Market Insight by Al Greenwood

BRAZILIAN REFINING LAGS GROWTH IN OIL OUTPUT

Copyright 2017 Reed Business Information Ltd ICIS is a member of RBI and is part of RELX Group plc ICIS accepts no liability for commercial decisions based on this content

BY AL GREENWOOD JULY 2017

REFININGBRAZILIAN REFINING LAGS GROWTH IN OIL OUTPUT

HOUSTON (ICIS)--Brazilrsquos output of refined products has lagged behind its large increase in oil production

Oil production is important for Brazilrsquos petrochemical industry because the country relies overwhelmingly on naphtha as a feedstock for its crackers Brazilrsquos refineries produce naphtha when they process oil

Typically state producer Petrobras has supplied about 70 of the 10m tonnesyear of naphtha that Braskem needs for three of its four cracker sites in Brazil Braskem has imported the remaining 30

Braskem owns all of the countryrsquos crackers and the following table breaks down their capacities

For the Duque de Caxias gas cracker in Rio de Janeiro state oil production could supply them with ethane via associated gas In fact Braskem may double the capacity of the gas cracker Its decision will rest on whether it can secure enough ethane from Brazilrsquos pre-salt oil fields that lie offshore

So far the countryrsquos oil production has been remarkable

Output has more than recovered from the declines earlier this decade reaching an all-time high in 2016 as shown in the table below in barrelsyear

Source National Agency of Oil Gas and Biofuels (ANP)

Brazil is on track to reach another record this year

Those increases reflect investments that Petrobras made several years ago said Nymia Almeida vice president - senior credit officer for Moodyrsquos Investors Service

ldquoThey found huge reserves in 2010rdquo she said ldquoThey borrowed like crazy and they invested like crazyrdquo

Those investments are now bearing fruit for the country she said

However it is unclear whether Brazil can continue raising oil production Petrobras is responsible for much of the nationrsquos domestic oil production and it has taken a substantial hit from a massive pay-to-play corruption scandal called Lava Jato Portuguese for car wash

The scandal resulted in fines and settlements which stressed the companyrsquos finances Those came on top of low oil prices and debt payments For 2017 and 2018 maturing debt will total $19bn according to Moodyrsquos

Petrobras has committed itself to getting its finances in order and to achieving a debt to earnings ratio of 25X by the end of 2018 Almeida said

ldquoThey have been deliveringrdquo she said ldquoThe sentiment is they are doing everything they need to do operationally and financially to comply with their targetsrdquo

Earlier this year Moodyrsquos upgraded its Petrobras ratings to B1 and changed its outlook to positive

The companyrsquos financial discipline did come at a cost however It had drastically cut capital expenditures raising questions about whether the company will spend enough to develop new oil fields

In 2012 capital expenditures were about $41bn according to Petrobras In 2016 they were $16bn

The question is if these large cuts in capital expenditures will hit production and if so when

So far Petrobras has been lucky because it invested in Brazilrsquos pre-salt reserves and these have been prolific Almeida said

Any future increases in oil production is likely to come from Petrobras Although Brazilrsquos energy market is open it is still dominated by the company

CRACKER CAPACITY

Camacari 630000 tonneyear

Camacari 650000 tonneyear

Capuava 700000 tonneyear

Duque de Caxias 520000 tonneyear

Triunfo 200000 tonneyear

Triunfo 490000 tonneyear

Triunfo 755000 tonneyear

SOURCE ICIS

Copyright 2017 Reed Business Information Ltd ICIS is a member of RBI and is part of RELX Group plc ICIS accepts no liability for commercial decisions based on this content

Even if oil production does rise that will not automatically result in an increase in naphtha production In fact Brazilrsquos overall production of refined products has fallen even as oil output has reached new records as shown in the chart below in barrelsyear

The decline in naphtha has been more pronounced as shown in the chart below

Part of the reason for the disjunction between oil and refined-products output is the drop in capital expenditures by Petrobras Almeida said As part of the cuts in capital spending Petrobras had postponed or cancelledseveral refinery projects notably the two proposed trains at the Comperj site in Rio de Janeiro state

In addition Brazil had suffered through a deep recession in 2015-2016 This caused a decline in fuel demand

Almeida also pointed to competition from imports When fuel prices had fallen in much of the world Petrobras had kept its prices relatively high This encouraged third parties in Brazil to import cheaper fuels from overseas These imports would have lowered demand for the more expensive locally produced fuel

Given all of the factors at play it is difficult to predict what will happen to Brazilian naphtha production in the future A lot of it will depend on oil prices the financial and operational performance of Petrobras economic growth in Brazil and prices of imported fuel

Brazilrsquos refining industry could change if Petrobras finds partners in its refineries

