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
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
Bidding rounds are back
Sources: Credit Suisse, ANP
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
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
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
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
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
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
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
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
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
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
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
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
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
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:
A New Era for Hydrocarbons in Brazil
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:
A New Era for Hydrocarbons in Brazil
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:
A New Era for Hydrocarbons in Brazil
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:
A New Era for Hydrocarbons in Brazil
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
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
Changes are underway for Braskem
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
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
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
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.
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil
Thank You
Otávio Carvalho
www.maxiquim.com.br
Brazil Feedstock Update:A New Era for Hydrocarbons in Brazil