June 11, 2013 / 12:36 AM / in 5 years

UPDATE 1-Petrobras signs refinery accord with Korea's GS Energy

(Adds details about GS and about Petrobras refining plans)

RIO DE JANEIRO, June 10 (Reuters) - Petroleo Brasileiro SA has signed an accord with a unit of South Korea’s GS Holdings Corp that could lead to a partnership to build a Brazilian refinery.

Under the non-binding accord GS and Petrobras will explore forming a joint venture to build the “Premium II” low-sulfur diesel refinery near Fortaleza on Brazil’s northeastern coast, the country’s state-led oil company said in a statement. The GS unit handling the study with Petrobras is GS Energy Corp.

The refinery is expected to process about 300,000 barrels a day of Brazilian crude starting in late 2017. About two-thirds of output would be diesel, according to Petrobras.

Reuters reported Sept. 27 that Petrobras was in talks about possible cooperation on Premium II with GS Caltex, a joint venture between GS Holdings and Chevron Corp., the No. 2 U.S. oil company. GS Caltex is the No. 2 South Korean refiner.

Petrobras needs new oil refineries to keep up with soaring domestic demand for vehicle fuels and petrochemicals and rising output of crude oil and natural gas. By 2020 Petrobras plans to more than double crude oil production to 4.2 million barrels a day by 2020 and boost domestic refining 50 percent to 3 million barrels a day.

Higher costs have led Petrobras to seek partners such as Venezuela’s PDVSA and now GS Holdings to help build some of the four refineries it plans to complete in Brazil by 2019.

Despite record output, Petrobras’ existing refineries can’t keep up with domestic demand. Brazil’s refusal to let Petrobras raise fuel prices in line with world prices forces it to sell rising imports at a loss.

The cost of the Abreu e Lima Refinery near Recife has jumped nearly five-fold since 2008 to $20 billion from $4.3 billion. Petrobras plans to complete the 230,000 barrel a day refinery in 2014 with or without PDVSA, which has agreed to take a 40 percent stake but has not yet invested anything.

Without partnerships the Premium II project and the “Premium I” refinery in Maranhao state will put further strain on the company’s $237 billion five-year investment plan, the world’s largest corporate investment program.

The Premium I and Premium II starting dates have been put back several times and are now scheduled to begin operations in late 2017. (Reporting by Jeb Blount; Editing by Michael Urquhart)

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