Why Petrobras is likely to invest in fertilizers and petchem

Petrobras has provided further proof that it will operate as an integrated vertical company by resuming investments in refining and beginning to put significant capex into its fertilizer and petrochemical businesses.  

How Brazil's state-run giant implements this strategy will depend on a series of studies and analyses, a company source told BNamericas.

In disclosing its “strategic elements” for the 2024-28 period, Petrobras said it intends to reconcile the focus on oil and gas with diversification into low-carbon businesses, including petrochemicals and fertilizers. 

This could mean backtracking on initial plans to sell the Araucária Nitrogenados (Ansa) and UFN-III fertilizer plants in Paraná and Mato Grosso do Sul states, respectively, as well as its stake in petrochemical multinational Braskem. 

“I defend that Petrobras should act in these two segments [fertilizer and petrochemical] that are complementary and add value to its main product. The future of this industry goes through verticalization, and Petrobras was going in the opposite direction, so this course correction was necessary,” the source said. 

Ansa’s divestment was scrapped last December when it was in the bidding stage. At the time, Petrobras said that it would evaluate its next steps related to the divestment of the asset. 

Located in the city of Araucária, the plant has a production capacity of 1,975t/d of urea and 1,303t/d of ammonia and is currently dormant.

After unsuccessful negotiations with Russia’s Acron, Petrobras launched a new divestment process for UFN-III in May 2022 and advanced until the bidding stage in August. Since then, the company has not disclosed any updates on the subject. 

Construction of UFN-III began in September 2011 but was interrupted in December 2014, when it was about 80% complete. The unit was designed to have a production capacity of 3,600t/d urea and 2,200 t/d ammonia. 

In 2020, Petrobras leased its fertilizer units in Bahia and Sergipe states to Proquigel Química, of the Unigel group, for 10 years. 

Increasing fertilizer production is a goal of Brazil's federal government, which intends to use this industry as a gas demand vector. 

Regarding Braskem, Petrobras recently informed that it received a letter from Apollo Management X, L.P. and ADNOC International Limited with information about the non-binding proposal for the acquisition of Novonor's participation in the petrochemical company. 

The information was forwarded to Petrobras, which is Braskem's second-largest shareholder and a party to the shareholders' agreement. In addition, the bidders have shown interest in discussing potential business with Petrobras. 

LOW CARBON

Petrobras’ five-year strategy also foresees the improvement of its industrial park and supply and logistics chain, seeking self-sufficiency in oil derivatives, with vertical integration, more efficient processes, improvement of existing products, and development of new products toward a low-carbon market.

At the same time, the company plans to act in an integrated manner in the operation and commercialization of gas and energy, optimizing the portfolio and adding renewable sources.

Petrobras highlighted that it plans to earmark between 6% and 15% of its five-year capex to low-carbon operations.