Brazil, Venezuela in $12-billion refinery deal

After four years of prolonged negotiations, South American neighbours Brazil and Venezuela finally reached an agreement to build and operate a 230,000 barrels per day (bpd) oil refinery in Brazil by forming a joint venture company.

Brazil's state-run oil and gas giant, Petroleo Brasileiro SA (Petrobras) will hold 60 per sent stake in the joint venture whereas Venezuela's Petroleos de Venezuela SA (PDVSA) will have the remaining 40 per cent. The major agreement came out during the visit of Brazilian president Lula da Silva's to Venezuela and meeting with his Venezuelan counterpart Hugo Chavez last week.

The joint venture oil refinery will be built in the north-eastern state of Pernambuco, in Abreu e Lima, where the construction work has already been started by Petrobras. Although the cost of building the refinery was initially estimated at around $4.5 billion, it is now projected to cost around $12 billion.

It is expected that the refinery will become operational by 2011. The refinery was conceived to process crude from the Carabobo region of Venezuela's Orinoco belt and also crude from Petrobras, and produce primarily low sulfur diesel. 

Petrobras is the largest company in Latin America by market capitalisation and revenue and a significant oil producer and supplier with 2 million barrels of oil equivalent per day capacity. Apart from South America, it has assets in North America, Africa, Europe and Asia. The company is a leader in ultra-deep water oil production and had 2008 revenues of $128 billion.

PDVSA is the world's fifth-largest oil exporter, producing over 2.6 million barrels per day. Venezuela claims to hold the largest reserves of hydrocarbons, including the extra-heavy crude in the vast Orinoco region.