Jun 03, 2022
Brazil Worried About Running Out of Diesel Fuel
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The Brazilian government is very concerned about the domestic price of diesel fuel and its availability in the market. Last week, Petrobras alerted the Brazilian Ministry of Mines and Energy about the possibility that Brazil could run out of diesel fuel in the months ahead if imports are not increased and if the domestic supply is not increased.
Brazil does not have the refining capacity to meet all the domestic diesel fuel needs and it must rely on imports at an ever-increasing cost. The Brazilian government announced that there is an average of a 38-day supply of diesel fuel in the country depending on the level of imports.
The biodiesel sector in Brazil announced that they are prepared to immediately help increase the diesel fuel supply by increasing the blending percentage of vegetable oil in petroleum diesel. The current blend percentage is 10% (B10) and they have the capacity to immediately increase that to 12% (B12) and then 14% (B14) later in the year. They indicated that biodiesel production could increase by 1.2 billion liters within 30 to 45 days.
Ironically, the blend percentage was at B12 in early 2021 and it was scheduled to go to B14 in early 2022 and B15 in 2023, but in 2021, the Brazilian president ordered it reduced to B10 due to the high cost of soybean oil which is the major vegetable oil used in biodiesel. His justification was that by reducing the blend percentage, it would help to hold down diesel prices, but diesel prices continued to increase despite the lower blend.
At the time, biodiesel producers complained bitterly because they had invested heavily in increased capacity because the government indicated that the blend percentage would continue to increase going forward. In fact, the blend percentage was scheduled to increase 1% per year for at least the next five years. Biodiesel producers were counting on the increased blend percentage to justify their investments in increased capacity.