Petrobras Would Build $4.5 Billion Refinery Without PDVSA

Brazilian state-controlled oil giant Petrobras said Wednesday that it might procede independently on a new refinery unless agreement comes soon with state-owned Petroleos de Venezuela S.A. on the price to be paid for Venezuelan crude. "We have already concluded the shareholders accord and the (company) statute, but not the supply contract," Petrobras executive Paulo Roberto Costa told reporters in Rio de Janeiro.

"If we delay in concluding the contract, the project will not stop, since Petrobras has enough heavy crude" to supply the refinery on its own, Costa said. He said PDVSA wants to supply Venezuelan crude to the refinery at above-market prices, while Petrobras says the fuel-supply contract should be tied to the prices of benchmark crudes such as Brent or West Texas Intermediate.

Petrobras began work last September on the Abreu e Lima refinery, located in the northeastern Brazilian state of Pernambuco. The original plan called for a 60/40 partnership, with Petrobras as the majority shareholder. So far, PDVSA has contributed nothing toward the estimated $4.5 billion cost of construction. Each company was supposed to supply half of the crude to Abreu e Lima, which will have refining capacity of 200,000 barrels per day.

Once completed in 2010, the refinery will annually produce 814,000 cubic meters of naphtha, 322,000 tons of liquefied petroleum gas, 8.8 million tons of diesel and 1.4 million of tons of petroleum coke. It is not known whether Brazilian President Luiz Inacio Lula da Silva and Venezuela's Hugo Chavez discussed the refinery impasse during their quarterly working meeting last week.

PDVSA is wholly owned by the Venezuelan government and under the direction management of the country's energy minister. Petrobras shares are traded on the Sao Paulo, New York, Madrid and Buenos Aires exchanges, but the Brazilian government maintains control through a golden share. Venezuela is the world's sixth-leading oil exporter and a key supplier to the United States.

Brazil, which last year announced the discovery of potentially huge offshore oil deposits, has achieved self-sufficiency in crude and expects to become a significant exporter in the coming decades.