LPG in Brazil At a Crossroads GLOTEC LAM

LPG in Brazil : At a Crossroads GLOTEC – LAM Global Technology Network Latin America Ernst BRANDSTAETTER – August 2017 1

TABLE OF CONTENTS • • • SHV Energy Global LPG demand LPG SD balance by region LPG seaborne flows LPG price benchmarks • Brazil • Market snapshot • LPG SD balance • Infrastructure and assets • Summary of facts • India • Market snapshot • Market shares • LPG SD balance • Infrastructure and assets • Tailor-made supply system • Challenges and risks Conclusion •

SHV ENERGY IN THE WORLD SHV ENERGY ASSETS Terminals 20 Ships 10 Transloading stations 2 Rail tank cars 500 Physical Volume (mn MT) 5. 5

SUPPLIER ANALYSIS (SEABORNE) – 2016 NWE 800, 000 tons US 200, 000 tons FSU 800, 000 tons Algeria 750, 000 tons Caribbean 300, 000 tons WAF 310, 000 tons MEG 1. 7 mn tons

GLOBAL LPG DEMAND 120% 110% Propane vs naphtha 100% 90% CAGR 2017 -2025 Other: -2. 1% 12400 80% 70% Other: +0. 1% Chemical: +10% Chemical: +2. 2% 20 00 20 02 20 04 20 06 20 08 20 10 20 12 Million tons per year 0 14 20 16 20 18 60% 350 10 300 8 250 Autogas: +0. 3% Industrial: +1. 6% 6200 Industrial: +1. 1% 150 4 100 Res/comm: +3. 1% 2 50 Res/comm: +2. 6% 20 10 20 20 10 11 20 12 01 2 20 123 01 3 20 124 01 4 20 125 01 5 20 1260 16 20 1270 17 20 1280 18 20 1290 19 20 2 2002 0 20 2 2102 1 20 2 2202 2 20 20 23 23 20 20 24 24 20 20 25 25 0 0 Residential and Commercial Res/comm Industrial Engine Fuel Other Chemical 5 Other

LPG SUPPLY-DEMAND BALANCE BY REGION Production Demand Price benchmarks 1, 100 1, 000 900 CIF ARA L Saudi CP FEI Mont Belvieu 700 600 500 400 300 200 Note: 2017 data is until July Global market to remain long 6 17 20 16 20 15 20 14 20 20 13 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 100 20 USD per ton 800

LPG SEABORNE FLOWS

LPG PRICE BENCHMARKS CIF ARA DAF Brest Mont Belvieu SP Mont Belvieu CP FEI

BRAZIL – MARKET SNAPSHOT Population (2016) ~209 million Area (land) 8. 4 million sq km GDP growth (1 Q 2017) 1% LPG demand (2017 E) 7. 9 million tons P 13 sales (2016) 5. 4 million tons LPG demand per capita 38 kg LPG production (2017 E) 5. 4 million tons Imports (2017 E) 2. 5 million tons Source: CIA World Factbook, Trading Economics, IHS Markit, SRM Research 9

BRAZIL – LPG SUPPLY-DEMAND BALANCE 1. 8 Net import requirement Demand Million tons per year Production 10 Million tons per year Imports by source Supply-demand outlook 12 8 6 4 8. 0 7. 0 9. 7 8. 7 1. 6 1. 4 1. 2 1. 0 0. 8 0. 6 0. 4 2 0 2017 2020 0. 0 2025 US Argentina Algeria Other Source: IHS Markit, Accenture, Sindigas • Growth potential in the large residential/commercial segment remains, but depends on population growth and further phasing out of firewood as a cooking fuel • On the supply side, LPG recovery from gas plants will grow as crude oil production (along with associated gas) increases • Brazil will continue to import LPG, particularly propane, for the foreseeable future 10

BRAZIL – INFRASTRUCTURE AND ASSETS Waterway terminal capacity in Brazil Third party capacity Brazil – total capacity Suape and Santos terminals together receive over 90% of LPG imports 11 5, 200 180, 760

BRAZIL – LPG PRICES New reference price formula for P 13 segment MB vs new price formula Average of 800 New reference price formula P 13 MB (50: 50 C 3: C 4+ freight+lifting fee) Bulk CIF ARA Large Propane 700 CIF ARA Large Butane 600600 + USD per ton 550 5% markup 500500 450 400400 350 • Petrobras now uses the average of CIF ARA Large propane and butane prices (plus a 5% markup) as a reference for wholesale LPG prices for 13 kg (and under) cylinders • The new structure applies only to LPG in the residential segment and will not seek parity with 300300 250 Ja n. Fe 16 b M -16 ar Ap 16 r M -16 ay Ju 16 n 1 Ju 6 l-1 Au 6 g. Se 16 p. O 16 ct N 16 ov D 16 ec Ja 16 n. Fe 17 b M -17 ar Ap 17 r M -17 ay Ju 17 n 1 Ju 7 l-1 Au 7 g. Se 17 p. O 17 ct N 17 ov D 17 ec -1 7 200200 international prices 12

