Brazil-based Cosan S.A. has announced a partnership with Shell to form a $12 billion joint venture for the production and commercialization of ethanol and power from sugarcane. According to company sources, the venture, which must receive regulatory approval, would create the 3rd largest ethanol producer in the world, manufacturing 440 million gallons of ethanol per year, and result in more than 4,500 global retail stations selling ethanol blends.

“While there is still plenty of integration planning to do before we launch the proposed joint venture, this is an important milestone in our effort to create one of the world’s most competitive sustainable biofuels companies,” said Rubens Ometto Silveira Mello, Cosan’s Chairman of the Board and non-executive Chairman-elect of the proposed joint venture.

As part of this partnership, Shell will contribute its 16 percent equity interest in Silicon Valley-based advanced biofuels company Codexis, Inc. They will also offer up its equity interest in Canadian celluosic company, Iogen Energy.

“The proposed joint venture is set to pool our complementary businesses, enhance our growth prospects in ethanol production globally and support our growth platform for our retail and commercial fuels businesses in Brazil,” said Mark Williams, Shell Downstream Director.  “Over the next 20 years, sustainable biofuels are one of the most realistic commercial solutions to reduce CO2 emissions from transport.”

But what may be most interesting about this venture, is that Shell and Cosan are competitors, both selling ethanol to consumers via retail stations. Could this pave the way for more oil-to-oil industry ventures?