Petrobras Said to Miss 2014 Ethanol Relief on Lack of Supply

Jul 17, 2014 4:21 pm ET

(Updates with Petrobras closing share price in fourth paragraph.)

July 17 (Bloomberg) -- Brazil is delaying until at least 2015 an increase in the ethanol portion used to blend with gasoline, a government official with knowledge of the decision said.

The government will take at least 10 weeks to conclude studies on whether to boost the amount of ethanol in the gasoline mix to 27.5 percent from 25 percent, postponing potential relief from subsidized fuel imports for Petroleo Brasileiro SA, the official said, declining to be named because discussions are not public. Brazil, which makes ethanol out of sugar-cane, doesn’t have enough supply this year and must wait until the next harvest to boost the blend, the official said.

Petrobras, as Brazil’s state-controlled oil producer is known, has posted more than $40 billion in refining and distribution operational losses since 2011 when it began subsidizing imported fuel to meet government mandates. Having more ethanol in the gasoline blend will reduce Rio de Janeiro- based Petrobras’ needs for imported fuels at a time of growing domestic consumption.

Petrobras rose 1.3 percent to close at 19.56 reais in Sao Paulo trading, after earlier climbing as much as 3.2 percent to 19.92 reais.

Brazil may approve the ethanol increase to prompt millers to boost the crop ahead of the next harvest, the official said.

“The government is studying the subject, listening to all the involved groups, but will only make a decision if it is economically viable,” Brazil’s energy ministry said in an e- mailed response to Bloomberg.

The government in April 2013 boosted the proportion of ethanol in the gasoline mix to 25 percent from 20 percent. Most Brazilians cars have engines that run both on ethanol or a mix with gasoline. A further increase is opposed by carmakers and environmental agencies who say it will damage car engines and worsen air quality.

--With assistance from Juan Pablo Spinetto and Sabrina Valle in Rio de Janeiro.