Analysis: Petrobras fuel woes make Brazil dependent on U.S., India

Wed Jan 22, 2014 10:23pm EST
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By Jeb Blount

RIO DE JANEIRO (Reuters) - In October 2007, Brazilian President Dilma Rousseff, then chairwoman of state-run petroleum company Petrobras, proudly predicted that giant new offshore oil fields would usher in an age of Brazilian energy independence.

Six years on, the opposite has occurred. Rousseff's push to develop offshore crude, her fuel-price controls and other energy policies have hobbled the country's refining sector, robbing it of funds for expansion. As a result, Petroleo Brasileiro SA (PETR4.SA: Quote), as Petrobras is formally known, has been forced to look abroad for fuel.

With a dozen decades-old domestic refineries running at what experts say are dangerously high rates to keep pace with expanding demand, Brazil's cars and trucks are increasingly powered by gasoline and diesel refined in the United States or India. Imports likely reached a record last year, meeting about a fifth of local needs.

And the situation is likely to worsen before it gets better. New refineries will only begin narrowing the import gap in 2015 and Rousseff's pricing policies and tougher maintenance rules mean significant new Brazilian refining capacity is at least three years away, probably more. All four refineries planned by Petrobras are years behind schedule or on hold.

"Brazil has put an excessive focus on finding crude oil offshore and neglected refining," said João Castro Neves, Latin America analyst at the Eurasia Group in Washington. "Brazil is now dependent on imports in a way it hasn't been for years."

Brazil does not lack for oil. Petrobras has found giant offshore reserves south of Rio de Janeiro and after two years of stagnation, its crude oil output is set to rise in 2014.

Despite this, a rising share of the nation's gasoline and diesel comes from shale oil in Texas, Oklahoma and the Dakotas that is refined on the U.S. Gulf Coast. A rising portion also comes from India.

Instead of boosting Brazil's international power and influence by selling excess oil and fuel to what was a needy United States, Rousseff has promoted policies that have, so far, raised Brazil's dependence on U.S. supplies.   Continued...

The Petrobras University building is seen in Rio de Janeiro October 9, 2012. REUTERS/Ricardo Moraes