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Petrobras to retain over half of fuel oil, bunker output  after Brazil refineries' sale


The Landulpho Alves Refinery (RLAM)

- Refineries to be sold encompass 46% of the fuel produced in 2021
- RLAM, purchased by Mubadala Capital, accounts for 20% of output

By Silvia Struthers / Platts

Petroleumworld 09 21 2021

The scheduled sale of eight of its refineries would leave Brazil's state-led oil company Petrobras in control of around half of the country's annual production of fuel oil and bunker fuel, according to data from the country's National Agency of Petroleum, or ANP.

The plants announced to be sold have produced from January to July, 27.415 million barrels of the fuels, which are not separated on the data. That volume constitutes 46.1% of Brazil's total output of the product, of 59.473 million barrels.

In comparison, the refineries which will be retained by Petrobras produced 30.448 million barrels, corresponding to 51.2% of all fuel oil output. Independent companies Riograndense and Dax Oil accounted for 2.7%, or 1.610 million barrels.

Exports of fuel oil have been an important source of revenue for Brazil since mid-2019, as its lighter crude grades have proved ideal for the production of ULSD and bunker fuel complying with the standard set in 2020 by the International Maritime Organization of fuel with a maximum 0.5%S sulfur content. Asia, especially Singapore, is the main recipient of the country's exports, with the Caribbean another important destination, according to market sources.

"I don't think the volume of exports will be affected, but I assume it will be more competitive," a bunker source familiar with the South American market said.

Exports of fuel oil and bunker fuel from Brazil tallied 45.786 million barrels in January-July 2021, or 77% of its production. "Fuel oil has really been a story of success for Brazil," said Lenny Rodriguez, Team Leader for Latin American Oil Analytics at S&P Global Platts.

RLAM, an important source of fuel oil output

Petrobras has already announced this year agreements for the sale of two refineries.

The Landulpho Alves refinery (RLAM), the second largest in Brazil with a crude distillation capacity of 333,000 b/d, will be purchased by Abu Dhabi's Mubadala Capital. The transaction has already received the approval of the country's antitrust regulator, CADE. However, the refinery is expected to change hands in around a year and a half.

RLAM also produces the highest volume of fuel oil among the refineries to be sold, with an output of 12.117 million barrels in 2021, or 20.4% of Brazil's total production. This proportion was even higher in 2020, as it constituted 32% of the country's production of 108.427 million barrels.

A deal for a second refinery, the Isaac Sabba (REMAN), was announced in end-August. It will be sold to a subsidiary of Atem Distribuidora de Petroleo, although it still needs regulators' approval.

REMAN's fuel oil production in 2021 amounts to 1.33 million barrels, or 2.4% of total output. It represented only 1.4% of 2020's volume.

RNEST, still controlled by Petrobras

The sale of a third refinery on the block, Abreu e Lima (RNEST), was stopped in August after the interested firms declined to offer a bid, prompting Petrobras to end the process saying it will evaluate the steps it will follow next.

With RNEST, Petrobras would have forfeited another big volume of fuel oil production, as it represented 11%, or 6.746 million barrels of output in 2021, as well as 10%, or 11.078 million barrels, of 2020's production.

The sale of the eight plants would reduce Petrobras' refining stake in Brazil from 98% to 50%, and it is part of a divestment program to open up competition and attract fresh investment in needed infrastructure that could lead to lower consumer prices.

However, the unsuccessful sale of RNEST might be signaling that plant and other refineries could remain in Petrobras' hands, analyst Rodriguez said, which could preserve the company's control in most of the country's fuel oil production.

Effects on the domestic market

S&P Global Platts assesses spot prices for marine fuel 0.5%S in the Brazilian port of Santos. The fuel has averaged $548/mt in September, its highest value since an average of $623/mt in January 2020. Domestic sales of fuel oil in Brazil in 2021 amount to 10.615 million barrels, according to ANP data.

However, a decline of production of fuel oil by the companies' new owners or stronger exports could result in tighter supply domestically, leading to higher prices and benefit competitors in South America, such as Argentina, where some of the demand could move, a bunker participant in the region said.

"Any refiner owner aims for the optimization of a plant's diet to obtain the highest margin possible from refining", Rodriguez said, but decisions on what type of production RLAM will prioritize will depend on the new owner's strategies.

One issue to consider, Rodriguez said, is that Brazil is short in diesel production.

The other refineries in the process of being sold are REPAR, REFAP, REGAP, LUBNOR and SIX. The data from ANP shows no production of fuel oil in SIX.

Petrobras will keep the 434,000 b/d REPLAN refinery, the biggest in Brazil, as well as REVAP, REDUC, RPBC, RECAP and RPCC.

"It will be positive regarding investment to improve production in the refineries. It is going to be a very interesting process," the source familiar with the South American market said.


By Silvia Struthers; Editor Agamoni Ghosh from S&PGlobal Platts / 09 20 2021



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