Financial times petrobras_190607

José Sergio GabrielliCEOJune, 19th 2007

Prospects for Renewable Fuels in Reducing Carbon Emissions

Financial Times Conference

PETROBRAS

2

The presentation may contain forecasts about future events. Such forecasts merely reflect the expectations of the Company's management. Such terms as "anticipate", "believe", "expect", "forecast", "intend", "plan", "project", "seek", "should", along with similar or analogous expressions, are used to identify such forecasts. These predictions evidently involve risks and uncertainties, whether foreseen or not by the Company. Therefore, the future results of operations may differ from current expectations, and readers must not base their expectations exclusively on the information presented herein. The Company is not obliged to update the presentation/such forecasts in light of new information or future developments.

Cautionary Statement for US investors

The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as oil and gas resources, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC.

Cautionary Statement

Increase 2004-2030 (14,341 million tonnes)

49%

18%

21%

7%5%

Power Generation IndustryTransport Residential Services*Other**

Mas esta estrutura gera externalidades negativas

World Energy-Related CO2Emissions by Sector

* Includes agriculture and public sector ** Includes international marine bunkers, other transformation and non-energy use

Source: World Energy Outlook 2006

Increase 2004-2030 (5,891 million tonnes)

28%

28%

27%

2%3%

8%4%

Coal OilGas NuclearHydro Biomass and wasteOther renewables

World Primary Energy Demand

•Transport sector dominated by oil represents only 21% of projected increase in CO2 emissions through 2030.

•Projected increases in global energy demand and emissions dominated bypower, and industry that represent 49% and 18% of projected CO2 emissionsthrough 2030;


Source: EIA - International Energy Outlook 2006 and IMF Report

Export Orientation by Countries to USA (percent of GDP)

1.4%

5.9%

3.1%

Russia China Brazil

Average period 2001-05

• Reflecting dependence of Chinese growth on exports particularly to the US;

• CO2 trading mechanisms reflect transfer of CO2 emissions and not necessarily reduction.

2,343 1,981556

27,982

4,532

20,274

9,960

2,899

9,009 9,2877,543

19,073

OCDE (*) USA Russia China India Brazil

Carbon Dioxide Emission GDP

Million Metric Tons of Carbon DioxideGDP - Billion 2000 dollars

2020• China emissions are growing 10

times faster than US; • By 2020 China GDP will have

surpassed US GDP but so will CO2 emissions.

(*) without USA

•53% result from powergeneration as compared to 40% for rest of worldreflecting rapidindustrialization.

Chinese industrialization distorts all emission projections


Location of CDM Projects (Sellers)

China61%India

12%

Others7%

Rest of Latina America

6% Africa3%

R of Asia7%

Brazil4%

•Regional Distribution of CDM Projects concentrated in China and secondlyIndia with major power generation concerns;

•Russia and Brazil have lagged due to use of natural gas and hydro-electricity for power;

•Energy for transport has not benefited from carbon trading mechanisms as they require assertive government policies that are not addressed by KT;

•Renewable fuel projects are usually too small for complex carbon trading mechanisms

Percentage Share of Projected CO2 Emissions2004 - 2030 Reference

3% 5%

19%

73%

Brazil Russia India China

2003

22% 18%

66%57%

6%

45%

20%

25%31%

50%

22%

54%

3% 7%

6%

3% 2%

1%

8%

37%

6% 4%6%

OCDE Russia China India Brazil

Hydroelectricity other Renewable EnergyNuclear EnergyNatural Gas OilCoal

Growth Rate 2003-2030

2.1%2.6%

3.1%

4.4%3.5%

1.4%

5.0%5.3%

6.3%6.9%

OCDE Russia China India BrazilCarbon Dioxide Emission GDP

•China and India high CO2 emissions from oil and coal for power represent more than 91% and 88% respectively;

•Russia predominance of cleaner natural gas represents 54% of energy sources;

•Share of renewable energy sources in Brazil and natural gas represents 43% of energy sources.

Source: EIA - International Energy Outlook 2006

• Projections suggest higher GDP growth and CO2 emissions growth in India and China so that oil and coal surpass 90% of energy consumption;• Continued use of natural gas in Russia;• Brazilian use of natural gas and renewables could surpass 50% of consumption by 2030.

BRIC energy consumption patterns are very different and reflect power generation

1,023

77

42

Oil Bio Other

659132

45

Oil Bio Other

36%

16%

4%

2%

5%

9%

4%

18%

5%

United States

OECD Europe

OECD Pacific

Other OECD

Brazil

China

India

Other Asia

Rest of World

Reference Increase in Demand 2004-2030 (mtoe)

Alternative Increase in Demand 2004-2030 (mtoe)

Bio 2004-2030Reference - Alternative

But transport sector can still contribute to emission reductions (IEA alternativescenario) Increased use of renewable

fuels can contribute to reduce projected increase in energy for transport by 7 %, to 15 % if adequate policies followed.

The direct benefits in emission reductions would be equally distributed between US, Europe OECD and the rest of the world

Total: 1,142 mtoe Total: 836 mtoe

Brazil is the 1st country to reap benefits from Ethanol

Accumulated effective economy:1 Billion boe ~US$ 52 bi

During this period, ethanol

utilization saved 644 million ton.

of CO2 emission

1976 1980 1984 1988 1992 1996 2000 20041972

CNG

ETHANOL

GASOLINE

120000

140000

160000

10000

80000

60000

40000

20000

0

1000

BEP

PROÁLCOOLAlcohol Vehicles

Beginning of the sector deregulation

Source: MME, BEN 2006

End of regulation 1999 FFV

Alcohol Exports 2005

Because program is government regulated there are no benefits from KT but benefitsof reduction in CO2 emissions have already materialized;

Used up to 10% in petrol, ethanol substitutes lead and MTBE as an oxygenate, withour any change in engines, without harmo to air or groundwater

Ethanol can be introduced also as a partial or full substitute for petrol: up to 25% (Brazil) partial motor adjustments require participation of automobile industry; up to/over 85% requires flex-fuel vehicles, consumer preference (price/performance).

