ANALYSIS-Booming economy may require Brazil to import oil

Brazil may be at the edge of another fuel importing spree as gasoline is now a better bargain than sugar-cane ethanol. But this round of foreign purchases may not ease up as quickly as last year’s.

Brazil’s booming economy has boosted fuel consumption, and domestic output of liquid fuels — ethanol and oil products — lags demand.

 This may mean more frequent imports of gasoline — until recently unheard of — and greater purchases of diesel and jet fuel until at least 2013 when state oil company Petrobras is slated to open a new refinery.

Though relatively small, the imports will further strain a tightening global oil market and continue a trend of demand surprises from Latin America — a region often overlooked by oil traders who tend to look east for such shocks.

“In these first two months of the year we sold a lot of gasoline, we are not yet importing, but it’s obvious that we’re going to have to review (demand assumptions),” said Petrobras Supply Director Paulo Roberto Costa.

Brazil’s discovery of massive offshore oil reserves and vast expansion of its sugar cane ethanol program over the last five years have left the nation celebrating energy independence and preparing to become an oil exporter.

Few doubt Brazil will ultimately reach that goal — but the near-term reality has become more complicated. The economy has been growing faster than expected, while also using more petroleum-based fuels than in the past.

Petrobras figures show consumption of oil products last year grew faster than the expected 2010 GDP growth of around 7 percent. This reversed the historic trend in which oil consumption grew more slowly than the economy.

Petrobras CEO Jose Sergio Gabrielli said this month the company expects to import less gasoline in 2011 than in 2010, and the company said on Thursday it produced record amounts of gasoline in January “to supply the Brazilian market without resorting to imports.”

DEMAND HEATS UP

Brazil’s refineries are running above 90 percent capacity, the next new facility is not slated to start for at least two years, and the sugar sector is slowing investment in ethanol — making imports look more likely in the coming years.

Petrobras imported gasoline for several months at the start of 2010 as a slack cane harvest pushed up ethanol prices. Brazil imported at least two cargoes of naphtha last month.
“In general there is greater demand for clean products in Latin American and South America than the conventional wisdom would have you believe,” Jan Stuart, a global oil economist with Macquarie Securities in New York said.

“(Demand in Brazil) is part of a broader story, it’s part of the reason why Gulf Coast refiners have found export markets that they hadn’t seen before.”

Brazil’s gasoline sales rose 18 percent to 399,000 barrels per day (bpd), nearly twice the increase Petrobras had expected last year, as the country’s light vehicle fleet expanded.
Growing air travel by Brazil’s middle class helped spur a 17 percent jump in jet fuel sales from the year earlier, reaching 117,000 bpd.

Diesel consumption should also rise as Brazil’s farm sector, which relies on diesel-powered trucks to carry goods across the vast country, keeps expanding output this year. Petrobras has not yet released 2010 figures for diesel sales.

ETHANOL SUPPLIES

Drivers of Brazil’s flex-fuel cars, which can run on any combination of ethanol and gasoline, are already switching toward fossil fuel as the relative price has moved away from the biofuel in nearly every state in the country.

“I’m filling up with gasoline, ethanol has gotten more expensive,” said Georgina da Costa, 42, a lawyer who was fueling her Volkswagen in downtown Rio.

While this sort of seasonal change happens most years, an evolution of sugar-sector investments toward the sweetener itself and away from ethanol indicate the sector will struggle to meet growing demand from the expanding vehicle fleet.

“We see millers in Brazil giving priority to capacity expansion for sugar … and less on crushing capacity expansion,” Plinio Nastari, an analyst with the consultancy Datagro said, adding this will keep ethanol prices higher in 2011.

Domestic refinery output will not rise until 2013, when Petrobras is slated to open the 230,000 bpd Abreu e Lima refinery that will mainly produce diesel.

That refinery has been delayed by disagreements with the 40 percent partner in the project, Venezuelan state oil company PDVSA.

The first phase of the Premium I refinery is expected to add 300,000 barrels of capacity by 2014, largely focused on producing ultra-low sulfur diesel.

Both projects will require considerable infrastructure investments in isolated areas including expansion of port capacity and installation of power generation facilities, another factor potentially slowing their progress.

“Product demand continues to grow in Brazil and while there’s no new refining capacity coming on for several years, the company is working to increase production from their existing refineries,” said Mark Routt, a senior consultant with KBC Advanced Technologies in Houston.
“Until larger projects come online, we’re likely to see Petrobras continuing to import gasoline and diesel.”