brazil feedstock update · • a new competitive landscape for refined products is reshaping fuels...

Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil

IHS Markit Latin America Petrochemical SummitMarch, 2018

A new era for E&PA new era for E&P01


Bidding rounds are back

Sources: Credit Suisse, ANP


322 468 59592 27

6651,086

2,109

89

2,823

165 121

3,842

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

07

20

08

20

13

20

13

20

15

20

17

1 2 3 4 5 6 7 9 10 11 12 13 14

BIDDING ROUNDS - CONCESSIONSigning Bonus (million R$)

Two different approaches: concession or production-sharing.

In late 2017 occurred the 2nd and 3rd rounds for the pre-salt areas under production-sharingregime. Other two rounds are scheduled for 2018 and two for 2019.

BIDDING ROUNDS - PRODUCTION-SHARING

Oil production is rising Incremental production in offshore fieldshas been remarkable, with more significant

investment maturing in 2019-2022.

Source: ANP


0

500

1000

1500

2000

2500

3000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

kbpd PRODUCTION OF CRUDE OIL IN BRAZIL

Offshore

Onshore

And the Pre-Salt area is confirming its potential

Source: Petrobras


0

200

400

600

800

1000

1200

1400

1600

Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16

kbpd PRODUCTION OF OIL FROM THE PRE-SALT

• Very low geological risk

• Very high productivity

• High quality oil

• Technology improvements leading tocost reduction

New systems coming online soon

Petrobras managed to complete several important projects in E&P and attracted top globalplayers to form Strategic Alliances, while divesting in other areas (refining, logistic, biofuels,

distribution, chemicals) in order to achieve manageble leverage ratios.

Source: Petrobras Business Plan 2018-2022


Net exports will remain Crude surplus is here to stay.

Refinery runs could rebound this year,but still a large portion of Brazilian crude

will be exported.

*Until JanuarySources: ANP, MDIC Brazil Feedstock Update:

A New Era for Hydrocarbons in Brazil

-600-400-200

0200400600800

100012001400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

kbd BRAZIL TRADE OF CRUDE

Exports Imports Net Trade

A new moment for refined productsA new moment for refined products

02


A new competitive landscape has been shaped

Arbitrage window for fuels stayed wide open during most of the 2015-2017.

Independent distributors jumped in.

Source: Sindicom data, ANP data, Credit Suisse analysis


TOTAL FUELS SALES – MARKET SHARE

-40%

-20%

0%

20%

40%

60%

80%

9/14/2016 12/13/2016 3/13/2017 6/11/2017 9/9/2017 12/8/2017

FUEL SPREADS - IMPORT PARITY VS. LOCAL

Gasoline EUR Gasoline US

Sources: Bloomberg, UBS Estimates

Logistics is the main constrain for more competition

Sources: ANP and TerraFirma Consulting


0 2 4 6 8 10 12 14 16 18 20

Petrobras (Transpetro)Ultracargo

CattaliniAgeo Copape

VopakGranel

DecalBianchini

RaízenStolthaven

BraskemOthers

million barrels

BRAZIL STORAGE CAPACITY FOR BULK LIQUIDS

Current Announced Expansion

During most of 2016 and 2017 terminals and tanks at Brazilian ports were completely sold out.

The shortage led to the majority of the companies to move with their expansion projects.

Naphtha ScenariosGasoline, diesel imports are also increasing, butlimited by logistics infrastructure of independent

players.

Naphtha imports reached record levels in 2017,but may retreat in 2018.

*Until JanuarySources: ANP, MDIC Brazil Feedstock Update:


0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

kboedBRAZIL IMPORTS OF SELECTED REFINED PRODUCTS

Gasoline Naphtha Diesel

Operating rates at refineries remain lowAs imports took a significant share of the market,refineries were forced to reduce their processing.

Naphtha production in 2017 was the lowest onrecord, but may rebound this year.

*Until JanuarySource: ANP Brazil Feedstock Update:


0%

2%

4%

6%

8%

10%

12%

0

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

Naphtha/Totalkbpd PRODUCTION AT BRAZILIAN REFINERIES

Diesel Gasoline Fuel Oil LPG Naphtha Others Naphtha/Total

NGL’s could be the source of future petrochemical expansion

Associated natural gas frompre-salt fields are expected tohit the market in the next few

years.

NGL’s from this source wouldenable the expansion of

ethylene production in Rio deJaneiro.

*Until JanuarySource: Petrobras Business Plan 2018-2022 Brazil Feedstock Update:


Biofuels are important variables in the mix

And will be even more important in the near future, withthe new regulatory framework Renovabio to meet Paris

Accord emissions reduction goals.

*Until JanuarySources: ANP, MME, MaxiQuim Estimates Brazil Feedstock Update:


0%10%20%30%40%50%60%70%80%90%

0100200300400500600700800900

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

Ethanol/Total

kboedSALES OF FUELS AT THE PUMP IN BRAZIL

Gasoline from Refineries Ethanol Blended in Gasoline Hydrous Ethanol Ethanol/Total

Structural changes underway forPetrochemicalsStructural changes underway forPetrochemicals 03


Changes are underway for Braskem


Naphtha Supply Agreement

Revisions on the 7 MM tonsper year (70% of Braskem’sneeds) supply agreement,

which expires in 2020.

Shareholders’ Agreement

Unification of shares,changes in corporate

governance.

Petrobras’ stake for sale

Part of the Petrobrasdivestment plan.

What’s at stake


Almost 4 MMtpy ethylenecapacity in Brazil

1 MMtpy ethane-basedethylene/PE capacity in Mexico

8 MMtpy polyolefinscapacity

APAC

EUR

USA

Central America

Mexico

Braskem’s Ethylene Capacity in Brazil BraskemIdesa’s PE Sales

Sources: Braskem, IHS, MaxiQuim Estimates

Key Takeaways

• E&P is back to full steam in Brazil, with robust crude surpluses expected forthe near future.

• A new competitive landscape for refined products is reshaping fuels markets,liquids bulk logistics, with side effects on chemicals.

• Local supply of naphtha continues to lose market share to imports, but stillrepresent an important source of feedstock for crackers. Higher refinery runs,or a shift back from gasoline to naphtha would help, but would hardly besufficient.

• NGL’s may be the most obvious option for petrochemical capacity expansionsin Brazil.

• Structural changes are underway at Braskem that could unlock more value toits shareholders in the short-term.


Thank You

Otávio Carvalho

[email protected]

www.maxiquim.com.br


brazil feedstock update · • a new competitive landscape for refined products is reshaping fuels...

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