Shell reaches agreement on $12bn Brazilian biofuel venture

Shell has today taken a major step towards completing its long-awaited $12bn (£7.7bn) deal with Brazilian ethanol giant Cosan, which should see the two companies team up to create one of the world's largest biofuel firms.

The companies announced that they have signed binding agreements to create the new joint venture, which was first proposed in February.

The planned venture still requires regulatory approval, but it looks increasingly likely that the new firm will emerge as a major player in the fast-expanding biofuel market, boasting estimated annual sales of $21bn.

Rubens Ometto Silveira Mello, chairman of the board at Cosan and non-executive chairman-elect of the proposed joint venture, admitted there was plenty of integration planning to do before the two companies can launch the joint venture. But he insisted that the new firm had the potential to emerge as "one of the world’s most competitive sustainable biofuels companies".

His comments were echoed by Mark Williams, Shell downstream director, who hailed the deal as evidence of the oil giant's commitment to developing viable alternatives to fossil fuels.

"Over the next 20 years, sustainable biofuels are one of the most realistic commercial solutions to reduce CO2 emissions from transport," he said.

Under the terms of the deal the two companies will pool their ethanol production operations and develop a combined distribution and retail network in Brazil, the largest global market for ethanol.

Both companies have also agreed not to compete with the new entity and Shell has said it will fold its equity stakes in US advanced biofuel developers Iogen Energy and Codexis into the new venture – a move the oil giant said would " enable the joint venture to deploy next-generation biofuels technologies in the future".