Petrobras imports, refining losses may rise on new rules

By Sabrina Lorenzi and Jeb Blount

RIO DE JANEIRO (Reuters) - The outlook for cutting money-losing fuel imports at state-run oil company Petrobras dimmed on Friday after Brazil's petroleum regulator said it plans to tighten safety rules and that repairs at the damaged REPAR Refinery will only partly restore capacity.

The new safety regulations, scheduled to take effect in January, will tighten inspection and maintenance rules at the country's 13 refineries, all controlled by Petrobras, Waldir Martins Barroso, the director responsible for refining at regulator ANP, told Reuters on Friday.

And the REPAR refinery, shut down since a fire broke out on November 28, will only be restored at about two-thirds its normal capacity, he added. The refinery, in the southern state of Parana, processed about 200,000 barrels of crude a day before the fire.

Combined, the two developments mean even more reliance on imported fuels at a company that is already losing money on every barrel of fuel it buys abroad.

"Petrobras is getting further and further behind demand," said Michael Wojciechowski, head of oil refining, processing and distribution research in the Americas for Wood Mackenzie in Houston. "Any lack of refining capacity just exacerbates the market distortions and need for imports."

The new maintenance rules, Wojciechowski said, could increase refining capacity medium term by making the refineries safer and less likely to have outages. As it moves to comply with the new rules, though, Petrobras will likely face more shutdowns.

"In the short term, it is going to be a negative," he said. "They will need more imports"

Emergency or scheduled refinery outages have a serious impact on Petrobras' profit. Its refineries are unable to meet all of domestic demand and government rules, meant to curb inflation, force the company to sell imported fuel at less than world market prices for gasoline and diesel.

As a result, Petrobras' refining division has lost more than 30 billion reais since the start of 2012. The losses have reduced cash available to finance a $237 billion five-year investment plan and made it harder to justify new refinery construction.

NEW RULES, REFINERY DELAYS

The new refinery regulations are modeled on safety and environmental rules mandated for offshore oil platforms. Those rules forced the shutdown of several platforms and were one of the reasons behind the two-year stagnation of domestic crude output.

"The refinery rules are a mirror image of the oil platform rules," said Barroso.

Petrobras refineries will have two years to comply.

Two refineries under construction, one near Recife in Brazil's Northeast and one near Rio de Janeiro are years behind schedule. Two more are on hold while the company reassesses its financial plans and tries to cut costs.

The problems in restarting the REPAR Refinery are the result of damage to the atmospheric distillation and refrigeration units, Barroso told Reuters.

Capacity is also likely to be affected by Petrobras plans to restart REPAR with less than half the sensors needed to operate the distillation unit at full efficiency, the union that represents workers at the plant told Reuters last week.

Petrobras officials did not respond to e-mailed requests for comment.

Despite the refinery outage, the supply of gasoline and diesel fuel in Parana, Santa Catarina and parts of Mato Grosso do Sul and Sao Paulo, the Brazilian states served by REPAR, is now back to normal after a crude-oil pipeline to the refinery was converted to transport diesel.

MORE FUEL FROM ABROAD

The supply has been made up by imports.

Petrobras (SAO:PETR4.SA - News) has booked extra cargoes of fuel from India, most of it diesel, market sources said on Friday.

Indian refining company Reliance Industries Ltd (NSI:RELIANCE.NS - News), which has become a routine supplier, will ship Petrobras some 2.9 million barrels of diesel during December.

Petrobras has bought three cargoes and is negotiating an additional shipment after the REPAR fire, traders said.

Further shipments are likely to follow, adding to an abrupt pick-up in Latin American demand for imported fuel that has helped bolster refinery profit margins globally.

While REPAR is expected to start operations again on Tuesday, reaching maximum output by December 23, the loss of about a third of its former capacity means that Petrobras will continue to suffer fuel-import losses.

Petrobras preferred shares, the company's most-traded class of stock, rose 1 percent to 17.03 reais in Sao Paulo. Since the accident, the shares have lost 10 percent.

REPAR, which will restart operations gasoline and diesel output, will not produce jet fuel until at least January, a fuel industry source told Reuters on Friday. (Reporting by Sabrina Lorenzi; Additional reporting by Jeb Blount and Marianna Parraga in Houston.; Writing by Jeb Blount; Editing by Paulo Prada. Editing by Andre Grenon)