The Next Petroleum; with Oil Prices Going through the Roof, So-Called Biofuels Are at Last Becoming a Viable Alternative to Gasoline and Diesel

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Byline: Stefan Theil (With Mac Margolis in Rio, Jason Overdorf in New Delhi and Sarah Schafer in Beijing. Graphic Illustration by Stanford Kay. Graphic by John Sparks)

A couple of years ago, when the cost of oil started to soar, Joel Rosado didn't think twice. The owner of an air-taxi service in Mineiros, Brazil, with a fleet of 12 planes, he needed to do what he could to contain fuel costs--he spends 20 percent of his revenues each year on 300,000 or so liters of fuel. So he rang up aircraft-maker Embraer, put in an order for the latest-model single-propeller Ipanema plane and tanked up--with alcohol. Flying on ethanol (a form of alcohol) distilled from sugar cane slashed the fuel bill for his Ipanema by 40 percent, at no cost to performance. Now Rosado is buying another brand-new Ipanema and plans to convert his 11 other planes to alcohol, too. The only problem: Embraer, the world's first manufacturer of ethanol-fueled planes, now has so many customers that there's a two-year wait list to convert gasoline engines to alcohol. Embraer is now looking into converting the T25, a military-training turbojet, to alcohol. "At this rate," says Embraer executive Acir Padilha, "the gasoline motor is headed for extinction."

Its demise is not restricted to the air in Brazil. The country's sugar-cane fields now feed a network of 320 ethanol plants, with 50 more planned in the next five years. Most of Brazil's 20 million drivers still tank up with fuel that is cut with 25 percent ethanol, but a growing fleet of new-generation (flex-fuel) cars can run on straight ethanol, which goes for as little as half the cost of gas at every service station from downtown Rio to the remote Amazon outback. To keep up with demand, local sugar barons and giant multinationals will invest some $6 billion in new plantations and distilleries over the next five years. And Brazilian ethanol tankers are plying the seven seas, supplying fuel-hungry countries like South Korea and Japan as they begin to diversify away from oil. No wonder there's talk of Brazil's fast becoming "the Saudi Arabia of ethanol."

Unlike oil, however, no one country dominates the market for …