The billion dollar venture is the oil industry's largest investment to date in Brazilian ethanol, says BP chief executive of refining and marketing, Iain Conn.

BP's investment bucks the current industry trend of retrenchment. Nearly 60 Brazilian refineries are experiencing financial difficulties as a result of the world financial crisis, and about 40 tonnes of sugar cane is likely to remain standing in the field this season.

Technical director of the sugar cane industry association (UNICA), Antonio de Pádua Rodrigues says recent ethanol prices have not been high enough to recoup all the capital invested in expanding production and in new business like energy cogeneration.

There are some "credit crunch implications," said BP Brasil's president, Shafe Alexander, but "this one is going ahead. People are having a hard time finding capital, but BP's got a pretty big commitment to make sure this works out well."

BP bought 50% of the Brazilian Tropical BioEnergia company in April; Santelisa Vale and Maeda each own 25% of Tropical BioEnergia.

The first Tropical BioEnergia refinery, in Goiais, has the capacity to produce 435m litres of ethanol per year. Construction on the second refinery should begin in late 2009 or early 2010 near the first refinery, Alexander says.

The first refinery, which also produces sugar, is powered by bagasse, the biomass remaining after sugar cane stalks are crushed to extract their juice. The excess 30 megawatts (MW) of energy produced by the bagasse will be sent back into the energy grid, Alexander says.

BP estimates it will produce 940m litres of ethanol per year with its second refinery, which will not produce sugar. Brazil produced about 22.4bn litres of ethanol in 2007/2008, according to the sugar cane industry union UNICA.

Alexander says BP's ethanol is bound for the local market, but Conn wants to see lower European Union tariffs and trade barriers to stimulate ethanol exports from Brazil and other countries.

"Our view is that free trade's the right way to go and these tariffs probably need to be looked at very careful," Alexander says. He adds that BP would "like to see them come off."

Alexander concedes that labor and environmental issues are a serious concern in the Brazilian ethanol industry.

"We try to leave a positive footprint wherever we go and not a negative footprint," he says. "We've got a lot of experience with the environment and how not to impact it any more than is absolutely necessary. It's one of our core values, no damage to the environment."