| RIO DE JANEIRO
RIO DE JANEIRO In October 2007, Brazilian President Dilma Rousseff, then chairwoman of state-run petroleum company Petrobras, proudly predicted that giant new offshore oil fields would usher in an age of Brazilian energy independence.
Six years on, the opposite has occurred. Rousseff's push to develop offshore crude, her fuel-price controls and other energy policies have hobbled the country's refining sector, robbing it of funds for expansion. As a result, Petroleo Brasileiro SA (PETR4.SA), as Petrobras is formally known, has been forced to look abroad for fuel.
With a dozen decades-old domestic refineries running at what experts say are dangerously high rates to keep pace with expanding demand, Brazil's cars and trucks are increasingly powered by gasoline and diesel refined in the United States or India. Imports likely reached a record last year, meeting about a fifth of local needs.
And the situation is likely to worsen before it gets better. New refineries will only begin narrowing the import gap in 2015 and Rousseff's pricing policies and tougher maintenance rules mean significant new Brazilian refining capacity is at least three years away, probably more. All four refineries planned by Petrobras are years behind schedule or on hold.
"Brazil has put an excessive focus on finding crude oil offshore and neglected refining," said João Castro Neves, Latin America analyst at the Eurasia Group in Washington. "Brazil is now dependent on imports in a way it hasn't been for years."
Brazil does not lack for oil. Petrobras has found giant offshore reserves south of Rio de Janeiro and after two years of stagnation, its crude oil output is set to rise in 2014.
Despite this, a rising share of the nation's gasoline and diesel comes from shale oil in Texas, Oklahoma and the Dakotas that is refined on the U.S. Gulf Coast. A rising portion also comes from India.
Instead of boosting Brazil's international power and influence by selling excess oil and fuel to what was a needy United States, Rousseff has promoted policies that have, so far, raised Brazil's dependence on U.S. supplies.
"The U.S. Gulf Coast refiners have been one of the biggest beneficiaries of Brazil's shortfall," said Mark Routt, senior energy consultant at KBC, an energy research and consulting group in Houston.
Brazil imported some 530,000 barrels per day (bpd) of refined fuels through November 30, nearly double the levels of 2007, the year Rousseff outlined her vision, according to Brazil's petroleum regulator, ANP. A third of imports were diesel, used to fuel the vast fleet of trucks that moves the bulk of goods in Brazil, a nation of 200 million and the world's seventh-largest economy.
Excluding exports of lower-value output such as asphalt and coke, net imports, or imports minus exports, last year likely surpassed those of 2011, the record year for net imports. Final 2013 totals are likely to get a boost from a refinery breakdown that forced large December purchases. Emergency breakdowns, or the maintenance to prevent them, will help keep imports strong.
The root of Brazil's problem is the government's refusal to let Petrobras raise domestic fuel prices in line with world prices. While the policy helps keep inflation in check, it also means gasoline and diesel sell in Brazil at 20 percent to 25 percent below the cost of importing it, helping boost demand at the pump as well as Petrobras losses.
Petrobras' downstream "supply division," which runs the company's refineries, tankers and distribution centers, has lost more than $12 billion in the last two years. Since Petrobras gets nearly three-quarters of its revenue from its supply unit, those losses threaten to cripple what is already one of the world's worst-performing oil companies.
That has led to rising debt. At 73 percent of equity, double the industry average, Petrobras' indebtedness is the highest among the world's major oil companies, according to Thomson Reuters data.
Chief Executive Maria das Graças Foster has said paying for the company's $237 billion, five-year expansion plan is impossible without higher fuel prices, but she has been unable to persuade the government to allow substantial increases.
As a result, she has postponed refineries that were supposed to make Petrobras one of the world's three biggest refiners and a major fuels exporter by 2020.
Brazil isn't the only major oil producer with a refining problem. Nigeria and Mexico suffer large fuel-import deficits, but they pay for imports with large exports of crude oil. Brazil through November 2013 was a net importer of oil.
ACCIDENTS HAPPEN, CHANGE DOESN'T
The pressure is showing on Petrobras' refineries, now running at more than 97 percent of capacity, according to Brazil's energy ministry. These levels, considered dangerously high, are aimed at limiting imports.
"Running at that level for very long means forgoing maintenance and that's not safe," a person with two decades of experience running Petrobras refineries said. Citing a confidentiality accord, the person asked not to be named.
Petrobras has had four serious accidents at its refineries since November. A fire at its REPAR Refinery near Curitiba put the 200,000-barrel-a-day plant, responsible for nearly 10 percent of Brazil's supply, off line for almost a month.
After the latest accident, Petrobras said it "rigorously follows the schedule and all rules for maintenance of its refining installations" and that its "units all have valid inspection certificates" from its internal auditors and Brazil's Petroleum Industry Association, the IBP.
The accidents forced Petrobras to marshal an armada of tankers to cover lost output. Even if accidents stop, the government has promised to enforce more rigorous maintenance, which will require refinery shutdowns and more imports.
Meanwhile, the two things that could cut Brazilian demand for imported gasoline and diesel - higher domestic fuel prices and new refineries - won't happen any time soon.
Brazil's first new refinery since 1980, the $20 billion RNEST near Recife, is due to be completed by year-end and reach full output of 230,000 bpd in mid-2015, five years behind schedule. With the need for maintenance at older plants, RNEST will narrow the import gap but fail to close it.
Comperj, a second refinery, near Rio, will see its first 150,000-bpd unit come on line in 2016, four years late, but will mostly make petrochemicals, not vehicle fuels.
The gap may only begin to narrow meaningfully after 2017, when the first of two, $20 billion, 300,000-bpd diesel refineries is scheduled to start operations.
With Brazil facing elections in October, change in fuel pricing is unlikely. This is especially true with inflation at around 6 percent, near the top of the government's target of 4.5 percent plus or minus two percentage points.
Higher inflation would likely force Brazil's central bank to raise its benchmark interest rate, at 10.5 percent already one of the world's highest. That would crimp economic growth, expected to be a sluggish 2 percent in 2014.
Higher prices could shrink demand for fuel, which has grown faster than the economy as a whole for four years, thanks also in part to Rousseff tax breaks on new-car purchases and increasingly snarled urban traffic. In much of the developed world, demand for oil and fuel is falling.
"With the election, any increase in fuel prices is unlikely until the end of the year, and even then, they won't close the gap," said Mauricio Canedo, head of the Center for Petroleum Economics at Rio de Janeiro's Getulio Vargas Foundation.
The government and Petrobras say they are committed to the "convergence" of domestic and foreign fuel prices over 24 months, though they have not said how they plan to get there.
(This story was refiled to fix typo in headline)
(Reporting by Jeb Blount; Editing by Steve Orlofsky)