHG emissions

GHG emissions could be linked to climate change...

Temperature in degrees centigrade

Carbon Dioxide in the atmosphere

Source: IPCC (2007)

CO

2 p

pm

Tem

pera

ture

Ch

an

ge

Yesars before the present 1000 600 800 400 200 0

0

-0,4

1,0

0,4

0,8

250

290

330

Climate Change Projections

0ºC 1ºC 2ºC 3ºC 4ºC 5ºC 6ºC

Global Temperature Change in relation to pre industrial times

Food

Water

Eco-System

Extreme Weather

Risk of abrupt and irreversible change

Large number of species at risk of extinction

Agricultural Production Shortfalls

Disappearing glaciers and restricted water supply in some areas

Large damage to sea coral reefs

Rising sea levels

Storms, fires, draught, floods, heat waves

Growing risk of abrupt change in climate patterns and cycles

Climate Change Consequences Scientific projections point at severe consequences

Source: Stern Review

Society’s Concern Society has a growing concern with this issue

Is Global Warming a Serios Problem?

China

Poland

U.S.

Russia

Indonesia

Canada

Israel

Kenya

Britain

Pakistan

Lebanon

Egypt

Jordan

Nigeria

Palest. Ter.

Germany

Spain

Turkey

Japan

Mexico

India

France

S. Korea

Argentina

Brazil

30

36

44

44

46

47

48

48

50

50

53

54

54

57

59

60

61

65

65

65

67

68

68

69

90

• Kyoto Protocol (Annex I countries): 5,2% emission reduction by 2012 in relation to 1990 levels

• European Union: 20% emission reduction by 2020 in relation to 1990 levels

• China: 40-45% emission reduction by 2020 in relation to 2005 levels

• California: 10% emission reduction by 2020 in relation to 2005 levels

• Brazil: 36-39% emission reduction by 2020

Government and Corporate Attitude Governments and Corporations seek cleaner alternatives

Biofuels can represent up to 30% of the transportation energy matrix by 2050

Biofuels as Part of the Solution

With planning and government support, it is possible to achieve a more sustainable energy matrix

2000 2010 2020 2030 2040 2050

0

200

400

600

800

1000

EJ per Year

Other Renewables

Biomass

Nuclear

Coal

Gas

Oil

Energy Consumption in Transportation

2000 2025 2050

Electricity

Biofuels

Natural Gas

Fosil Fuels

Fonte: OECD Energy Balances (2006)

Small

Little Significant

Large

Today Biofuels are the option best aligned with existing distribution and consumption infrastructure

Biofuels as Part of the Solution

Compatibility with

Existing Business

Economic

Scale

hidroelétrica

nuclear

solar

eólica

células de

hidrogênio

biodiesel

Etanol

Brazilian sugarcane ethanol presents the best cost benefit option in terms of cost and carbon emissions

Biofuels as Part of the Solution

Energy

Source

Emissions

gCO2 eq/kcal

Costs in US$

cents/kcal

Carvão 1,147 0,0035

Gás Natural* 0,523 0,0055

Gasolina** 0,296 0,0075

Diesel** 0,483 0,0077

Nuclear* 0,035 0,0038

Solar (PV)* 0,041 0,0674

Eólica 0,077 0,0040

Etanol** 0,049 0,0064

*EUA | ** Brasil

Etanol** 0,049 0,0064

Agenda

at a Glance

Shell’s Motivation

Ethanol Market Overview

Brazilian Ethanol Market The Brazilian ethanol market has overcome several challenges

-

2.500

5.000

7.500

10.000

12.500

15.000

17.500

20.000

22.500

25.000

27.500

19

70

/71

19

72

/73

19

74

/75

19

76

/77

19

78

/79

19

80

/81

19

82

/83

19

84

/85

19

86

/87

19

88

/89

19

90

/91

19

92

/93

19

94

/95

19

96

/97

19

98

/99

20

00

/01

20

02

/03

20

04

/05

20

06

/07

20

08

/09

Brazilian Ethanol Production Evolution

De-regulation

Ethanol Vehicle

sales decline

Economic

Crisis

Food vs. Fuel

debate

Oil Chock

Ethanol vehicle

launched

Flex Fuel Car

Anhydrous Hydrous Fonte: MAPA (2010)

Brazilian Ethanol Market Oil prices and concerns about climate change impact the growth of Brazil’s ethanol market

Global Biofuels investment

Biofuels Clean energy

Fonte: New Energy Finance (2010)