The company had sought partners to complete the second phase of its Abreu e Lima refinery project in northeastern Brazil and the first refinery train at the Comperj project in Rio de Janeiro state

If these projects take off they could help reverse the declines in refined-products output in Brazil

GET ACCESS TO THE FULL ARCHIVE OF INSIGHTS FROM

ICIS NEWS BY REQUESTING A FREE TRIAL

Al Greenwood joined ICIS in 2007 after spending close to a decade writing for newspapers in Texas and North Carolina Now a deputy news editor at ICIS he focuses on Latin America mergers and acquisitions as well as market trends that can affect the prices of petrochemicals He is one of the major contributors to the Insight articles which provides an in-depth

look on factors affecting the petrochemical industry in the US and the rest of the western hemisphere Past

articles looked at natural gas liquids the impeachment proceedings of former Brazilian president Dilma Rousseff and the role slow growth has played in

chemical acquisitions and divestments

AL GREENWOOD DEPUTY NEWS EDITOR

ABOUT THE AUTHOR

BRAZILIAN REFINED PRODUCTS OUTPUT

SOURCE ANP

BRAZILIAN NAPHTHA PRODUCTION

SOURCE ANP

Copyright 2017 Reed Business Information Ltd ICIS is a member of RBI and is part of RELX Group plc ICIS accepts no liability for commercial decisions based on this content

BY AL GREENWOOD JULY 2017

REFININGBRAZILIAN REFINING LAGS GROWTH IN OIL OUTPUT

HOUSTON (ICIS)--Brazilrsquos output of refined products has lagged behind its large increase in oil production

Oil production is important for Brazilrsquos petrochemical industry because the country relies overwhelmingly on naphtha as a feedstock for its crackers Brazilrsquos refineries produce naphtha when they process oil

Typically state producer Petrobras has supplied about 70 of the 10m tonnesyear of naphtha that Braskem needs for three of its four cracker sites in Brazil Braskem has imported the remaining 30

Braskem owns all of the countryrsquos crackers and the following table breaks down their capacities

For the Duque de Caxias gas cracker in Rio de Janeiro state oil production could supply them with ethane via associated gas In fact Braskem may double the capacity of the gas cracker Its decision will rest on whether it can secure enough ethane from Brazilrsquos pre-salt oil fields that lie offshore

So far the countryrsquos oil production has been remarkable

Output has more than recovered from the declines earlier this decade reaching an all-time high in 2016 as shown in the table below in barrelsyear

Source National Agency of Oil Gas and Biofuels (ANP)

Brazil is on track to reach another record this year

Those increases reflect investments that Petrobras made several years ago said Nymia Almeida vice president - senior credit officer for Moodyrsquos Investors Service

ldquoThey found huge reserves in 2010rdquo she said ldquoThey borrowed like crazy and they invested like crazyrdquo

Those investments are now bearing fruit for the country she said

However it is unclear whether Brazil can continue raising oil production Petrobras is responsible for much of the nationrsquos domestic oil production and it has taken a substantial hit from a massive pay-to-play corruption scandal called Lava Jato Portuguese for car wash

The scandal resulted in fines and settlements which stressed the companyrsquos finances Those came on top of low oil prices and debt payments For 2017 and 2018 maturing debt will total $19bn according to Moodyrsquos

Petrobras has committed itself to getting its finances in order and to achieving a debt to earnings ratio of 25X by the end of 2018 Almeida said

ldquoThey have been deliveringrdquo she said ldquoThe sentiment is they are doing everything they need to do operationally and financially to comply with their targetsrdquo

Earlier this year Moodyrsquos upgraded its Petrobras ratings to B1 and changed its outlook to positive

The companyrsquos financial discipline did come at a cost however It had drastically cut capital expenditures raising questions about whether the company will spend enough to develop new oil fields

In 2012 capital expenditures were about $41bn according to Petrobras In 2016 they were $16bn

The question is if these large cuts in capital expenditures will hit production and if so when

So far Petrobras has been lucky because it invested in Brazilrsquos pre-salt reserves and these have been prolific Almeida said

Any future increases in oil production is likely to come from Petrobras Although Brazilrsquos energy market is open it is still dominated by the company

CRACKER CAPACITY

Camacari 630000 tonneyear

Camacari 650000 tonneyear

Capuava 700000 tonneyear

Duque de Caxias 520000 tonneyear

Triunfo 200000 tonneyear

Triunfo 490000 tonneyear

Triunfo 755000 tonneyear

SOURCE ICIS

Copyright 2017 Reed Business Information Ltd ICIS is a member of RBI and is part of RELX Group plc ICIS accepts no liability for commercial decisions based on this content

