José Sergio Gabrielli de AzevedoCEO and PresidentJune, 2007

Organization of American States

Clean Energy: Meeting the Energy Challenges of the 21st Century

1984 1994 2004

Total762 billion barrels

Total1.017 billion barrels

Total1.188 billion barrels

In 20 years, Latin America proven reserves increased from 36.6 billion barrels (1984) to 101 billion.Source: BP Statistical Review of World Energy

R/P* = 26,77 R/P* = 41,78 R/P* = 41,84

* Reserves/Production Latin America (years)

12,7%

7,6%

13,4%

5,0%

4,8%

56,5%

Middle East Europe & Eurasia AfricaNorth America Pacific Asia Latin America

7,9%

6,4%

8,8%

3,8%

8,0%

65,1%11,7%

9,4%

5,1%

3,5%

8,5%

61,8%

2

Latin American Share of Oil World Reserves Latin American oil reserves are becoming increasingly important

Source: Internacional Energy Agency Reference Scenario

Net Oil Availability

Mbpd

Latin America

Russia

AsiaUnited StatesOECD(- Mexico)

Projected growth in oil production anddemand suggestsbalance andindependence of supply from politicallyunstable regions

3Includes Bitumen and non-conventionals, including synthetic oils.

Source: Cambridge Energy Research Associates.

Gas Rich Region with limited infrastructureProven Reserves as of January 1, 2005

14.5 Tcf

26.1 Tcf

Brazil

Argentina

Perú

Mexico

Venezuela

26.1 TcfBolivia

11.7 Tcf

17.7Tcf

152 Tcf 19.4 Tcf

Trinidad

2005 GasProven ReservesWorld:179,8 T m3

South and Central America:7,02 T m3

4

0.41 T m3

4.3 T m30.55 T m3

0.74 T m3

0.33 T m3

0.74 T m3

0.50 T m3But:::: Will require increasing energy

integration and::: Substantial investments in

infrastructure covering great distances and environmentally sensitive regions

Ample gas reserves will allow for:::: Regional growth in consumption

substituting some demand for oil::: Higher exports of liquids

PRODUCTION X DEMAND X REFINING CAPACITY: REACHING SELF-SUFFICIENCY

112,197,670,449,355,356,216,719,532,228,430,53,02011F20062000199519901985198019751970196519601955Production/

Consumption(%)

1954 1960 1970 1980 1990 2000 2006 2011

THO

USA

ND

BPD

0

500

1000

1500

2000

2500

Production

Consumption

Refining

Brazil: first major market to shift from import dependency to self sufficiency since first oil from North Sea in 1971 began to shift european balance

Proj.

Business Plan 2007-2011 - Total Production – Oil, NGL’s and Natural Gas

• Heavy oil production technology development will expand LA reserve growth possibilities;

• Successful Doha Round Negotiations are essential to permit greater trade of agricultural commodities andincrease agricultural productivity considering comparative advantages;

• Technological breakthroughs in enzyme technology for the use of Lignocelluloses biomass and BTL;

• Further progress in regional integration.

1 . 6 8 4 1 . 8 8 01 . 5 4 0 1 . 4 9 3

2 5 0 2 6 5 2 7 4

2 8 91 3 3

1 6 1 1 6 81 6 3

8 51 0 1

9 49 6

2 0 0 3 2 0 0 4 2 0 0 5 M e t a 2 0 0 6

Ól e o + L G N B r a s i l G ás N a t u r a l B r a s i l

Ól e o + L G N I n t e r n a c i o n a l G ás N a t u r a l I n t e r n a c i o n a l

2.036

2 . 3 7 42 . 8 1 2

5 5 1

7 2 4

7 4 2

1 8 5

2 7 8

3 8 3

M e t a

2 0 1 1

M e t a

2 0 1 5

2,0202,217

2,403

3,493

4,556Thousand boed

7.8% p.a.

7.5% p.a.

Total Investment: US$ 87.1 billion in 2007-2011

(US$ 49.3 billion in E&P)

Oil + NGL International International Natural GasNatural Gas Brazil

,

Target Target 2011 Forecast 2015

Oil + NGL Brazil

1976 1980 1984 1988 1992 1996 2000 20041972

CNG

ETHANOL

GASOLINE

120000

140000

160000

10000

80000

60000

40000

20000

0

1000

BEP

Brazil is the 1st country to reap benefits from EthanolOriginal drivers were energy security and economic attractiveness;Today environmental benefits are also considered.

PROÁLCOOLAlcohol Vehicles

Beginning of the sector deregulation

Source: MME, BEN 2006Accumulated effective economy:1 Billion boe ~US$ 52 bi

During this period, ethanol utilization saved 644 million ton. of CO2 emission

End of regulation 1999 FFV

Alcohol Exports 2005

0

2

4

6

8

10

12

14

16

18

20

US$

/GJ

2002

Ethanol prices in Brazil Rotterdam regular gasoline price

Quais seriam os motivos do diferencial de produtividade brasileira ?

