Petrobras, Sinopec in talks to build $20 Billion Refinery

Petróleo Brasileiro and Sinopec are in talks to build a $20 billion, 300,000-barrels-a-day refinery in the South American country, according to a securities filing on Wednesday. Petrobras said in the filing that the non-binding accord with Sinopec allows both companies to study the feasibility of the project in the northeastern state of Maranhão. The talks could lead to the creation of a joint venture.

The refinery, known as Premium I, is one of four that Petrobras hopes to open by 2017 in an effort to boost refinery capacity 50% to 3 million barrels a day by 2020. The project, initially budgeted at $20 billion, is expected to have initial output of 300,000 barrels per day, doubling to 600,000 bpd in 2020.

Petrobras has been facing soaring costs and losses in its refining division due to government controls on gasoline prices. Also, it is trying to develop giant, new offshore oil resources, which are sapping the bulk of its $237 billion five-year investment plan.

Brazil's energy minister said in February the government was seeking help from China, which recently became Brazil's top trade partner, to finish building refineries as it tries to cut reliance on imported fuels.

Despite running at record levels, Petrobras' 12 existing refineries have been unable to keep up with demand for gasoline, diesel, cooking gas and jet fuel. Gasoline consumption alone rose more than 12%.

Last week Petrobras announced a similar accord with Korea's GSS Holdings to study a joint venture to build a 300,000-bpd refinery, known as Premium II, near Fortaleza, also in the northeast. Petrobras preferred shares fell 1% to 17.65 reais in Sao Paulo trading.