Petroleum refining flexibility and cost to address the risk of ethanol supply disruptions: The case of Brazil

Abstract

Biofuels' potential supply is uncertain. This uncertainty involves not only the possibility of expanding bio-energetic cultures in the medium term but also the risk of supply disruptions in the short term. These supply disruptions may be mainly caused by climatic conditions, soil management, plagues and diseases, Global Climatic Change (GCC), producers' strategies and other factors. An ethanol supply shock may force the petroleum refining industry to increase its gasoline output or result in an increase in liquid fuel imports. An intersection of both alternatives may also be a solution. This study developed and applied a methodology to evaluate the capacity of petroleum refineries to address unforeseen ethanol supply deficits in the short term. The tool utilized was a mixed-integer linear programming (MILP) model. The methodology was applied to Brazilian refineries system. Findings show that to build catalytic reforming (CR) units to produced additional gasoline volumes during unexpected ethanol supply shortage is not economically attractive. However, these investments can be justified when the probability of ethanol supply loss is high.