1980 199519901985 2002

Source: Goldemberg 2004

103,3% 110,0%

0

20

40

60

80

100

120

140

Power

Gasoline 100% Gasohol 22% Ethanol 100%

110,0%

132,4%

Consumption

Ethanol Engine Relative Performance*Greater production cost reduction when compared to gasoline.

*Source: Volkswagen (Brazil) - Presentation prepared for review within The Warren Centre for AdvancedEngineering at Sydney University

• World Energy Consumption reached 7,639 Mtoe in 2004;

• According to the International Energy Agency estimates, it will reach 11,664 Mtoe in 2030, which means an increase of 1,8% p.a.;

•Oil, Coal, Gas and Nuclear Energy, which are non renewable energies, are responsible for over 85% of total world supply;

Como se distribui a Oferta Mundial de Energia ?

35

25

21

6

10

2 1

Oil Coal Gas Nuclear Biomass andWaste

Hydro OtherRenewables

Shar

es (%

)

Non-Renewables

Renewables

2004 13%

87%

Source: World Energy Outlook 2006

Mas esta estrutura gera externalidades negativas

1.3201.041

9872.0042.5514.653

4.7075.9126.887

27.044

9.605

Wor

ld T

otal

Asi

a &

Oce

ania

Nor

th A

mer

ica

Uni

ted

Stat

es

Chi

na

Euro

pe

Eura

sia

Reg

ion/

Cou

ntry

Mid

dle

East

Cen

tral

&So

uth

Am

eric

a

Afr

ica

Million Metric Tons of Carbon Dioxide 2004

224%170% 167%

85% 67% 48%27% 24%

Chi

na

Asi

a &

Oce

ania

Mid

dle

East

Afr

ica

Cen

tral

& S

outh

Am

eric

a

Wor

ldTo

tal

Nor

thA

mer

ica

Uni

ted

Stat

es

∆% 2004/1980

Source: Energy Information Administration, 2004

• Fossil fuels usage increases global temperature, generating urban pollution. During the last 20 years, 25% of CO2 emissions were caused by fossil fuels usage in transportation activities.

•Biofuels usage can reduce CO2 emissions at a 5:1 rate;

•Besides being a cleaner source of energy, sugar cane ethanol produces 8,3 more energy than the fossil energy used in its production process. Ethanol usage in Brazil has decreased the emission of Greenhouse Effect Gases at 13% (1994 data);

•Sugar-cane is the most productive among ethanol raw materials and the production of ethanol has limited affect on food supply.

Energetic balance - Ethanol

0

2

4

6

8

10

Sugarcane

Wheat Beet-root

Corn

O Etanol contribui para a redução do aquecimento globalEn

erge

tic ra

tio

Source: World Watch Institute

Ethanol Productivity

0

1000

2000

3000

4000

5000

6000

7000

sugar-cane- Brazil

sugar-beet- EU

sugar-cane- India

corn - USA wheat - EU

liter

s pe

r hec

tar

Bio-fuel usage in OECD Countries will benefit LA

Ethanol gasoline additive or substitute

Global warming, energy security and/or cost effectiveness are encouraging renewable fuels with two principle initiatives ethanol and biodiesel. Both can be produced and consumed in Latin America advantageously

• US – (2007 State of the Union) target of 136.5 billion liters by 2017 (target of 20% of current gasoline consumption to be substituted by ethanol by 2017 and cost efficient by 2012);

• US – (2006 State of the Union) target of 30% of current gasoline consumption to be substituted by ethanol by 2030 and cost efficient by 2012;

• Japan 3% ethanol for gasoline mixture by 2010;• China pilot programs and fiscal incentives for use of

ethanol.

12

0,22

0,30

0,33

0,45

0,53Sugar - beet -EU

Cereals - EU

Corn - Canada

Corn - USA

Sugar-cane -Brazil

US$/ Liter of Ethanol (Without taxes)

Cenário para a demandaEt

hano

l Glo

bal D

eman

d (M

illion

liter

s/Yea

r)• A strong increase in the demand for ethanol is expected;• This amount of future consume may be levered if new countries adhere the compulsive blend with ethanol.

Source: F.O. LICHT, 2004

Strong Increase in Demand

Clean Air Act

Lead Substitution

MTBE Substitution

Renewable Fuels Standard

Brazil35%

The potential to expand world production is enormous

North and Central America

37%

South America38%

Asia16.2%

Europe9.8%

Current Market Distribution of World Consumption

Ethanol global market is 46.5 Billions LitersEthanol as a Fuel is 30.6 Billions Liters, or 67% of total ethanol production

Today the ethanol consumption is 2,6% of gasoline MKTIncreasing ethanol to 10% of gasoline will represent 118 Billions Lt

14

•Only in the US, a 5.7% addition of ethanol the gasoline would translate into a consumption of 30 billion liters of ethanol per year.

