Petrobras sees biodiesel supply OK, price up

By Andrei Khalip

RIO DE JANEIRO (Reuters) - Brazil's state energy company, Petrobras, which plans to start producing biodiesel around mid-year, expects current low prices of the plant-based fuel to rise soon, leaving enough margin for producers.

Graca Foster, Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz) (PBR.N: Quote, Profile, Research, Stock Buzz) director for natural gas and energy, also said she expected no biofuel supply problems in the meantime resulting from a discrepancy between high soy and soy oil prices and low prices for Brazil's biodiesel, which do not cover production costs.

The country introduced a compulsory 2 percent blend of biofuel in diesel fuel on January 1.

"The question of low prices formed in (last year's biodiesel) auctions is alarming ... discounts reach 22 to 25 percent, and we are wary of that. But we don't believe the situation will last," Foster said at the Reuters Global Agriculture and Biofuel Summit in Rio de Janeiro.

"I believe new auctions will resolve the problem. Before the end of the year, the price discrepancy will get straightened out," she said.

She added that she expected the first auction in March or April to give "at least some profit margin."

Petrobras plans to launch three biodiesel plants with a total capacity to churn out 165 million liters of the fuel a year by June and is working on plans to build a giant 300-million-liter to 400-million-liter plant in northeastern Brazil by early 2010.

According to the company's strategic plan announced last year, it wants to become the country's leading producer of biodiesel by 2012.

FREE COMPETITION

Some market players fear the entry of the state-run giant, which is a de facto monopolist in the fossil fuels market, into renewable fuels may bring about another near-monopoly, stifle free competition and drive smaller producers out of business.

But Foster said Petrobras would not seek to limit prices, as it does with oil products like gasoline and ordinary diesel, nor will it subsidize the industry.

"They have every reason to fear us, because we want to be leaders, but we will compete for a share of free market, not in order to squeeze others out ... It's only worth getting into this market if you take part in price-forming, and we'll do that, keeping in mind our stockholders," Foster said.

Petrobras seeks to produce 900 million liters of biodiesel around 2012, while it forecasts the domestic market for the product to grow from an estimated 840 million liters this year to more than 1.2 billion liters in five years.

That plan hinges on the huge plant in the northeast, which would work on soy, rapeseed, cotton or dende oil in a continuous cycle and use the company's own technology.

"When we start this up, we'll really be in the market. We'll be competing locally and we have plans to export. The plant will produce fuel with different specifications for different markets, Europe for example," she said.  Continued...