PDVSA’s Joint Venture With Petrobras: A Sign of Brazil’s Increasing Influence

Via Stratfor (subscription required), an interesting look at a new partnership between Petroleos de Venezuela (PDVSA) and Petroleo Brasileiro SA (Petrobras) to establish a joint-venture company to build and operate the Abreu e Lima refinery in northeastern Brazil’s Pernambuco state.  As the article notes:

“…Under the agreement, Petrobras will own a 60 percent stake in the refinery and PDVSA will own a 40 percent stake. The refinery is expected to process 230,000 barrels per day (bpd) to supply Brazil’s domestic market with diesel and liquefied petroleum gas, specifically northeastern Brazil, where demand is high. Approximately half the crude oil processed by the refinery is expected to come from the Carabobo bloc of Venezuela’s Orinoco Belt, an area jointly explored by PDVSA and Petrobras. The oil from this area of Venezuela is some of the heaviest, sourest crude in the world, and refining it is a technological feat.

While the joint venture with Venezuela would greatly reduce Brazil’s current reliance on 150,000 bpd of certain imported oil products, of far greater significance is PDVSA’s transference to Petrobras of the ability to refine heavy, sour crude. This key addition to Petrobras’ expanding repertoire will help it adapt to the oil industry’s challenging, shifting demands, especially as heavy, sour crude becomes an increasing share of the world’s remaining supplies.

While Brazil has an estimated 12.6 billion barrels of proven oil reserves, they are mostly difficult-to-access deep-water deposits. As a result of this challenge and of laws forcing Petrobras to compete with international rivals, Petrobras has developed and implemented some of the most advanced oil drilling and production technologies anywhere. What Petrobras lacks, however, is the capacity to refine the kind of extra-heavy and extra-sour crude produced in countries like Venezuela.

Despite the mismanagement and complacency that now often characterizes Venezuela’s declining oil industry, PDVSA still possesses advanced refining technology. PDVSA has had to acquire and develop advanced refining capabilities to develop the Orinoco Belt region. Though the area contains some of the world’s largest deposits, the oil there is heavy and contaminated with sulfur. Consequently, outside Venezuela, only companies in the United States and a handful of other countries have the refining capability to process it.

Production from the majority of the world’s easily accessed fields of sweet, light oil either has peaked or is in decline. To offset these declines, many oil-producing nations have had to produce from new fields (which are smaller and located in increasingly remote and inhospitable environments) and to produce oil from less desirable or nontraditional sources, such as tar sands or oil shale. Consequently, the types of crude oil that will be available on the global market will increasingly trend towards the heavy and sour. The trouble for oil companies is that the technology required to process heavy, sour crude is complicated and difficult to develop. But fortunately for Brazil, Venezuela has this technology.

When combined with Petrobras’ current expertise in deepwater exploration and production, new advanced refining capabilities will mean that Petrobras could come to possess the ability to access and process crude from almost any commercially viable deposit on the planet.”



This entry was posted on Wednesday, November 4th, 2009 at 4:25 pm and is filed under Brazil, Petroleo Brasileiro, Petróleos de Venezuela, Venezuela.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.