Souce: EIA/DOE; Comissão Européia; FO Licht; Copersucar

A PROMISING MARKET

Total: 31.1 billion liters

Potential demand considering 5% ethanol addition to the gasoline formula5%0.7Thailand

Percentage approved only in some regions5%?India

Potential demand considering 5% ethanol addition to the gasoline formula in 20115%7.4EU

Potential demand considering 10% ethanol addition to the gasoline formula10%4.5China

Expected demand in 2012, according with the Renewables Fuels Law-16.8US

Potential demand considering 3% ethanol addition to the gasoline formula3%1.7Japan

CommentEthanol addition

Potential demand(Billion liters)Country

Primary BaseSecondary BaseCollection Centers

RailwaysInland Navigation

RoadMulti product pipelines

Large scale marine terminals improveefficiencyLarge storage capacitynecessary to regulatesupplyPipelines reducetransport costs; improveenergy efficiency

Ethanol collection, storage and

distribution centersare spread out

through producingand consuming

regions

Ethanol Logistics System in Brazil

ETHANOL HIDRATEDDISTRIBUTION AVOID REGIONALIZATION

US Ethanol producers are concentrated in upper mid-west with little or no integration with oil facilities

• While most oil and product pipelines run from the south to northeast, north or southwest;

• Shipment in the Pacific will have a comparative advantage in supplying California.

Diferenças de produtividade na cana de açúcar

Source: FAO

0,2

0,6

1,7

2,2

Asia andPacific

Europe NorthAmerica

LatinAmerica

Potential Arable Land

(1.000 ha per capita)

61,455,6

48,6

13,9

Asia andPacific

Europe NorthAmerica

LatinAmerica

% of Potential Arable Land actually in use

•Availability of lands, water and low labor cost also benefit production in Central and South America.

Latin America has the largest potential arableland per capita and only uses 13,9% of it.

72,4169,34 71,13 73

67,77

Asia USA CentralAmerica

SouthAmerica

Brazil

Sugar-Cane Productivity

Yeld per Hectar

1000

Kg/

Ha

World Average

Diferenças de produtividade na cana de açúcar

• 33% of the world’s internal renewable water resources are concentrated in Central and Latin America;

Internal renewable water resources

(m³ per capita – 1997)

6.984

27.673

33.097

0

5000

10000

15000

20000

25000

30000

35000

World Latin America andCaribbean

Brazil

Source: FAO

73%

19%

9%

20%

9%71%

Agriculture Domestic Industrial

21%

18%

61%

Brazil

World

Latin America andCaribbean

Annual water use by sector

Raw Material Energy output / energy inputWheatCorn

Sugar Beet

Sugar Cane (under Brazilian Production Condictions)

1.21.3 – 1.8

1.9

8.3

Increasing Efficiency in Raw Material Use

TomorrowPotential ethanol production would grow by more than 100% based on Lignocelluloses Biomass technology

1 metric ton of sugar cane

Molasses yields only 85 l of ethanol,

But

Cane bagasseyields 185 L of ethanolBase calculation

20

Principal Conclusions, Hurdles and Challenges

• Latin America is in a privileged position as regards oil reserves, and energy independence;

• Prospects for the use of natural gas are encouraging and should contribute to increase availability of liquid fossil fuel exports but integration and financial issues are a main concern;

• Land, water and human resource availability and bio-diversity put Central and South America and Caribbean in a privileged position to use and supply OECD countries with renewable fuels, further liberating liquid fossil fuels for export.

21

Principal Conclusions, Hurdles and Challenges

• Successful Doha Round Negotiations are essential to permit greater trade of agricultural commodities and increase agricultural productivity considering comparative advantages;

• Technological breakthroughs in enzyme technology for the use of Lignocelluloses biomass;

• Further progress in regional integration.

But the main hurdles and challenges are:

22

Main Obstacles to Greater Integration

23

• Oil sector has different impact on each economy that affects fiscal, balance of trade, and pricing policies;

• Different social and economic realities and historical origins;

• Changing legal environments; • Financing for infrastructure;• Lack of strategic coordination;• Need for institutional reforms;• Need to coordinate different energy

models: competitive markets and public services;

• Localized supply disruptions.

New Frontiers for Ethanol Development• Ethanol can be used in place of gasoline, as a substitute for additives (lead, MTBE), particularly important in Central America, or for export;• CAFTA-DR countries may export to the USA up to 7% of US consumption without countervailing duties (54 cents per gallon);• Export by the Pacific Coast to California avoids problem with US logistics.

New Initiatives• IDB will offer a different set of services, such as financing, to exporting countries like Costa Rica and El Salvador;• Costa Rica adopts pilot program for using up to 10% ethanol in gasoline;• El Salvador has plans to regulate ethanol content in domestic gasoline;• Honduras announces that it can be self-sufficient in ethanol;• Venezuela uses ethanol as a substitute for lead.

José Sergio Gabrielli de AzevedoCEO and PresidentJune, 2007

Organization of American States

Clean Energy: Meeting the Energy Challenges of the 21st Century