Lubnor refinery sale could favor asphalt

The sale of Brazilian state-owned Petrobras' 8,000 b/d Lubnor refinery to a parent company that focuses on asphalt has raised the question of an eventual shift in the share of base oils production, market participants say.

Domestic investment firm Grepar Participacoes is buying the refinery, and it is an investment vehicle for Greca and Holdings GV, a Brazilian company that specializes in asphalt.

Market participants have told Argus that they believe Grepar could prioritize asphalt production at the expense of Group III base oils production, allowing room for more base oil imports to Brazil. Lubnor refinery's sale to Grepar would also increase competition in the Brazilian asphalt market, allowing other players to produce and sell the product besides Petrobras.

But Grepar has no intention of modifying production for the operation's first couple of years.

Prior Petrobras refinery sales have resulted in increased asphalt output, with Petrobras' former 333,000 b/d Landulpho Alves (RLAM) refinery producing 18pc more asphalt from January-May compared with the same period last year after Abu Dhabi's state-owned investment fund Mubadala purchased it in December 2021.

The Lubnor refinery in Ceara state produced 10pc of Brazil's total asphalt in 2021, totaling 169,700t. The deal with Grepar is still subject to regulatory approval.

Petrobras' 46,000 b/d Isaac Sabba refinery (Reman) sale to Ream Participacoes, a subsidiary of Brazilian fuel distributor Atem, is also undergoing regulatory approval. Reman produced 7pc of Brazil's asphalt supply in 2021.

Petrobras' ongoing divestment program includes the sale of eight refineries, six of which produce asphalt . Petrobras relaunched the sales process in July for the remaining three asphalt-producing refineries, including the 208,000 b/d Alberto Pasqualini (Refap) and 208,000 b/d Presidente Getulio Vargas (Repar). Refap was responsible for 4.6pc of total Brazilian asphalt production in May, while Repar produced nearly 20pc in May.

Negotiations for the 166,000 b/d Gabriel Passos (Regap) refinery are also ongoing, according to Petrobras executives. Regap produced 7pc of all Brazilian asphalt in 2021. If Petrobras sells all six asphalt-producing refineries, its asphalt market share would decrease from practically 100pc to 33pc.

The process of selling the remaining facilities may be quicker than prior sales, as Brazil is holding presidential elections this fall. A possible third term for former president Luiz Inacio Lula da Silva — now leading current president Jair Bolsonaro by double digits in some polls — would contribute to the accelerated refinery sales process. Lula opposes refinery sales but contracts signed before a January 2023 inauguration would have the benefit of rule-of-law arguments.

By Kauanna Navarro