Brazil, Venezuela at impasse over Abreu e Lima refinery

Feb. 13, 2009
State-run oil firms Petrobras and PDVSA are still at odds over the planned Abreu e Lima refinery, one of several developments discussed by Paulo Roberto Costa, Petrobras supply and refining director.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 13 -- State-run oil firms Petroleo Brasileiro SA (Petrobras) and Petroleos de Venezuela SA (PDVSA) are still at odds over the planned Abreu e Lima refinery, one of several developments discussed by Paulo Roberto Costa, Petrobras supply and refining director.

According to Costa, the impasse is due to PDVSA's attempts to impose conditions on its participation in the $4 billion refinery project, which may lead to its exclusion. "If they [PDVSA] maintain this position, the partnership will be unfeasible," said Costa.

"We greatly hope we can close this contract deal," he said. "But, to do that, they need to change their conditions. If this doesn't happen, there won't be an agreement." Plans called for the 230,000 b/d refinery, located in the Brazilian state of Pernambuco, to be operational by 2011.

Costa said PDVSA needs to change its position on the price of crude to be imported from Venezuela and drop its demand that its 40% of the oil refined at the site be put onto the consumer market of northeastern Brazil.

Petrobras the price for PDVSA's oil to be determined by the same price formula as is oil from Brazil's Campos Basin. That amounts to the international Brent quote, plus a discount since Venezuelan oil is heavier than the international average.

PDVSA wants instead a "factor X" that has the discount decided by a figure chosen by the Venezuelan government, but that's a non-negotiable point for Petrobras. "I can't sign a contract where the value is left open and will be decided by the other party on a random basis. We can't accept that," said Costa.

As for PDVSA's demand that its 40% of the oil refined at the site be sold directly on the consumer market of northeastern Brazil, Costa said Petrobras wants the Abreu e Lima to be a "mirror" for other units in the country such as Refap in the state of Rio Grande do Sul, where Repsol will have a 30% stake.

"We sell indistinctly refined oil to all distributors," said Costa. "We're helping the small distributors who might go bust if PDVSA were to sell all its oil to a single unit or at under the market average."

Costa expects soon to discuss the situation with Venezuelan Energy Minister Rafael Ramirez. Last month, Ramirez denied any conflict with Brazil over the refinery project (OGJ, Jan. 27, 2009).

Petrobras may cancel tenders
Meanwhile, Petrobras may cancel four of the main tender packages for the Abreu e Lima Refinery project because of excessive prices tendered for construction of the hydrocracker, distillation units, the coking plant, and connections.

"We're negotiating as much as we can with a view to cutting the prices presented, but we're not having the success [we] hoped for," said Costa, who added that the prices offered by the bidders were made when the market was very heated, unlike now.

"We won't accept high prices," said Costa, who added that even in the last quarter of 2008 some tender prices fell by about 5%. "But apart from that fall, we expect a reduction of at least 15% to be seen in this first quarter," he said.

In other developments, Costa said Petrobras will bring forward by 6 months the first phase of operations at two premium refineries to be built in the northeastern Brazilian states of Ceará and Maranhão.

Costa said the Maranhão unit will start its first phase, operating at half of its 600,000 b/d capacity, in the first half of 2013 and will be operating at full capacity in 2015. The Ceará refinery will initially process 150,000 b/d as from the end of 2013 and will reach its full 300,000 b/d capacity by the end of 2015.

Contact Eric Watkins at [email protected].