Chinese companies diving into downstream Brazil

State-owned PetroChina's new investment in Brazilian fuel distributors TT Work appears to augur a Chinese downstream spending spree featuring multiple greenfield refinery projects.

CNPC subsidiary PetroChina disclosed today that it signed an equity delivery document covering a 30pc stake in TT Work, a Recife-based holding company with tanking, import and distribution subsidiaries in Brazil's northeast, for an undisclosed sum.

TT Work is the country's fifth largest fuel importer, behind state-controlled Petrobras subsidiary BR, Ipiranga, Cosan-Shell joint venture Raizen, and Ale, which is in the process of selling a 78pc stake to commodities giant Glencore.

"Upon completion of the equity delivery, PetroChina officially obtains the import share of the [TT Work's] refined products and a stable distribution channel for refined products, and will become an important player in the refined products market in Latin America," CNPC said in a note today.

The announcement comes as Petrobras and CNPC are finalizing negotiations for an equity stake in the 165,000 b/d Comperj refinery project in Rio de Janeiro, and stakes in fields in the Marlim cluster in the Campos basin.

Comperj is already around 80pc complete, but has been stalled since 2015 following an investigation that revealed massive corruption. The only ongoing work at the refinery is construction of 21mn m³/d gas treatment unit (UPGN), a R1.95bn ($586mn) contract held by independent Chinese firm Shandong Kerui and Brazilian engineering firm Metodo Potencial.

In addition to Comperj, which is not expected to be completed before 2022, Chinese firms Sinopec and Guangdong Zhenrong (GZE) are each evaluating greenfield refinery projects in northeastern Brazil.

GZE is evaluating a 300,000 b/d refinery project, formerly known as Premium 2, in the northeastern state of Ceara. Sinopec is eyeing another 300,000 b/d refinery in Maranhao, formerly known as Premium 1.

Petrobras pulled the plug on the Premium projects in 2015 after it decided to focus more of its spending on upstream projects, including pre-salt projects partnered with CNPC and fellow Chinese firm CNOOC.

A government official tells Argus that Premium deals will likely be announced after general elections in October.

Before it was blocked by the federal supreme court, Petrobras was looking to sell 60pc stakes in two regional refining clusters. The planned divestment covers Abreu e Lima refinery (RNEST) in Pernambuco state and the Landulpho Alves refinery (RLAM) in Bahia state with a combined 430,000 b/d of processing capacity; and the Presidente Getúlio Vargas refinery in Paraná state and the Alberto Pasqualini refinery in Rio Grande do Sul state with 416,000 b/d of combined capacity.

Those refineries are also expected to draw the attention of Chinese firms looking to expand local refining capacity to accommodate the planned boom in pre-salt production.

Presidential hopefuls, namely far-right frontrunner Jair Bolsonaro, are critical of Brazil's thick commercial ties to China, particularly in the oil and gas sector. Whether that will result in any concrete action under the next administration is still to be seen.

A more concrete risk is the future of Brazil's diesel subsidy, which the government levied in late May to end a truckers' strike. In June, BCI Brasil China Importadors, a subsidiary of the TT Work group, challenged the subsidy on grounds that it gave Petrobras an unfair advantage over importers. The subsidy is scheduled to lapse on 31 December, but discussions on how best to handle the transition are ongoing.