Even if oil production does rise that will not automatically result in an increase in naphtha production In fact Brazilrsquos overall production of refined products has fallen even as oil output has reached new records as shown in the chart below in barrelsyear

The decline in naphtha has been more pronounced as shown in the chart below

Part of the reason for the disjunction between oil and refined-products output is the drop in capital expenditures by Petrobras Almeida said As part of the cuts in capital spending Petrobras had postponed or cancelledseveral refinery projects notably the two proposed trains at the Comperj site in Rio de Janeiro state

In addition Brazil had suffered through a deep recession in 2015-2016 This caused a decline in fuel demand

Almeida also pointed to competition from imports When fuel prices had fallen in much of the world Petrobras had kept its prices relatively high This encouraged third parties in Brazil to import cheaper fuels from overseas These imports would have lowered demand for the more expensive locally produced fuel

Given all of the factors at play it is difficult to predict what will happen to Brazilian naphtha production in the future A lot of it will depend on oil prices the financial and operational performance of Petrobras economic growth in Brazil and prices of imported fuel

Brazilrsquos refining industry could change if Petrobras finds partners in its refineries

The company had sought partners to complete the second phase of its Abreu e Lima refinery project in northeastern Brazil and the first refinery train at the Comperj project in Rio de Janeiro state

If these projects take off they could help reverse the declines in refined-products output in Brazil

GET ACCESS TO THE FULL ARCHIVE OF INSIGHTS FROM

ICIS NEWS BY REQUESTING A FREE TRIAL

Al Greenwood joined ICIS in 2007 after spending close to a decade writing for newspapers in Texas and North Carolina Now a deputy news editor at ICIS he focuses on Latin America mergers and acquisitions as well as market trends that can affect the prices of petrochemicals He is one of the major contributors to the Insight articles which provides an in-depth

look on factors affecting the petrochemical industry in the US and the rest of the western hemisphere Past

articles looked at natural gas liquids the impeachment proceedings of former Brazilian president Dilma Rousseff and the role slow growth has played in

chemical acquisitions and divestments

AL GREENWOOD DEPUTY NEWS EDITOR

ABOUT THE AUTHOR

BRAZILIAN REFINED PRODUCTS OUTPUT

SOURCE ANP

BRAZILIAN NAPHTHA PRODUCTION

SOURCE ANP

Copyright 2017 Reed Business Information Ltd ICIS is a member of RBI and is part of RELX Group plc ICIS accepts no liability for commercial decisions based on this content

Even if oil production does rise that will not automatically result in an increase in naphtha production In fact Brazilrsquos overall production of refined products has fallen even as oil output has reached new records as shown in the chart below in barrelsyear

The decline in naphtha has been more pronounced as shown in the chart below

Part of the reason for the disjunction between oil and refined-products output is the drop in capital expenditures by Petrobras Almeida said As part of the cuts in capital spending Petrobras had postponed or cancelledseveral refinery projects notably the two proposed trains at the Comperj site in Rio de Janeiro state

In addition Brazil had suffered through a deep recession in 2015-2016 This caused a decline in fuel demand

Almeida also pointed to competition from imports When fuel prices had fallen in much of the world Petrobras had kept its prices relatively high This encouraged third parties in Brazil to import cheaper fuels from overseas These imports would have lowered demand for the more expensive locally produced fuel

Given all of the factors at play it is difficult to predict what will happen to Brazilian naphtha production in the future A lot of it will depend on oil prices the financial and operational performance of Petrobras economic growth in Brazil and prices of imported fuel

Brazilrsquos refining industry could change if Petrobras finds partners in its refineries

The company had sought partners to complete the second phase of its Abreu e Lima refinery project in northeastern Brazil and the first refinery train at the Comperj project in Rio de Janeiro state

If these projects take off they could help reverse the declines in refined-products output in Brazil

GET ACCESS TO THE FULL ARCHIVE OF INSIGHTS FROM

ICIS NEWS BY REQUESTING A FREE TRIAL

Al Greenwood joined ICIS in 2007 after spending close to a decade writing for newspapers in Texas and North Carolina Now a deputy news editor at ICIS he focuses on Latin America mergers and acquisitions as well as market trends that can affect the prices of petrochemicals He is one of the major contributors to the Insight articles which provides an in-depth

look on factors affecting the petrochemical industry in the US and the rest of the western hemisphere Past

articles looked at natural gas liquids the impeachment proceedings of former Brazilian president Dilma Rousseff and the role slow growth has played in

chemical acquisitions and divestments

AL GREENWOOD DEPUTY NEWS EDITOR

ABOUT THE AUTHOR

BRAZILIAN REFINED PRODUCTS OUTPUT

SOURCE ANP

BRAZILIAN NAPHTHA PRODUCTION

SOURCE ANP

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