Petrobras expects to boost crude oil exports to China

Brazil's federally owned Petroleo Brasileiro (PBR) expects that its oil exports to China will rise significantly this year, making the Asian country the third-leading destination for shipments of Brazilian crude. Petrobras, as the company is known, is hoping to boost its crude oil shipments to China to 50,000 bpd, equivalent to about 20 % of the volume of 250,000 barrels it exports daily, an executive told. At such a pace, exports to China would reach about 18 mm barrels this year.
"It's natural to expect that China will absorb a growing share of our exports going forward," said Abilio Ramos, executive manager for international distribution at Petrobras.

The Brazilian company started selling heavy crude to China in 2000, when it shipped 3 mm barrels to the Asian nation. The volume tailed off to about 800,000 barrels last year, but has soared in early 2004 as Brazil and China advance plans to increase bilateral trade and cooperation.
Petrobras exported 4 mm barrels of heavy crude to Chinain the first quarter of the year, in contracts worth $ 120 mm. Petrobras sees potential to sell between $ 450 mm and $ 500 mm in heavy crude this year, which would make China the third-largest market behind the US and Argentina. China currently imports about 2 mm bpd of oil.

The optimism with the Chinese market led Petrobras to open an office in Beijing. Petrobras CEO Jose Eduardo Dutra, who accompanied Brazilian president Luiz Inacio Lula da Silva on a state visit to China, inaugurated the oil company's fist office in China. Ramos said that office may actually become a Petrobras unit in China in the future.
"It's possible that we'll need to have a subsidiary in China if our business grows as we expect," the executive said.
At the inauguration, Petrobras' CEO signed an agreement with China Petroleum & Chemical Corp. (SNP), or Sinopec, to look into forging partnerships in oil exploration and production, refining and fuel sales. In the refining segment, Petrobras said Sinopec is interested in taking part in a new refinery to be built in Brazil.

The Chinese company is also analysing projects to boost the refining capacity of Brazilian refineries. Petrobras is planning to invest about $ 1 bn in a new refinery in partnership with other investors, which will likely pump in the same amount. The project is expected to start in 2007 and is seen going online by the end of 2010 or beginning of 2011. The production capacity is seen at 200,000 bpd.
Sinopec is also interested in investing in natural gas projects in Brazil, including a possible liquefying plant. One possible project that could be agreed on in the near term would be a planned pipeline to transport natural gas to the north-eastern state of Bahia from Rio de Janeiro state, Petrobras said.

The Export-Import Bank of China could finance part of the project. Construction is expected to start this year. ExImBank, a state-owned bank tasked with supporting China's exports, would probably extend a financing line to Sinopec. Petrobras said Japanese investors are also interested in the pipeline project, which will boost natural gas use in Brazil's north-eastern region.
Sinopec is also eyeing Petrobras's giant natural gas reserves in the Santos Basin, off the coast of the industrial state of Sao Paulo. Reserves are estimated at around 420 bn cm. One way Sinopec could get in on the action would be to take part in a planned liquefying plant, Petrobras said. The idea, still at a very early stage, would be to build the plant to liquefy gas from Santos to supply the local market and also to export to the US

Petrobras and Sinopec will also work together in exploration and production activities in Ecuador, where Petrobras has two onshore blocks, and in Iran, where it recently won a license to explore oil in one of eight giant offshore blocks offered by the Middle Eastern nation last year in its first offshore licensing round. The block, known as Tusan, covers an area of about 8,000 sq km in the Persian Gulf.
Sinopec is also planning to join forces with Petrobras to bid for concessions in Brazil's sixth oil exploration-and-production licensing round, scheduled for August. During the trip to China, the Brazilian company also signed an agreement with China's National Offshore Oil Company, or CNOOC, to drill for oil in the China sea. CNOOC owns the monopoly for offshore exploration in China.