PDVSA, Petrobras agree on Abreu e Lima refinery

As predicted by Brazil’s President Luiz Inacio Lula da Silva, Petróleos de Venezuela SA (PDVSA) and Petróleo Brasileiro SA (Petrobras) have finally reached agreement concerning the Abreu e Lima refinery under construction in the Brazilian state of Pernambuco.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Aug. 6 – As predicted by Brazil’s President Luiz Inacio Lula da Silva, Petróleos de Venezuela SA (PDVSA) and Petróleo Brasileiro SA (Petrobras) have finally reached agreement concerning the Abreu e Lima refinery under construction in the Brazilian state of Pernambuco.

“There is currently nothing pending in the negotiations,” said Paulo Roberto Costa, Petrobras’ downstream director. “All of the issues regarding the investment plan, oil purchases, and distribution have been set.”

Earlier talks had stalled when PDVSA sought better-than-market prices for the oil it would provide for processing at the refinery. The Venezuelan state firm also wanted to sell oil products from the refinery in Brazil.
However, following discussions with Venezuelan President Hugo Chavez, Lula said in June that major disagreements preventing joint projects by the two sides would be cleared up within 3 months (OGJ, June 8, 2009).

Following talks this week, PDVSA agreed to follow local rules to distribute fuels from the Abreu e Lima facility, with international oil prices as the benchmark.

Costa said that final agreement on the Abreu e Lima refinery will be signed next month during a meeting between Lula and Chavez.

Petrobras is said to have invested $2 billion in the refinery already, while Venezuela is expected to announce $500 million in funding during the September signing by the two presidents.

The cost of the refinery, originally budgeted at $4.5 billion, will certainly rise, according to Costa who said much has changed since the budget forecast was made 3 years ago.

Cost overruns on site work for the refinery have become part of an inquiry by Brazil’s Senate into alleged “irregularities” at Petrobras, which said in April that overruns had reached $55 million.

The Abreu e Lima refinery is considered a key component in plans by Petrobras to increase Brazil’s refining capacity to 3.6 million b/d by 2015, up from current capacity of 1.9 million b/d.

The joint venture facility—owned 60% by Petrobras and 40% by PDVSA—is designed to process 230,000 b/d of oil, with each partner providing 50% of the oil. The refinery, now 15% complete, is due to begin operations by 2011 and will produce diesel, LPG, naphtha, and coke.

Contact Eric Watkins at hippalus@yahoo.com.

More in Refining & Processing