Brazilian Fuel Moves

Three bits of Brazilian fuel news recently caught the attention of this Fool.

First, we learned that Petrobras (NYSE: PBR  ) became a net importer of oil and oil products in the first quarter. This is a minor setback for the company, which has been a net exporter for the past two years.

The main issue is an imbalance between lower-quality heavy oil, which Brazil has in abundance, and the lighter, primo stuff that it craves. The company ought to manage net exports for 2008, but the higher price of imports will hit the bottom line. Between better heavy oil refining capacity and further exploitation of lighter offshore oil deposits like this one, solutions to today's imbalance are not beyond the Brazilian bruiser's grasp.

Petrobras had also recently put a bid in for ExxonMobil's (NYSE: XOM  ) Brazilian marketing arm, which includes more than 1,500 stations under the "Esso" brand. However, the company got scooped by smaller ethanol slinger Cosan (NYSE: CZZ  ) . Cosan is parting with plenty of reais for a 7% share of the Brazilian retail market. Why would the company do this when it's already got a below-investment grade credit rating?

As noted in my recent look at ethanol pipelines, Cosan is extremely wary of Petrobras hogging all the country's distribution infrastructure. So the move into retail distribution, while a low-margin game, guarantees a foothold in important end markets.

Another company seeking a foothold in Brazilian ethanol is BP (NYSE: BP  ) . The jolly green Brit just bought itself half a share in a new sugarcane farming and refining venture called Tropical BioEnergia. BP's two partners are one of the world's top cotton producers, and Brazil's No. 2 sugarcane crusher. The latter company runs a few ethanol refineries already, and has pioneered the production of energy from sugarcane waste biomass. I hope this works out better than BP's foray into jatropha, in which partner D1 Oils recently bowed out of the biofuels refining business entirely. Actually, given the burgeoning Brazilian demand for ethanol and the depth of expertise here, I fully expect this venture to be a success.


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