Oil and gas
BMI has said that in the near term it holds a bearish view as mandated fuel subsidies are expected to propel continued consumption growth, increasing imported fuel costs on state owned Petrobras’ already strapped finances. As such, the company has said that despite tremendous below ground potential, it is maintaining a relatively modest outlook for the country. It is the above ground environment that is remaining the considerable obstacle to the upstream and downstream segments due to unfavourable licensing terms and a burdensome regulatory environment.
BMI has reported that surging oil production in the country is likely to increase refined petroleum consumption to 2023, increasing from 3.5 million bpd last year to 3.7 million bpd by 2023. BMI has said that it maintained this forecast despite Petrobras’ commitment to increase biofuel production by 29% last year, based on the company’s assessment of solid petrol based fuel demand growth. BMI has also said that high demand for refined fuels will continue to outpace production for the duration of our forecast period, despite moderate increases in refining capacity. It has also pointed out that new infrastructure projects have experienced significant delays which are likely to continue given Petrobras’ significant debt burden.
When it comes to gas, BMI has said that sizeable natural gas resources present a tremendous growth opportunity for Brazil. The company does foresee a rise in production, however, significant financial pressure on Petrobras and the remote location of many onshore hydrocarbon blocks will weigh on future growth, maintaining a trade deficit to 2023. As consumption of natural gas is due to rise, BMI believe that Brazil is going to remain highly dependent on imported reserves, with significant quantities coming from Bolivia.
BMI has reported that Brazil’s petrochemicals industry is struggling to raise its capacity utilisation rates to sustainable levels due to fierce competition and declining domestic competitiveness. Chemical production in the country reportedly fell 4.7% year on year from January – October 2014 with average capacity utilisation at 79%.
Brazil is however at the forefront of developing renewable chemicals, due to its plentiful sugarcane feedstock and the logistical organisation of the sector. Yet, BMI has said that this is not likely to pose a challenge to the dominance of petrochemicals in the production of plastics and at least half the increase will be devoted to export.
Edited from report briefs by Claira Lloyd