January 16, 2008 / 1:40 PM / 11 years ago

Petrobras H-Bio output on hold due to price

RIO DE JANEIRO (Reuters) - Brazil’s state energy company Petrobras has adapted four refineries to produce H-Bio diesel fuel using mineral and vegetable oil, but has not started mass production due to the high price of soy oil.

Petrobras (PETR4.SA)(PBR.N) downstream director Paulo Roberto Costa, interviewed as part of the Reuters Global Agriculture and Biofuel Summit late Tuesday, said a refined soy oil price of $180 per barrel by far exceeded a regular diesel price of $104 a barrel.

“H-Bio has been designed as an alternative fuel, so we have to analyze the economic part all the time. We have the installations ready at the refineries ... but it makes no sense producing H-Bio now,” he said.

Costa said the investment in hydrotreatment equipment at the refineries for the H-Bio process was “small” at around 10 million reais ($5.6 million) at each plant, and the H-Bio capacity was normally part of idle hydrogenation capacity anyway.

At a similar summit a year ago, Petrobras said it would start commercial production of H-Bio diesel at four out of 12 of its refineries by the end of 2007.

“We expect soy prices to drop after the new harvest hits the market in March, but it is too early to say if that’ll be enough to start producing H-bio, or when we may start producing,” Costa said now.

The technology calls for the addition of vegetable oils during diesel refining and results in a product with much lower sulfur content. It would also allow Brazil to import less diesel. The country exports gasoline, but is short on diesel fuel.

When producing through H-Bio process, the company expects to use annually 200-225 million liters of vegetable oils, mainly soy oil. Unlike biodiesel, H-Bio can be sold as regular diesel.

Petrobras is using soyoil due to its huge availability in Brazil, the world’s No. 2 producer which expects a big soybean crop this year, but other oils are being analyzed.

Costa also said biodiesel production costs should fall at the next government auctions of the fuel as soy prices are likely to retreat with the new crop, which began harvesting weeks ago.

Petrobras is in charge of buying biodiesel from producers and reselling it to distributors to guarantee the compulsory blending of two percent biodiesel in diesel fuel, in force from January 1.

Costa said that Petrobras expected to reach self-sufficiency in diesel fuel by 2011, when a new 200,000 barrels per day heavy oil refinery is to start working in northeastern Brazil, as well as helped by the biodiesel mix and possibly H-Bio production.

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