Biomethane and Brazil’s cane sector Part 2: the next big thing?

Under the Fuel of the Future legislative package of 2024, Brazil's natural gas producers and importers will be required to use biomethane to achieve annual emissions reductions targets for the gas sector, starting at 1% in 2026. Concerns about a potential supply-demand mismatch in 2026 and possibly beyond may persuade the regulatory authority to reduce the initial level of the mandate, allowing for a more gradual ramp-up.

Nevertheless, the new mandate will create a baseline of demand. Over and above this, 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.

For the cane industry, probably the most compelling driver in the short term is diesel substitution. Additionally, recent calls for biomethane supply proposals from local gas distributors in the heartlands of cane production are a clear sign of potential demand.

Despite the challenges of the high-interest rate environment and uncertainty around biomethane pricing, several leading cane industry players are investing in biomethane projects, following the earlier successes of first movers.

So, is biomethane the next big thing for the cane industry? In terms of additional revenue generation compared to sugar and ethanol, probably not. But it has a lot going for it in terms of fuel cost savings for mills, demand from an expanding sustainable corridor transport network, and evident demand from regional gas distributors and industrial gas users. It may take some time, but biomethane has potential to become a standard add-on activity for cane mills. In that sense, yes, it could well be the next big thing.

This report is a companion article to Biomethane and Brazil’s cane sector Part 1: biomethane and gas backgrounder