The Brazilian states that would be most exposed to a diesel supply crisis

Several of Brazil’s states are vulnerable if the country suffers a major diesel supply shortage, according to an expert.

“In the context of global instability, it doesn't seem useful to continue questioning whether or not there may be a shortage of diesel in Brazil, but rather to be proactive and prepared in case the shortage scenario is confirmed,” Marcus D’Elia, partner-director of local consulting firm Leggio Consultoria, told BNamericas. 

Highly dependent on diesel imports, Brazil has been reporting some cases of fuel supply shortages amidst the impact of Russia’s war in Ukraine.

Paraná, Santa Catarina, Mato Grosso, Maranhão, Piauí and the states in the country’s north region are the ones that would suffer the most from a supply crisis, said D’Elia.

Key supply points must be covered by contingency plans for supply recovery in these states as they either lack refineries or have a large gap between local demand and refinery output, he said, adding that solutions include using alternative supply routes through coordination between market participants, giving supply priority to the transportation sector, and stockpiling by large consumers. 

“The development of such plans cannot be replaced by the common expression ‘the market will adapt’. The measures are not quick to implement and need reliable planning.” 

Amid strong oil and gas price volatility, politically pressured Petrobras has taken long intervals to adjust its fuel prices and in doing so, the national oil company has harmed the competitiveness of local importers. 

The latest information made available by the government shows the country has 38 days of diesel stock. 

“But there is no vision of what their real values will be in the second half. Besides, it’s worth remembering that having the product somewhere is just the first step in a logistics chain,” D’Elia said. 

A challenging outlook

Sérgio Araújo, the president of Brazilian fuel importers association Abicom, believes diesel supply will be challenging in the second half of the year.

“But I don't believe in significant shortages, only occasional problems with gas stations and consumers without contracts with the large distributors,” Araújo told BNamericas. 

Local fuel and lubricant sales association Fecombustíveis does not see a risk of widespread diesel shortages at the present moment, but it has received information about occasional shortages in some regions. 

“Fecombustíveis emphasizes that it has been following the news and is monitoring official data to update the information,” a spokesperson for the association told BNamericas. 

When contacted by BNamericas, the mines and energy ministry (MME) only made reference to a statement published on May 27 where it listed measures it had adopted to avoid fuel shortages, including the creation of a supply monitoring committee. 

Petrobras has defended the need to follow international prices to avoid a shortage of diesel during the second half. 

The NOC's president, José Mauro Coelho, whose recent dismissal has yet to be approved by a shareholders' meeting, has warned about the shortage risks. 

Behind the scenes, the company has recommended that the government adopt subsidy programs – such as a fuel voucher – to preserve market prices.

At a press conference on Monday, President Jair Bolsonaro said the government is hoping for congressional approval of a constitutional amendment proposal (PEC) that authorizes states to temporarily eliminate the sales and services tax (ICMS), which is levied on diesel fuel and cooking gas. 

With this, the federal government would reimburse state governments for revenue losses resulting from the PEC, since ICMS is a state tax. 

Each state has autonomy to define the ICMS rate, which in some cases can be as high as 30% on fuels. 

Last month, the lower house approved a bill that limits ICMS to a maximum of 17% on fuels, energy, natural gas, communications, and public transportation, which are deemed to be essential goods and services. A complementary bill (PLP) is now under analysis in the senate.

Regarding gasoline and ethanol, Bolsonaro said that the government is willing to eliminate the federal taxes (PIS-Cofins and Cide) on these in order to reduce prices for consumers, like it has already done with diesel and cooking gas.