Brazil Plant Sputters in Midst of Sale


Brazil Plant Sputters in Midst of Sale
Petrobras' refinery in Landulpho Alves Refinery in Mataripe, Brazil, has an API Group I base oil plant. Mubadala, an Abu Dhabi, United Arab Emirates-based investment management firm, reached a deal to acquire the refinery. Courtesy of Petrobas

Dwindling base oil production from Brazil’s Landulpho Alves refinery over the last several years suggest its base oil plant could be a candidate for closure after operations transfer to new owner Mubadala Investment Co, an industry analyst said.

Mubadala, an investment management firm based in Abu Dhabi, United Arab Emirates, reached a deal to acquire the refinery – known as RLAM – operated by Brazil’s state-run oil and energy company Petrobras in the northeastern state of Bahia. 

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“We have signed the deal but are yet to finalize the transaction,” Oscar Fahlgren, who heads Mubadala operations in Brazil, told Lube Report. He declined to go into detail.

Signing the deal has not come without challenges. Following legal hurdles Petrobras faced with Brazil’s Federal Court of Accounts and Supreme Federal Court, the Brazilian Competition Authority approved the U.S. $1.65 billion sale in June. 

Despite the signing, some red tape is still expected, including additional agreements between Petrobras, Mubadala and the Brazilian National Agency of Petroleum, Natural Gas and Biofuels, according to Brazilian consulting firm LubeKem.

“They will mainly be associated with pipelines and facilities related to RLAM, which will be renamed Refinaria de Mataripe SA,” LubeKem Executive Director Claudio Silva told Lube Report.

Although RLAM has an API Group I base oil plant with capacity to make 1,750 b/d, activity at the facility has been falling. Production dropped to less than 900 b/d in 2019 from about 1,400 b/d in 2015. In the face of the COVID-19 pandemic, RLAM’s base oil production plummeted to just 45 b/d in 2020.

Rumors persist that Mubadala will shut down base oils production at the refinery, but there has been no official statement. “We will only know in the first few months of 2022 when Mubadala is expected to definitively assume operations at the refinery,” Silva said.

If base oil production shuts down at RLAM, this will likely increase Brazilian imports, which are already high. It will not have such a significant impact on total demand, though.

The biggest consequence of an eventual shutdown would be related to the production of paraffin waxes, slack wax and microcrystalline wax at RLAM, the LubeKem executive said.

Before COVID-19, RLAM played an important role in Brazil’s wax market, producing more than 85% of local paraffin. But its output of that material has plunged approximately 80% during the pandemic.

In the wake of this, there are many concerns about future production at the facility after Mubadala assumes operations in 2022.

Challenges in Brazil’s refining and base oils market may also affect the seven other refineries up for privatization, especially for new market players. Among them are risks related to the global market and its fundamentals, like concerns about future fuel demand, increasing sales of electric vehicles, stricter emissions regulations and feedstock cost and availability.

Low refining margins and the impacts from COVID-19 need to be addressed in addition to such local challenges as constantly changing regulations, government intervention on fuel prices and a shortage of logistics and infrastructure in the country.

Brazil’s refining market is going through a huge transition. Petrobras owns about 98% of the national refining capacity of 2.3 million b/d, but it has resolved to divest all but 1.1 million b/d. The Brazilian government expects oil refining and fuels markets to become more competitive with the arrival of new market players.

RLAM is one of eight refineries that the state-owned oil giant wants to sell. All of them will be subject to final approval by the competition authority and could face criticism from the federal accounts court and the Supreme Court regarding legal issues. The other seven are Abreu e Lima, in Pernambuco state; Presidente Getúlio Vargas, in Paraná; Alberto Pasqualini, in Rio Grande do Sul; Refinaria Gabriel Passos, in Minas Gerais; Refinaria Isaac Sabbá, in Amazonas; Lubrificantes e Derivados do Nordeste, in Ceará; and Unidade de Industrialização do Xisto, in Paraná.

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