0

20

40

60

80

100

120

0

20

40

60

80

100

120

140

160

180

2004 2005 2006 2007 2008 2009

+56%

+52%

+44%

+10% -7%

WTI Average Oil Price

• Valero – Verasun

(~ US$500 M)

EUA:

• Petrobras – Tereos

(~ US$900 M)

• Shree Renuka – Equipav

(~US$650 M)

• LuisDreyfus – SantelisaVale

(~US$1.700 M)

• Bunge – Moema

(~US$1.700 M)

• Petrobras – São Martinho

(~US$462 M)

Brasil:

Brazilian Ethanol Market Investors with long term view continue to invest in the sector even after the crisis

Investimento para entrada de novos players

Fonte: diversas

158.75

Pasture

51.7

Agriculture

8.14

Sugarcane

111.34

Available

2.4% 33% 48% 16%

Brazilian Growth Potential Brazilian arable land availability reinforces the scalability of the ethanol option

Total Area Protected & Native Arable Area Other

Millions

of Hectares 2851.48 495.61 329.94 25.92

100% 58% 38% 3%

Productivity growth in sugarcane harvesting since 1970 has helped preserve

7,5 million hectares of arable land

Fonte: MME(2010)

Brazilian Growth Potential Sugarcane productivity growth also point to ethanol as a scalable option

Harvested area (millions of hectares) Preserved Area (millions of hectares) Production (million of tons)

500.00

400.00

300.00

200.00

600.00

700.00

4.00

18.00

16.00

14.00

12.00

10.00

8.00

6.00

2.00

0.00

100.00

0.00

1975

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2007

2008

1970

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2006

2009

0.3

0.0

0.5 0.7 0.8

1.0 1.1

1.1 1.6

1.9 2.2

2.0 2.3 2.4 2.3

3.0 3.0

3.3 3.6 3.5 3.5 3.3

3.7 4.0

4.4 4.8 4.8

5.3

6.2

8.1 7.5

2.3 2.3 2.4 2.3

2.6

Are

a (

millio

ns o

f h

ecta

res)

Pro

du

cti

on

(m

illio

ns o

f to

ns)

SUSTAINABILITY E

NV

IRO

NM

EN

TA

L

SO

CIA

L

EC

ON

OM

ICA

L

The importance of sustainability Demonstrating the sustainability of every operation has become critical

36 Fonte: UNEP 2009, Menichetti/Otto (2008) for bioethanol and biodiesel, IFEU (2007) for sugarcane ethanol, Liska et al. (2009) for corn ethanol; RFA 2008.

The Importance of Sustainability Studies show sugarcane ethanol’s environmental sustainability

%G

HG

em

issio

n s

avin

g c

om

pare

d f

ossil f

uels

Bioethanol

from weat

Bioethanol

from sugar

cane

143%

Bioethanol

from corn

110% 110% 174%

Bioethanol

from sugar

beets

Bioethanol

from

rapeseed

Bioethanol

from soya

beans

Bioethanol

from

sunflower

Bioethan

ol from

palm oil

Bioethanol

from

agriculture

os foresty

residues

FT diesel

from wood

Biomethane

from

manure

-868% to -2070%

-20

100

80

60

40

20

0

-40

Fonte: UNICA (2009)

The Importance of Sustainability Social sustainability across

Sector States Districts Jobs Establishments

Ethanol (*) 25 1.042 465.236 16.829

Oil(**) 24 176 73.075 1.239

2007 Data in Units

Nota: (*) includes harvesting and production. (**) Excludes oil extraction and non-fuel refining

Oil exploration concentration

Fonte: Mapa elaborado a partir dos dados da RAIS Fonte: Mapa elaborado a partir dos dados da RAIS

Ethanol’s capillarity

38

Fonte: Markestrat (2009), SCA (2010)

Sugarcane Sector GDP

(2008):

US$ 28 bi Taxes:

US$ 10 bi

Agricultural Products

(fertilizer, tractors, etc)

US$ 9,2 bi

Sugarcane Producers:

US$ 11,5 bi

Industrial Products (civil

construction, materials)

US$ 6,3bi

Mills

Ethanol: US$ 12,4 bi

Sugar: US$ 9,8 bi

Other: US$ 0,6 bi

Ethanol Distribution

and Retail:

