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(Bloomberg) — Brazilian ethanol producers including Raizen SA and Cosan SA rallied after Petrobras announced that it was in talks with “large” producers of the biofuel to create a joint venture.  

Raizen rose as much as 5.8% while Cosan rose as much as 7.4%, the biggest intraday gains in months. 

Petroleo Brasileiro SA plans to return to the ethanol market as a hedge against declining gasoline demand, Mauricio Tolmasquim, the head of energy transition projects, said during a press conference on Friday. The state-controlled oil giant is looking at ethanol made from sugar cane as well as corn, he said. Petrobras plans to reach of 2 billion litters of ethanol per year, he said.

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“How can we remain large with gasoline losing market share? By entering our main competitor, ethanol,” said Tolmasquim, who said gasoline demand is expected to decline in the long term.

The Rio de Janeiro-based company has earmarked $2.2 billion in investments in ethanol in its latest five-year business plan. Tolmasquim said the company plans to enter the ethanol business quickly, without providing more details. 

If it does move forward with a deal on ethanol, Petrobras’ bet on that market would come years after its oil peers acquired stakes in biofuel-making companies. Shell Plc owns a stake in top sugar-cane ethanol maker Raizen, and BP Plc recently took full ownership of a sugar and ethanol business that was formerly a joint venture with Bunge Global SA. Fuel distribution company Vibra Energia SA also has a joint-venture with trader Copersucar SA in an ethanol business named Evolua.

—With assistance from Leda Alvim and Dayanne Sousa.

(Updates with details on oil companies that have invested in ethanol in sixth paragraph)

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