CNPC nears major Brazilian refinery deal

12 July 2018, Week 27, Issue 701

Petrobras and China National Petroleum Corp. (CNPC) are in talks on forming a strategic partnership that could see the Chinese company invest in the stalled Comperj refinery and Marlim cluster of fields in the Campos Basin in Brazil.

A heads of agreement (HoA) signed by the two state-run companies “defines the assets that are part of the scope of the partnership, within the concept of an integrated project, which includes the completion of the Comperj refinery and a participation in the Marlim cluster,” Petrobras said in a statement.

The structured agreement could see the Chinese firm be granted access to process output from the fields at Comperj. Reuters reported in April that the complex needs about US$3 billion in additional investment to reach an initial crude processing capacity of 165,000 bpd. The Chinese firm is likely to be granted access to enable it to process output from the fields at the refinery.

Production from three of the fields in the Marlim cluster (Marlim, Marlim Sul and Marlim Leste) in the Campos Basin fell from 446,000 boepd in May 2017 to 369,000 boepd in the same month this year, though Petrobras intends to install two new production platforms in the area by 2021. The agreement with CNPC for a stake in Marlim Sul would also include the adjacent Voador field.

The two companies initially discussed the broader plan in mid-2017, but terms could not be agreed.

Planning for Comperj goes back even further, with the project being unveiled in 2004 with a view to increasing Brazil’s self-sufficiency in fuel production and reducing imports.

Work on the two-train refinery and petrochemicals production project started in 2006, at which point operations were scheduled to start in 2012 and the project had a price tag of US$6.5 billion. By 2014, however, development costs had ballooned to an estimated US$13.5 billion, with that amount having been spent on the partial construction of just one train at the refinery.

The Chinese investment, if finalised, will be used to complete this part of the plant.

Enter the dragon

CNPC is a logical partner for Petrobras as it looks to reinvigorate Comperj. The integrated Chinese giant owns a string of oil refineries in its domestic market, and is also a major actor overseas.

Its foreign interests include the Shymkent refinery in Kazakhstan, as well as stakes in plants in Japan, Singapore and other locations, most notably in Africa. The company owns stakes in the N’djamena oil refinery in Chad, the Soralchin plant in Algeria and the Khartoum refinery in Sudan.

These projects have given CNPC extensive experience of project-managing new refining capacity in overseas markets that it will look to transfer to Comperj. The deal would also give China its first refining capacity in the Americas.

CNPC already has an upstream presence in Brazil via its 10% stake in the Libra pre-salt field in the Santos Basin. The company is developing the field with Petrobras alongside fellow Chinese investor CNOOC and European oil majors Total and Royal Dutch Shell. Its subsidiary CNOPC also has 20 per cent of the Peroba pre-salt block with Petrobras and BP.

Linking up its offshore footprint with investment in the Comperj refinery would afford the Chinese firm a more integrated presence in Brazil, which could serve as a blueprint for other international oil companies (IOCs).

That said, Petrobras’ plans to open the door to broader private participation in Brazil’s refining sector were dealt a blow last week. In April, the company said it would divide four refineries and associated logistics into two parcels – one in the northeast of Brazil and one in the south – and sell a 60% stake in each. But on July 3 the company suspended this plan after a decision by a Supreme Court judge ruled that Congress’ approval and a tender were needed before a change in the shareholder structure of assets owned by public companies could take place.

Petrobras also suspended the sales of a fertiliser factory and a gas distributor following the decision by Supreme Court Justice Ricardo Lewandowski.

Should this decision be overturned and the sales programme get back on track, Petrobras’ plan could have a transformative effect on the downstream sector in Brazil. But this depends on whether the company can retain control over its fuel pricing, a subject that is being hotly debated following government intervention to resolve a nationwide truckers’ strike in May. 

Potential investors could be drawn to the huge potential in the country’s downstream market. And like CNPC they might look to structure deals so that they take stakes in offshore fields to ensure a steady supply of crude oil feedstock for the refineries in which they invest.

This could see upcoming bid rounds in Brazil take on greater strategic importance, as IOCs take advantage of a unique opportunity to buy an integrated position in the country off the shelf.

Edited by

Andrew Kemp

Editor

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