Petrobrás and PDVSA sign another document for construction of Abreu e Lima refinery

Venezuela has the world’s largest known reserves of petroleum. But, the oil is heavy crude. Brazil also has a lot of heavy crude. So, what is the problem? Well, it turns out that heavy crude is a type of petroleum that differs from the more popular light crude in many ways. Heavy crude has a higher sulfur content and greater levels of viscosity and density, all of which make it much more difficult and expensive to refine. In one of the paradoxes of the international petroleum market, both Brazil and Venezuela find it makes more economic sense to export domestic heavy crude and import refined fuels – mainly, gasoline and diesel.

Brazil and Venezuela have long desired to build a refinery that could handle their heavy crude. That refinery finally got off the drawing board almost five years ago. With much fanfare, presidents Luiz Inacio Lula da Silva and Hugo Chavez signed agreements and contracts in 2007 and work on Abreu e Lima Refinery began.

It was located near Recife, in the state of Pernambuco, and it was baptized Abreu e Lima after a Brazilian military officer who fought alongside Venezuela’s national hero, Simon Bolivar, in the South American Wars of Independence.

The problem is that so far only Brazil’s Petrobras has been involved in the construction that is now nearly half completed. Petrobras is presently negotiating a R$9 billion loan from the Brazilian Development Bank (“BNDES”), of which Venezuela’s state-run petroleum company, PDVSA, is supposed to ante up 40% (R$3.6 billion). However, as PDVSA has not put a cent into the construction so far the BNDES has asked for new contracts with rigid deadlines. Those contracts were signed last weekend.

Paulo Roberto Costa, a director at Petrobras, says that if the BNDES accepts PDVSA guarantees and PDVSA pays its part by November, the two companies will go ahead with the job. He points out that so far Petrobras has invested a lot more than it was originally supposed to in the project, but that the company is willing to complete the refinery by itself if there are further PDVSA delays.