Spotlight: The petrochemical plans of Petrobras

Brazilian state-run oil company Petrobras is progressing with the resumption of fertilizer production, in line with its 2024-28 business plan and the government’s aim of making it a demand vector for domestic natural gas.  

Analysts interviewed by BNamericas think that the company's move is the right one, both from a strategic and financial point of view. 

Petrobras recently approved the initial measures for the future resumption of operations at the Araucária Nitrogenados (Ansa) plant in Paraná state, which had been closed since 2020.

Adjacent to the Presidente Getúlio Vargas refinery (Repar), Ansa has production capacity of 720,000t/y of urea and 475,000t/y of ammonia, as well as 450,000m3/y of automotive liquid reducing agent (Arla 32).

Meanwhile, Petrobras is studying the technical and economic feasibility of resuming construction work on the nitrogen fertilizer unit III (UFN-III), in Mato Grosso do Sul and is preparing the respective bidding process.   

Construction of UFN-III began in September 2011, but was halted in December 2014. The unit, which is close to the consumer market and is connected to the Gasbol pipeline to receive natural gas as a raw material, has projected urea and ammonia production capacity of 3,600t/d and 2,200t/d, respectively.

Both Ansa and UFN-III were included in Petrobras’ divestment program, but with the change of government in January 2023, the processes to sell the plants were halted and Petrobras decided to keep the assets in its portfolio, as expected.

"Petrobras is interested in investing in the fertilizer sector to promote synergy with agribusiness, reduce the country's dependence on fertilizer imports and generate jobs and income," CEO Jean Paul Prates said during an inspection of the project on April 26. 

The oil giant has two additional fertilizer plants, in Bahia and Sergipe states, leased to Unigel, with whom it signed a tolling agreement (a gas processing service for the production of urea and ammonia) in late December 2023. 

The aim of the contract, which has a duration of eight months, is to allow the plants to continue operating due to the financial difficulties experienced by Unigel. 

The contract was investigated by the company's governance and compliance department due to suspicions that two Petrobras directors had interfered in the procedure.

Earlier this month, Brazil’s federal audit court TCU recommended the suspension of the contract between Petrobras and Unigel, citing irregularities that could result in significant losses. 

Both Petrobras and Unigel denied any irregularities in the agreement. The oil company said in a statement that it has provided all clarifications requested by the TCU.

Ticiana Alvares, technical director of petroleum association Ineep, said that Petrobras' reversal of the divestment process in fertilizers is essential to reduce dependence on imports and guarantee Brazil's food security. 

"Petrobras is fulfilling its 2024-28 business plan by announcing the reactivation of Ansa and the resumption of work on UFN-III, getting back on track to becoming an integrated company," she told BNamericas. 

She emphasized that the reactivation of the plant in Paraná alone should create around 1,000 direct jobs with a high degree of specialization.

Alvares said it is important for Brazil's largest company and one of the world's biggest oil companies to follow the global trend of large integrated energy companies with verticalized activities. 

"The resumption of fertilizer activity, in Paraná, Bahia and Sergipe, is a move in this direction, as well as greater participation in the petrochemical sector," she underscored. 

At the same time, Petrobras is studying the future of its 36.1% stake in Braskem, Brazil’s largest petrochemical company. 

In November 2023, Braskem received a non-binding offer of 10.5bn reais (US$2bn) from Abu Dhabi National Oil Company (Adnoc) for Novonor's (formerly Odebrecht) 38.3% controlling stake in the firm.  

"We’re following this process because we have a right of first refusal [to buy Novonor's stake] and because we want to know and talk preliminarily with potential bidders who could become partners with us in a future co-management of this company," Petrobras CEO Jean Paul Prates said during a conference call with analysts in March. 

Petrobras' current business plan outlines the company seeking integration with refining and investment alternatives to act in the production of basic chemicals and resins, in line with the energy transition.

One of the goals is also the development of business partnership studies for initiatives in the petrochemical sector, both in current plants and new units, as well as in production decarbonization processes.

In February, Petrobras signed an MOU with Norway’s Yara to assess local initiatives for fertilizers, the production of industrial products and decarbonization.

Another petrochemical initiative is the construction of a lubricants plant in the Gaslub hub in Rio de Janeiro state, the tenders for which were recently issued. 

João Abdouni, an analyst at Levante Inside Corp, believes that Petrobras' resumption of fertilizer production will diversify its revenue base and increase its resilience by reducing its exclusive dependence on oil. 

"The tolling agreement with Unigel, although it represents a small fraction of Petrobras' total revenues, is an example of how the company can maximize the use of its facilities while generating additional revenue," the analyst told BNamericas. 

He also thinks that retaining a stake in Braskem, which is the market leader in petrochemicals in Latin America, allows Petrobras to benefit indirectly from the robust performance of the petrochemical sector, which is beneficial from both a financial and strategic point of view.

Abdouni underlined that Petrobras has robust cash generation of around 200bn reais a year, which gives it significant investment capacity – including in sectors such as petrochemicals – without compromising its financial health. 

"In this way, strategic investments, even substantial ones, are well within Petrobras' financial capacity, allowing it to explore these opportunities without disproportionate risks," he said. 

NATURAL GAS SYNERGY

Brazil is expected to more than double offshore natural gas supply to the domestic market in the coming years through the Rota 3, Sergipe deepwater (SEAP I and II) and Raia (formerly BM-C-33) projects.  

Mines and energy minister Alexandre Silveira has announced measures for the natural gas sector that have the potential to inject almost 100bn reais into the economy and create more than 430,000 jobs.  

In a recent statement, domestic piped gas distribution association Abegás welcomed the initiatives. 

“What Brazil needs most are effective measures to stimulate market development, combining demand and supply,” Abegás said. 

The association also highlighted that better conditions are needed for competitive gas for industry, especially in the chemical, petrochemical and fertilizer sectors, promoting a process of neo-industrialization.

On Monday, Petrobras announced it had signed a protocol of intentions with Brazilian chemical industry association Abiquim to identify potential new businesses in the natural gas and energy areas.