Refinery Fire May Affect Diesel and Gasoline Production

By Joanna Hansford, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Reduc, one of the principal units of state petroleum production, in Duque da Caxias, Rio de Janeiro state, caught fire Saturday (January 4th) and has brought concerns that the output will significantly reduced. As Reduc provides ten percent of Brazil’s refining capacity, there is speculation it will mean that the quantities of imported petroleum products are likely to increase, affecting prices.

An assessment made by Centro Brasileiro de Infraestrutura (CBIE) suggests that the accident will cost Petrobras an additional R$29 million per day for the importation of combustibles. From January to September 2013, Petrobras is reported to have accumulated a total loss of R$12.3 billion as a result of the difference in combustible prices in and outside of Brazil.

The fire at Reduc has affected six pumps which supply petroleum products to the coking unit of the refinery, causing it to shut down until the equipment can be repaired, according to Simão Zanardi, the president of the local oil worker union, who visited the refinery on Sunday to inspect the damage. However, according to Petrobras, the coking unit has not been damaged.

Reduc currently processes around 242,000 barrels per day, and is the fourth biggest refinery of Petrobras according to media reports. The fact that the authorities at Petrobras did not respond immediately to questions about the impact of the fire on production suggests, according to Zanardi that “this is yet another sign of how much pressure the company is under. All the refineries are working at or above capacity, and the loss of this unit, for no matter how little time, will mean more importation and less profit for the company.”

Both Petrobras and the union have confirmed that nobody has been injured in the fire. However, the accident raises the question of Petrobras’s capacity to securely and safely operate its refineries at increasingly demanding levels. Consistent with sources in the union and petroleum industry, in the last month and a half alone there have been four notable accidents, two of which took place at Reduc.

However in Brazil the demand for fuel for transport is growing at a faster rate than the economy of Brazil, and the thirteen Petrobras refineries are incapable of reaching the domestic needs. In order to compensate for the deficit, Petrobras, will need to continue importing.

Since the Brazilian government does not allow Petrobras to charge equivalent gasoline and diesel prices to those outside of Brazil, each imported barrel will be sold at a loss. In the last two years, more than R$30 billion was lost as a result according to reports.

The National Agency of Petroleum (ANP) has been investigating the cause of the accident. ANP has said that there is no risk of the depletion of combustibles in Brazil as a result of the accident. However, Petrobras have been charged a penalty of R$151,000 by ANP for the overuse at Replan, in Paulínia, São Paulo state.

Such news is a stark reminder of the volatility of the petroleum industry, which, 3-5 years ago was booming, with massive foreign investments being made. Many international oil and gas companies have since withdrawn from maintaining or making further investments in Brazil, and OGX, the oil exploration and production firm owned by former Brazilian billionaire Eike Batista, filed for bankruptcy last year.

In October, some of the world’s biggest oil companies joined forces in a successful – but only – bid for the country’s first pre-salt offshore oil field, Libra. A R$15 billion signing fee was a fraction of what will be invested in the area in the coming years, and Europe’s Shell and Total, along with two Chinese companies, will share the costs, and profits, with Petrobras.