SAO PAULO - Brazilian ethanol producer Atvos has signed an agreement to build a biomethane factory in the state of Mato Grosso do Sul, with investments seen at more than 350 million reais ($69.4 million), it said in a statement on Wednesday.

The biomethane plant is expected to have a 28-million cubic meter capacity per crop and will be Atvos' first one based on sugar cane wastes.

It will be located in Nova Alvorada do Sul, where Atvos - which is backed by Abu Dhabi state investor Mubadala Capital - already owns an ethanol factory.

The plant will represent Atvos' "entry into the renewable natural gas market, with the difference of producing it on a large scale to meet a demand that continues to grow", CEO Bruno Serapiao said in a press statement.

The project will undergo an engineering analysis before it gets final approval, with construction expected to begin this year, Atvos said.

(Reporting by Andre Romani and Roberto Samora; editing by Gabriel Araujo and Emelia Sithole-Matarise)