Biomethane and Brazil’s cane sector Part 1: biomethane and gas backgrounder

Brazil’s Fuel of the Future legislative package was signed into law in October 2024. Among other measures, it establishes a mandate for the use of biomethane in the natural gas market, together with an emissions reductions target starting at 1% in 2026.

In Brazil, biomethane is produced by the cane sector from byproducts of sugarcane processing. It is also generated from municipal waste in landfill sites and from agricultural waste such as manure from animal production units.

Brazil’s natural gas production is largely from offshore drilling, supplemented by imports of liquefied natural gas and pipeline gas from Bolivia. Infrastructure for gas transportation and distribution is concentrated along the coast. Industry accounts for 60% of national gas consumption, while residential use makes up just 2%.

The new mandate has put biomethane in the spotlight and is expected to catalyze market growth. But there are other drivers at work – economic, environmental, technical, and strategic – that may be just as important as the mandate, if not more important, in generating future demand growth.

Among these drivers are (i) the economic and widely recognized environmental benefits of substituting diesel fuel with biomethane, (ii) the strategic interests of gas distribution companies, which are looking to expand their distribution networks and their product offerings following the opening up of the gas market, and (iii) the desire of many industries to reduce their carbon footprint.

The cane industry is well placed to benefit from all these trends. Mills have large captive fleets of heavy transport vehicles, making diesel substitution attractive. The industry is based in the interior of the country, a region with extensive road freight flows to the country's ports. The area is also a target area for gas distribution companies seeking to expand their network and services to both industrial and residential users.

In this report, we provide the background on the current state of biomethane production in Brazil and the structure of the country's natural gas market. In Part 2, we analyze the biomethane mandate and the wider opportunities and challenges it presents for players in the cane sector as the gas market evolves.

This report is a companion article to Biomethane and Brazil’s cane sector Part 2: the next big thing? - Rabobank