LARTC 2025
Renewable fuels offer an opportunity and competitive advantage for LATAM refiners
MARCIO WAGNer DA SILVA Petrobras – Henrique Lage Refinery (REVAP)
Current Context The current scenario presents significant challenges to the crude oil refining indus- try, including price volatility of raw mate- rials, pressure from society to reduce environmental impacts, and refining mar- gins that are increasingly lower. The newest threat to refiners is the decline of the con- sumer market, which has become increas- ingly common in recent years, with news about countries that intend to reduce or ban the production of vehicles powered by fossil fuels in the medium term, mainly in developed markets like Europe and Asia. Despite recent forecasts, transportation fuel demand remains the primary reve- nue driver for the downstream industry, as shown in Figure 1 , based on data from the International Energy Agency (IEA). According to Figure 1, a growing demand for petrochemical intermediates, such as naphtha and ethane, is expected, while transportation fuels are set to present fall- ing consumption, with the most pronounced reduction anticipated for gasoline. This change in the consumer market is driven by the increasing necessity to reduce the carbon intensity of the global energy matrix, which leads to the improve- ment in fuel efficiency, the growing market of electric vehicles, and new technologies such as additive manufacturing (3D print- ing), which have the potential to destroy the demand for fossil transportation fuels. These factors create a hostile scenario for fossil transportation fuels, which is sum- marised in Figure 1. Under this business scenario, an expected movement from downstream players is to seek closer integration between refining and petrochemical assets, aiming to max- imise petrochemical production, consider- ing their higher added value and growing market share compared to fossil fuels. Considering the high capital expendi- tures associated with integrating refining and petrochemical assets, it is expected that downstream players from developed economies, such as those in Europe and Asia, will lead this movement. This fact is reinforced by the surplus of transportation fuels, especially gasoline, in these mar- kets, provoked by stricter environmental regulations as well as the higher refining capacity of these players. Taking into account the relatively low complexity of Latin American refining assets compared to more economically developed markets, such as Europe and Asia, in addition to the high capital costs required to maximise petrochemical pro- duction, this route may become prohibitive for some Latin American players. On the other hand, biomass co-processing and biofuel production appear to be a route in which Latin American players have a major competitive advantage. Driven by the need to reduce the carbon intensity of the energy matrix, we are see- ing a growing demand for co-processed
biomass co-processing and biofuel production appear to be a route in which Latin American players have a major competitive advantage
Product demand growth, 2023-2030
103
102
-0.0
-0.1
0.1
101
100.4
1.2
100
-1.7
1.2
99
98
97.4
2.5
97
96
95
Figure 1 Global oil demand by derivative
( International Energy Agency, 2024 )
mies tend to seek new consumers for their surplus production, finding Latin America to be an attractive and growing market, which puts pressure on local refiners. In this context, biofuels, which can be a low- carbon fuel production and export strat- egy, can be a good and sustainable option for the refining business in Latin America. The main challenges to integrating con- ventional refining and biorefining in Latin America are to define clear policies that create a safe, competitive, and sustainable production environment, especially consid- ering the high production costs, which still put pressure on the final prices of biofuels. To overcome these challenges, it is funda- mental to diversify feedstock sources and raise land productivity. Conclusion In some cases, the traditional mindset of the refining business can view the growth of biofuels as a threat to the crude oil refin- ing business due to the demand displace- ment effect. It is essential to recognise that the need to reduce the carbon inten- sity of the energy matrix is a fact, not a trend. In this context, refiners should
explore unconventional ways to capitalise on opportunities in this scenario. Petrochemical integration is a business trend in the global downstream indus- try and can represent a threat to Latin American players, considering the high integration potential of those located in developed markets like Europe and Asia. On the other hand, the growing demand for biofuels can represent a significant oppor- tunity for Latin American refiners, as the relatively high availability of biomass in the region can help these players maxim- ise biomass co-processing in their refining assets and gain a significant competitive advantage in the global market. Bibliography 1 Gelder, A. Refinery-petrochemical integration disrupts gas-based cracker feedstock advan- tage , Wood Mackenzie, 2023. 2 IEA (2024), Oil Market Report – June 2024, IEA, Paris https://www.iea.org/reports/ oil-market-report-june-2024. 3 IEA (2024), Renewables: Analysis and Forecast to 2030 – October 2024 , IEA, Paris https://www.iea.org/reports/renewables-2024.
fuels, such as sustainable aviation fuel (SAF) and hydrotreated vegetable oil (HVO). Figure 2 depicts the growing demand for biofuels between 2023 and 2030. According to the IEA, renewable fuels are set to account for nearly 6% of global industry, building, and transport energy demand. This scenario creates a potential competitive advantage and opportunity for Latin American refiners to face the global hostile scenario for fossil fuels. Among the competitive advantages of Latin American refiners in biorefining are the favourable climate, abundant and high- quality land, and a good agricultural capac- ity. Considering these characteristics, even among Latin American players, Brazil has a highlighted position, standing out as a major biofuels producer, primarily bioeth- anol from sugarcane. Nowadays, Latin America is responsi- ble for around 25% of global biofuels pro- duction, with the capacity to raise this participation considering the competitive advantages mentioned above. Given the hostile scenario for fossil fuels and the global trend of reduced transportation fuel demand, refiners operating in larger econo-
Contact: marciows@petrobras.com.br
Renewable fuel demand, main and accelerated cases, 2023-2030
30
6%
25
5%
20
4%
3%
15
10
2%
5
1%
0
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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
China
United States
Europe
India
Brazil
RoW Share of global fuel demand
Notes: RoW = Rest of World. Shares are based on global fuel demand in nal energy consumption
(International Energy Agency, 2024)
Figure 2 Biofuels demand forecast 2023-2030
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