Today we have the pleasure to share with you a view of the evolving naphtha supply picture in Brazil, courtesy of Fabio Bello and Flavio Silva from the Brazilian consulting firm OHXIDE. Brazil is the largest petrochemical market in Latin America, and, as you will discover, it is in the brink of significant changes in its feedstock supply base.
Petrobras’ disinvestment process in the refining sector promises to change the profile of naphtha supply in Brazil, with a potential production increase of more than 1 million tons per year.
The petrochemical industry relies on the refining sector as an essential source of supply for its raw materials, with naphtha responsible for half of the production of petrochemicals in the world. This participation in Brazil is even more relevant, because three out of four petrochemical complexes in the country were built to consume naphtha from Petrobras’ refineries.
In addition to its use in the petrochemical sector, refineries can consume part of the naphtha as a blendstock to increase gasoline production up to the octane limit. At the beginning of the last decade, refineries in Brazil directed the maximum amount of naphtha to supply the gasoline market, which grew on average by more than 10% per year between 2010 and 2014. As a result, the supply of naphtha to the petrochemical industries fell from 6 million metric tons (MMtpy) per year to 2 MMtpy in 2016, its lowest historical value, as seen in the chart below.
United States, Spain, and Russia were responsible for supplying more than 70% of Brazilian naphtha imports during the 2020 to 2022 period (see below).
Petrobras has an ambitious downstream divestment plan, which includes the sale of half of its refinery capacity in Brazil. At the time of writing, the sales of REMAN (Isaac Sabbá Refinery) in Amazonas, RLAM (Landulpho Alves Refinery) in Bahia, SIX (Shale Industrialization Unit) in Paraná, and RPCC (Refinery Potiguar Clara Camarão) in Rio Grande do Norte, have been completed.
In addition, Petrobras is selling other units, including REGAP (Gabriel Passos Refinery) in Minas Gerais, LUBNOR (Northeast Lubricants and Derivatives Refinery) in Ceará, REPAR (President Getúlio Vargas Refinery) in Paraná, REFAP (Alberto Pasqualini Refinery) in Rio Grande do Sul, and RNEST (Abreu Lima Refinery) in Pernambuco. Petrobras intends to keep under its control the remaining refineries in the country, all located in the Southeast Region of Brazil.
Considering only the refineries in the divestment plan, they are responsible for around 37% of the national naphtha supply, as shown in the chart below.
From a utilization rate perspective, in recent years (2020 to 2022) these refineries have operated with an average of 73% of the total capacity, representing a gap of 53 thousand m3/day (approx 330 kbpd).
Considering the entry of new players in the refining sector, the dynamics of this market are expected to change, given that Petrobras plans its refining activities with a logic of complementarity to supply the Brazilian market demand. New players will break this logic and probably maximize their production and profit, generating greater market competition. This new dynamic could increase the production of naphtha by more than 1 million tons per year, mainly in the RLAM (currently Martaripe) and REFAP refineries, through higher operation rates.
Increasing domestic supplies of naphtha in the country are poised to change the supply and demand dynamics in Brazil’s petrochemical industry. Increased self-sufficiency can be an increasingly important asset, particularly in the complex global energy and political environment we are living in these days.
About the Authors
Fábio Bello is a Senior Associate Consultant at OHXIDE Consulting, and Flávio Silva is the CEO of OHXIDE Consulting (Rio de Janeiro, RJ and Paulínia, SP).
OHXIDE Consulting is a business consultancy focused on the Petrochemical and Oil & Gas sector in Brazil and Latin America. Its technical team of consultants with more than 20 years of experience in the sector, provides services such as market studies, economic evaluations, strategic planning, pricing, and others. The deep knowledge of the local market (Brazil and LATAM), as well as the assets located there, gives a strong differential to its customers. Visit its website (ohxide.com.br) and social media (Instagram and Linkedin). OHXIDE is a business partner of CHEMPMC in the Brazilian and Latin American markets.