September 09, 2018

Brazil: Refinery Fuel Market Outlook

Stratas Advisors

Brazil, the world’s fifth largest in terms of population (206 million), has clustered urban areas where road transportation predominates. As a result, it has one of the world´s largest fuel markets and great importance in the South American and Central American region. It has high fuel consumption (total gasoline and diesel demand 1,986 Mbpd) and it is is projected to rise despite the slowdown of the economy, which is still recovering from the oil price downturn.

The Brazilian transport fuel market is considerably different than other markets due to the pre-eminence of biofuel use and availability, especially ethanol.

Current State of Fuel Market

Brazil’s refinery capacity is 2,249 Mbpd with a conversion ratio of 34%, which needs further investment considering the country’s consumption mix in which light clean fuels (diesel and gasoline) demand dominates.

The table below breaks down Brazil’s refinery capacity by unit type.

 

Process

Capacity (Mbpd)

2017

Crude Distillation

2249

Vacuum Distillation

812

Downstream Units

 

Light Oil Processing

Reforming

24

Isomerization

0

Alkylation

6

Polymerization

0

Conversion

Coking

234

Catalytic Cracking

531

Hydrocracking

0

Hydroprocessing

Gasoline

69

Naphtha

51

Middle Distillates

333

Heavy Oil/Residual Fuel

12

Other

 

Hydrogen MMcfd

251

Sulfur, t/d

849

Source: Stratas Advisors

For 2017, Brazil’s total gasoline and diesel demand was 1,986 Mbpd. Gasoline demand includes E100 and ethanol blending. Demand of petrol (gasoline) was 60.2 % of total on-road transport fuel demand. The refining capacity and degree of complexity of refineries has proven to be insufficient to supply market needs; hence, there is a gap in both gasoline and diesel consumption that is filled with imports.

All petroleum matters in Brazil are regulated by Agência National do Petróleo, Gás Natural e Biocombustíveis (ANP), known as the National Agency for Petroleum, Natural Gas and Biofuels. Current gasoline specifications are defined in Resolution ANP 40/2013, which specifies four gasoline grades: regular and premium type A (before blending with ethanol) and regular and premium type C (containing 18 to 27% vol of ethanol). The maximum sulfur limit is 50 ppm for gasoline C.

Current diesel regulations specify three diesel grades: S10, S500 and S1800. S1800 is restricted for use in the off-road sector while S10 and S500 (with sulfur limits of 10 and 50 ppm, respectively) are used in the on-road sector

Since the 1970s, Brazil has mandated the blending of anhydrous ethanol into gasoline. The blended fuel, gasoline C, is consumed by both conventional passenger vehicles (CV) and flex-fuel vehicles (FFV). The FFV category, along with ethanol-dedicated vehicles (EDV), can also run on pure ethanol (E100).

In 2017 the majority of Brazil’s vehicles are split between conventional flex-fuel (FFV), ethanol and gasoline C vehicles. The FFV segment makes up the majority share of the fleet at 38%, while diesel accounts for 34.6% and the petrol makes up about 27% of the light vehicle fleet.

 

Fuel Market Outlook

Brazil continues to face economic challenges driven by the slowdown in the global commodity markets and structural issues around income inequality and corruption that have delayed or precluded the expansion of the refining infrastructure. A recent example is the Abreu e Lima refinery near Recife ─ Brazil’s first, built in 1980 ─ which has been affected by a corruption scandal resulting in Pretrobras (the state oil company that owns the majority of refineries in the country) paying a higher cost to complete the project.

Petrobras is unable to meet gasoline and diesel fuel demand from local refineries, forcing them to import fuel at a loss because of domestic price control. No refining investments are expected during the time frame of study (2018-2040). Biofuel producers will be forced to ramp up production fill the gap left in the fuels market. Over the long term, ethanol production and consumption slightly outpaces gasoline demand growth, with hydrous ethanol reaching a market share of about 27%.

Projected supply and demand of gasoline (including biofuel) and diesel are shown below. Demand of gasoline is projected to increase at a CAGR of 0.75% and demand of diesel is projected to decrease at a CAGR of 0.25% through the study period (2017-2040). On the other hand, the supply of biofuels is projected to increase and supply of diesel is forecast to remain relatively flat.

 

 

 

Conclusion

The current and future outlook of the supply and demand of transportation fuels (gasoline and diesel) in Brazil shows the prospects of increased domestic gasoline demand is a favorable scenario for investments to expand the production of gasoline and biofuels. However, Brazil is facing political and economic instability, which will affect refining investments. Efforts to bridge the supply-demand gap will be focused in biofuels production expansion.

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