Competition can bring effectiveness to refineries, says study

The need for high investments and low returns are identified as the main obstacle to the advancement of refining in Brazil, which must rely on private competition to ensure effectiveness in the sector, according to a study by economists Adriano Pires, Luana Furtado and Samuel Pessôa, published on the blog from the Brazilian Institute of Economics of Fundação Getulio Vargas (Ibre-FGV).

Citing Petrobras as a major driving force in the sector in the country, economists estimate the value of the oil company’s investments in refining from 1954 to 2021 at US$ 133.5 billion. Of this total, US$ 91 billion were invested between 2007 and 2014.

That is, in a period that corresponds to 12% of the total, the company invested 68% of all investment in refining in its history. The return from this recent strong investment cycle, however, did not keep up with the financial effort.

In 2003, Petrobras’ refining capacity was 2.03 million barrels per day (b/d). In 2020, it went to 2.41 million b/d, an increase of just under 400,000 b/d.

“The investment was very inefficient: to install 2.03 million b/d of refining capacity, Petrobras invested, between 1954 and 1999, US$ 24.7 billion; and for the installation of 400 thousand b/d of refining capacity, between 2003 and 2015, the investment was US$ 100 billion. The relative effectiveness was 20 times greater in the first decades”, summarize the experts.

For them, if there is not a substantial reduction in the cost of investment in refineries in the country, it will not be possible to increase domestic refining capacity.

Changes in the sector would bring investments

Were it not for the high costs of the sector, domestic demand for oil derivatives could be met domestically, economists argue.

“The country already produces oil in an amount capable of meeting domestic needs. A compatible refining park would be able to meet the domestic demand for derivatives, providing foreign exchange in the trade balance and ensuring security in domestic supply”.

Improvements in this regard include changes in the sector’s regulation, said Adriano Pires, director of the Brazilian Infrastructure Center (Cbie), to CNN .

Samuel Pessôa links eventual regulatory changes to greater attractiveness for companies.

“Perhaps it would be more effective to change the entire regulation of the sector so that the construction of refineries, if and when it is profitable, is in charge of private companies”, he wrote in his column in this Saturday’s Folha de S. Paulo.

THE CNN Samuel Pessôa reiterated that changes in the regulation of the sector could bring greater effectiveness to investments in refineries.

According to Pessôa, Brazil can “build conditions for the oil sector to [exploração, prospecção, refino e distribuição] stay mostly with the private sector.”

One of the authors of the study, Samuel Pessôa, does not rule out, however, the regulation of the sector – which guarantees “competition”.

“It is not worth eliminating a public monopoly and creating a private monopoly. It’s a long way, but it’s possible to implement”, he told CNN .

Refining is the area of ​​the oil industry that transforms crude oil into its derivatives, such as gasoline, diesel, kerosene, lubricants, naphtha and others.

In Brazil, it is virtually monopolized by Petrobras: the country currently has 17 refineries, of which 13 are state-owned and account for 98% of production. This domestic production, in turn, delivers around 80% of everything consumed domestically. The remaining 20% ​​come from private importers that complement the market.