Source:Henry Joseph Jr. ANFAVEA - Volkswagen

• Ethanol price lower than petrol• Guaranteed return to ethanol producer• Lower taxes for ethanol powered vehicles• Loans to increase ethanol production• Service stations obliged to sell ethanol• Strategic inventories of ethanol

Of the original incentives to promote ethanol only lower taxes on vehicles have survived the whole program because of benefits to car manufacturers and consumer preferences:

Other tax incentives may be applicable such as circulation taxes, higher taxes on petrol vis a vis ethanol

0

2

4

6

8

10

12

14

16

18

20

US$

/GJ

2002

Ethanol prices in Brazil Rotterdam regular gasoline price

Quais seriam os motivos do diferencial de produtividade brasileira ?

1980 199519901985 2002

Source: Goldemberg 2004

103,3% 110,0%

0

20

40

60

80

100

120

140

Power

Gasoline 100% Gasohol 22% Ethanol 100%

110,0%

132,4%

Consumption

Ethanol Engine Relative Performance*Greater production cost reduction when compared to gasoline.

*Source: Volkswagen (Brazil) - Presentation prepared for review within The Warren Centre for Advanced Engineering at Sydney University

• Substantial savings can and have been achieved in costs of reducing CO2 emissions through renewable fuels but which are not addressed by Kyoto Treaty

Brazil has already made substantial progress in cost reduction of ethanol

• While most oil and product pipelines run from the south to northeast, north or southwest;• Shipment in the Pacific will have a comparative advantage in supplying California.

US Ethanol producers are concentrated in upper mid-west with little or no integration with oil facilities

Incentives are required to develop logistics for renewables in the USA for example;Such as those that exist and are being expanded in Brazil.

Ethanol Logistics System in Brazil

Diferenças de produtividade na cana de açúcar

Source: FAO

0.2

0.6

1.7

2.2

Asia andPacific

Europe NorthAmerica

LatinAmerica

Potential Arable Land(1.000 ha per capita)

61.455.6

48.6

13.9

Asia andPacific

Europe NorthAmerica

LatinAmerica

% of Potential Arable Land actually in use

• Incentives are required to associate better use of natural resources which could contribute in reducing and not transferring CO2 emissions;• Availability of lands, water and low labor cost also benefit production in Central and South America.

Latin America has the largest potential arable land per capita and only uses 13,9% of it.

72.4169.34 71.13 73

67.77

Asia USA CentralAmerica

SouthAmerica

Brazil

Sugar-Cane Productivity

Yeld per Hectar

1000

Kg/

Ha

World Average

Latin America offers excellent potential to increase ethanol production

Diferenças de produtividade na cana de açúcar

33% of the world’s internal renewable water resources are concentrated inCentral and Latin America;

Internal renewable water resources

(m³ per capita – 1997)

6.984

27.673

33.097

0

5000

10000

15000

20000

25000

30000

35000

World Latin America andCaribbean

Brazil

Source: FAO

73%

19%

9%

20%

9%71%

Agriculture Domestic Industrial

21%

18%

61%

Brazil

World

Latin America andCaribbean

Annual water use by sector

Raw Material Energy output / energy inputWheatCorn

Sugar Beet

Sugar Cane (under Brazilian Production Condictions)

1.21.3 – 1.8

1.9

8.3

Increasing Efficiency in Raw Material Use is not addressed in KT

TomorrowPotential ethanol production would grow by more than 100% based on Lignocelluloses Biomass technology

1 metric ton of sugar cane

Molasses yields only 85 l of ethanol,

But

Cane bagasseyields 185 L of ethanolBase calculation

15

Energy output/input ratio is likely to be greater in tropical climates


Petrobras 2011 CO2 Emission Targets

To allow the definition of the targets, future GHG emissions were estimated based on the Company’s Business Plan for 2007 – 2011, adopting 2005 total GHG emission as an initial reference. The BAU baseline defined this way was then used as a reference to set yearly avoided GHG emission targets, as shown in the following table:

The total amount of GHG emissions to be avoided from 2006 to 2011 (18.5 million tonnes of CO2 equivalent) is equivalent to about 36% of the 2005 emission figure (51.56millionCO2e)

7.60% 7.60%8.10%6.90%3.50%2.20%Percentage of baseline year emissions

3.933.934.153.561.791.13Avoided GHG emission target (million tones of CO2 equiv)

201120102009200820072006

In line with its sustainability objectives Petrobras has established its own emission targets apart from its efforts in renewable fuels.


• Bulk of projected emissions come from power generation not transport;

• China and India will benefit most from carbon trading and emission limitations because of coal and oil requirements for power while Russia and Brazil use more cleaner natural gas and hydro for power;

• Renewable fuels are flexible in their implementation but require adequate incentives and taxation mechanisms to encourage participation of entire energy chain (producers, distributors, car manufacturers and consumers)

• Comparative advantage of production in the tropics of renewable fuels requires revision of agricultural trade barrierswhich are not provided for in Kyoto.

Summary

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Financial times petrobras_190607