US$ 19,7 bi

2008 Consumer Savings: R$ 7,7 billion (How much consumers saved by using ethanol rather than gasonline)

The Importance of Sustainability Ethanol is economically sustainable and creates value at each step in the value chain

Producer’s Perspective on Biofuels Certification Globally accepted certification can greatly benefit the industry

• Differentiate products and support corporate reputation

• Facilitate buying decisions – increase liquidity

• Harmonize market demands – sustainability criteria consolidation

• Recognize best practices – sustainability premiums

Certification can:

Social and environmental certification are a global trend

CRAMER

Cramer Commission

EU DIRECTIVE

Low CVP Fuels

MULTISTAKEHOLDER INITIATIVES

NATIONAL INITIATIVE

S

LCFS

Low Carbon Fuel Standard

Renewable Transport

Fuel Obligation

RT

FO

G8+5

Task 39

Liquid Biofuels from Biomass

INTERNATIONAL BODIES’ INITIATIVES

Stockholm Environment Institute

SEI

RTRS

Roundtable on Responsible Soy

RSPO

Roundtable on Sustainable Palm Oil

BSI

Better Sugarcane Initiative

PBCB

Brazilian Biofuels Certification Program

Equator Principles

IB

Sistema de Verificação. da Atividade Agropecuária

CEN

European Committee for Standardization

PC 248

Scorecard

Renewable Fuel Standard

RFS ISCC

Biofuel Quota Law- Ordinance for sustainability requirements

GBEP

Global Bioenergy Partnership

RSB

Round Table on Sustainable Biofuels

Green Energy Rainforest

Rainforest Alliance

Sugarcane Discussion Group

SDG

BEFSCI

Bioenergy and Food Security Criteria and

Indicators

GLOBAL

NATIONAL

SUSTAINABLE BIOFUELS

REGIONAL INITIATIVE

S

VSE

Verified Sustainable Ethanol

FAO OECD IDB IFC IEA UNEP ISO

Green Ethanol

Sugarcane Zoning

National Commitment

National Commitment for the Improvement of Labor Conditions in

Sugarcane

CSBP

Council on Sustainable Biomass Production

Back

Certification Should

What Biofuels Certification Should Aim At Producer’s Recommendation for an Efficient Scheme

• Be comprehensive and gradual

• Involve all relevant stakeholders to

ensure acceptability and

implementation viability

• Be voluntary, with positive incentives

• Be balanced - “Triple Bottom Line

Approach”

• Be transparent and inclusive

• Be scientific and evidence based

Easily measurable

• Be objective - focus on essential

issues to ensure sustainability

Producer

Processor Consumer

Distributor

The Importance of Certification The use of ethanol can grow significantly in other markets

0

100

200

300

400

500

EUA U.E. Brasil Japão China Canadá Índia Tailândia Outros

mil

m³

MUNDO

Fonte: EIA, ANP, F.O.Licht, EUROPIA Gasolina Etanol

Global Consumption of Ethanol and Gasoline in 2010

Ethanol Growth Perspective Long term investment is necessary and the growth

potential is significant

08/09 07/08 09/10 10/11 11/12 12/13 13/14 15/16 14/15 16/17 17/18 18/19 19/20 20/21

70.000

60.000

40.000

30.000

20.000

10.000

-

50.000

Fonte: SCA

800

600

400

200

0

1.000

1.200

Domestic Market Potential Demand Sugarcane production necessary to meet sugar and ethanol demand

Year New

Mills

(2.5 M

tons)

2010 23

2011 18

2012 18

2013 19

2014 19

2015 19

2016 20

2017 20

2018 20

2019 21

2020 21

Eta

no

l m

il m

2

Mo

ag

em

mil

hõ

es t

Ethanol Growth Perspectives Sugarcane ethanol presents clear sustainability

qualities, but is it scalable?

By 2050 it will be possible to:

•Productivity increase – 85 t/ha 170 t/ha (new varieties)

•Efficiency – 82 liters per ton 250 cellulosic ethanol

•Engine and vehicle efficiency 2x kilometers per liter

•Size of the global fleet 3x more vehicles

Given the premises above, by 2050 it will be possible to produce more than 500 million m³, using the current 23 million hectares in use for sugarcane in 2009

In this scenario, sugarcane ethanol can represent ]

30% of the global fuel consumed in Otto cycle engines

Fonte: CTC e SCA

Ethanol Market Overview ExCo67 – Helsinki – Finland

Tuesday, May 10th, 2011

Mark Thomas Lyra Business Development Director