Petrobras may expand fuel refining and reduce imports, government study indicates

Petrobras and other private refineries could expand national production of fuel to meet the demand of Brazilian consumers at a time when the need to import drives up prices at the pump, according to a study prepared by EPE (Empresa de Pesquisa Energética) and obtained by sheet.

The increase in the volume processed in the refineries would reduce the external dependence of diesel, whose charge at the stations accumulates a high of 40.54% in the 12 months until February 2022, in the wake of the recent rise in the price of a barrel of oil and the dollar.

In the case of gasoline, the intensification of refining could restore Brazil’s status as a net exporter of the fuel – which would tend to alleviate the pressure on prices.

The need to import fuels to supply the demand in the domestic market is one of the factors used by Petrobras to justify the use of the PPI (import price parity) as a reference for its commercialization prices in the refineries.

Petrobras claims to be unaware of the study. According to the company, the use of refineries in March was 91%, with maximum load in the units available for the production of diesel and gasoline.

On March 11, the company announced a mega-increase in fuel, with increases of 24.9% for diesel, 18.8% for gasoline and 16.1% for cooking gas. The company claimed risk of shortages, if prices were dammed.

The EPE’s diagnosis was made at a time when the rise in fuel prices is causing the government a headache. A Datafolha survey shows that 68% of Brazilians attribute responsibility for the increases to President Jair Bolsonaro (PL). The chief executive intends to seek re-election in 2022.

The mega-increase amplified the attrition of Petrobras president Joaquim Silva e Luna, who was eventually fired by Bolsonaro.

as showed the sheetthe PPI methodology has faced increasing criticism, including within the team of Minister Paulo Guedes (Economy).

The PPI methodology takes into account the reference price of the fuel in the global market, the freight price to bring it to Brazil, the cargo insurance and even the Additional to Freight for Renovation of the Merchant Marine (AFRMM), a tax levied on the navigation.

For members of the economic team, the company, which refines a good part of its fuel in the national territory, should not incorporate costs with international freight and cargo insurance.

In this context, the idleness of Petrobras refineries also came into the crosshairs due to the suspicion that the company manipulates its production to maintain external dependence on fuels, allowing the collection of higher prices, with greater profit margins. The company denies the practice of this conduct.

The study includes 12 Petrobras production units, which concentrate 83.8% of the analyzed capacity, and another six private refineries, with a smaller share of production.

The simulations do not measure the effect of the increase in production on the price charged to consumers, nor the financial costs for companies.

Author of the study, EPE is a public company, linked to the federal government. It subsidizes the MME (Ministry of Mines and Energy) with research aimed at energy planning in the country.

The MME confirmed to the sheet that the EPE study on the possibility of increasing refining in Brazil was distributed, “in a restricted way”, to the Monitoring Committee for the National Supply of Fuels and Biofuels.

The collegiate was created on March 10 —​the same day that Petrobras announced the mega-increase. The meeting reserved to discuss the EPE diagnosis took place on March 18.

According to the ministry, the document represents “a theoretical and preliminary exercise on the entire national refining park and not just on the Petrobras refineries”, and the assumptions used can be revised, especially in a context of high uncertainty.

“The study does not have the power to guide the policy of any of the economic agents that operate in the oil refining segment”, says the MME, emphasizing that both the activity and the prices adopted are the free initiative of the economic agents. In practice, the government cannot order companies to expand their production.

Petrobras says analyzes are wrong

Petrobras claims that “there are mistaken analyses” pointing out idleness in its refineries because the basis of comparison should be the maximum operating load, and not the capacity authorized by the ANP (National Petroleum Agency), the sector’s regulatory body.

Petrobras also says that its refineries are operating “at their maximum capacity, considering adequate conditions of production, safety, profitability and logistics”. According to the company, these conditions consider the performance of each unit, the safety levels and also the storage and transport capacity of inputs and fuels already refined.

“In the case of refineries operating above adequate capacity, there is a risk of problems such as, for example, excessive production of low-value products and lower demand; difficulties in storing products; or logistical unavailability for the flow of produced derivatives”, says the Petrobras.

The company also states that “the level of use of Petrobras refineries does not define the price of fuel in Brazil”.

The EPE study simulates a scenario in which refineries operate with the so-called 100% load factor. Between 2016 and 2021, this indicator was well below that, between 75% and 80%, although there are precedents of operation close to full capacity in 2013 and 2014.

According to the document, the expansion of refining to maximum levels would increase diesel oil production by up to 15%, with an increase of 113,000 barrels of diesel per day and a 43% reduction in net imports.

Comparisons are made with the volumes forecast for 2022 in the PDE (Decennial Energy Plan), another document in which the EPE outlines prospects for future expansion in the energy sector. Possible occurrences or programmed stops of the units are not taken into account.

The national production of gasoline could rise up to 10% in relation to what was foreseen in the PDE, injecting another 48 thousand barrels per day of the fuel into the market. With that, instead of a daily net import of 35 thousand barrels of gasoline, Brazil would have a net export of 13 thousand barrels a day.

Net imports of cooking gas would also fall by 18,000 barrels a day, facing an increase of up to 9% in production.

Despite these results, most of the gains would be in fuel oil, a derivative with lower added value of which Brazil is already an exporter, that is, it produces more than enough to meet demand. The additional volume of 269 thousand barrels would represent 46% of the additional refining. The country would need to find ways to sell this production, practically tripling its exports.

Sought, the EPE did not manifest itself until the publication of this text.

technicians heard by sheet claim that the concentration of gains in fuel oil is a hindrance, as it is not this derivative that Brazilian consumers need most at the moment.

On the other hand, the EPE simulation shows that the share of diesel in incremental production is 25%. This point is mentioned in the document as a “relevant issue”, since Brazil currently depends on imports.

The biggest challenge in this equation would be precisely to find ways to maximize the production of diesel, since the expansion of refining does not translate into an increase in the supply of fuel in the same proportion.

The ideal, according to these technicians, would be to arrive at an operating model in which the units concentrate any additional effort on refining diesel, gasoline and LPG, in which Brazil has a deficit.

Critics of Petrobras point out that the level of production and refining is at the same level as in the early 2010s, despite the inauguration of the Abreu e Lima refinery, which expanded the company’s capacity.

In an election year, the increase in fuel prices affects the general population, especially truck drivers, a category that makes up the president’s electoral base. In addition, it contaminates the prices of other items (especially food) due to increased transport costs. A good part of the loads are moved by diesel trucks.

The government articulated with the National Congress the approval of a law that exempts diesel, cooking gas and aviation kerosene from the PIS/Cofins collection until the end of this year. But pressure continues for additional measures, particularly to curb gasoline prices.

The president even publicly defended a cut in gasoline taxes, a measure that could benefit taxi drivers, delivery people and app drivers. But the initiative is considered expensive and ineffective by Guedes’ team.