Petrobras Says It May Build Refinery Without PDVSA

By Jeb Blount and Steven Bodzin

Jan. 21 (Bloomberg) -- Petroleo Brasileiro SA, Brazil´s state-owned oil company, said it may complete a planned oil refinery in northeast Brazil on its own if it fails to agree on a fuel-supply contract with partner Petroleos de Venezuela SA.

PDVSA, as the Venezuelan oil producer is known, wants above-market prices for heavy crude to supply the 200,000 barrel-a-day Abreu e Lima refinery near Recife, Paulo Roberto da Costa, head of refining at Petrobras, told reporters today.

“Petrobras very much wants to build the refinery with PDVSA,” da Costa said at the event in Sao Goncalo, Rio de Janeiro state. “But it will build it on its own if it has to.”

The refinery, planned for completion next year at a cost of $4 billion, would receive half its oil from Venezuela´s Orinoco belt. Venezuela is forming joint ventures to exploit billions of barrels in the Orinoco belt, located in the country´s east.

The two companies have an agreement under which PDVSA would take a 40 percent stake in the project, da Costa said. PDVSA hasn’t yet contributed any funds to construction, he said.

The refinery has been the subject of talks at quarterly meetings between Brazilian President Luiz Inacio Lula da Silva and President Hugo Chavez of Venezuela. Chavez said the refinery was a topic at their March 26 meeting after a preliminary agreement was reached in December 2007.

Petrobras also wants to renegotiate some contracts to get lower prices given the falling price of raw materials and declining demand for construction, da Costa said.

“The price of steel and other products is falling,” he said. “If the prices don’t come down we’ll probably cancel some contracts.” He declined to say which companies or products would be the subject of cancellations.

To contact the reporters on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.net; Steven Bodzin in Caracas at sbodzin@bloomberg.net.