Shell International Petroleum Co., a unit of oil major Royal Dutch Shell Group, said Feb. 1 that it signed a $12 billion deal to jointly produce and market ethanol fuel with Brazil’s Cosan, the world’s top ethanol and sugar processor.

Shell said the joint venture will be based in Brazil and that it would contribute $1.625 billion in cash, in addition to its existing assets in Brazil. Shell already has gasoline retail sites and some biofuels investments in Brazil, but this latest move would expand the oil major’s foothold into the biofuels market in the South American country.

“The joint venture would enable Shell and Cosan to establish a scalable and profitable position in sustainable biofuels – one of the most realistic commercial solutions to take carbon out of the transport fuels sector over the next twenty years – by building a market-leading position in the most efficient ethanol producing country in the world,” Shell said in a statement.

With annual production capacity of about two billion liters and significant growth aspirations, the joint venture would be one of the world’s largest ethanol producers, and would deploy next generation biofuels technologies in the future.

The deal would also enhance growth prospects for both companies and their market position in the retail and commercial fuels businesses in Brazil.

With a network of about 4,500 retail sites and a total annual throughput of about 17 billion liters, the joint venture would have better position in Brazil’s fuels retailing market, with strong potential for synergy and future growth.

The transaction between Shell and Cosan continues a trend that began in 2008 when U.K. oil major BP took a stake in a big Brazilian biofuels project and announced $1 billion in investments. The BP project included production of sugarcane in the state of Goias, in central Brazil, and processing of that sugarcane into ethanol fuel at a plant in Edeia town.

BP spokesman Robert Wine told Telvent DTN in a telephone interview from London on the day of the announcement that the company’s first crop harvest and the ethanol that was processed from it was used domestically last year, but the second crop is now underway. Some of it will be exported to the United States, he said. The project has an annual output capacity of 435 million liters