BRAZIL – SUMMARY OF FACTS Imports to continue in the range of 1 to 3 millions tons • Not considering further cancellationsdelay of upstream projects • Not considering extra demand growth because of growing GDP • Not considering potential of shift of LPG streams towards the petchem industry Infrastructure needs to be upgraded to cope with growing imports • Only one port capable of receiving VLGCs – Suape, which has limited storage capacity • Santos has sufficient storage capacity but has limited draft and suffers from frequent loading/unloading delays • Growing gap between supply and demand in the Northeast • Cabotage is a challenge due to insufficient storage capacities, high berth utilizations, draft restrictions, particularly in Mucuripe, Paranagua and Tergasul • No options to transport LPG via rail Existing pricing model does not enable individual imports Existing law restricts extraordinary development of the LPG market Roledestiny of Petrobras as producer and Transpetro as logistics provider for the LPG industry is unclear 13

MARKET SNAPSHOT – INDIA AS BENCHMARK Brazil Population (2016) Area (land) India ~209 million Population (2016) 8. 4 million sq km Area (land) 1. 26 billion 2. 9 million sq km GDP growth (1 Q 2017) 1% GDP growth (1 Q 2017) 6. 1% LPG demand (2017 E) 7. 9 million tons LPG demand (2017 E) 22. 3 million tons P 13 sales 5. 4 million tons Subsidized LPG sales 16. 1 million tons LPG demand per capita 38 kg LPG demand per capita 18 kg LPG production (2017 E) 5. 4 million tons LPG production (2017 E) 11. 4 million tons Imports (2017 E) 2. 5 million tons Imports (2017 E) 10. 9 million tons Source: CIA World Factbook, Trading Economics, IHS Markit, SRM Research 14

BRAZIL AND INDIA – MARKET SHARES Brazil India Private players 3% Liquigas (Petrobras) 23% HPC 26% Other 33% IOC 46% Ultragaz 23% Supergasbras (SHV Energy) 21% BPC 25% State-owned Petrobras accounts for 23% of the market State-owned oil companies account for 97% of the market 15

INDIA – LPG SUPPLY-DEMAND BALANCE Supply-demand outlook Supply outlook 40 40 Production Net import requirement Demand 35 Million tons per year 30 25 20 15 30 Production 25 Net import requirement 21 20 15 10 10 5 5 11 11 14 0 0 2017 2020 2017 2025 Source: IHS Markit • Although refinery capacity is poised for expansion, which will boost production, domestic demand will far outstrip production • The government has implemented a subsidy reform program wherein separate prices for subsidized cylinders will be eliminated in favor of direct cash payments to low income households to be used in purchasing unsubsidized LPG • Subsidy reform caused LPG demand to decline in 2013, but the growth has since resumed, and is expected to continue going forward 16

INDIA – INFRASTRUCTURE Pressurized Tank Refrigerated Tank Cavern Planned Refrigerated SIKKA – RIL Refinery storage Pipavav Kandla Porbandar Dahej Haldia Mumbai JNPT Visak Mangalore Ennore (Chennai) Tuticorin Cochin 17

INDIA – TAILOR-MADE SUPPLY SYSTEM THE SOLUTION THE CHALLENGES THE GOAL ONE MAJOR SOURCE OF SUPPLY CREATE FLEXIBILITY FOR THE SUPPLY SECURITY OF SUPPLY FOR SHV INDIA SYSTEM LOADING REQUIREMENTS GUARANTEE THE MOST COMPETITIVE CREATE CRITICAL MASS TO OBTAIN PRICE FOR SHV INDIA VARIOUS PRODUCT RATIOS SUPPLY FROM THE MIDDLE EAST OPTIMIZE SHIPPING CHANGING LOTCOSTS SIZES AND OPTIMIZE SALES VOLUME TO MINIMIZE DEMURRAGE SHIPPING COSTS SHIP TO SHIP TRANSFER MEG CONTRACT SELECTED THIRD PARTIES PORBANDAR MUMBAI MANGALORE TUTICORIN 18

INDIA – TAILOR-MADE SUPPLY SYSTEM INDIA SUPPLY SYSTEM CRITICAL MASS ON SUPPLY SHIP TO SHIP TRANSFER MEG CRITICAL MASS ON SHIPPING SUPPLY & ASSET OPTIMIZATION PORBANDAR MUMBAI Competitive Price Advantage for SHV India MANGALORE TUTICORIN 19 Security of supply for SHV India Maximize the return on investment on Tuticorin Supply flexibility & independence for SHV India

INDIAN LEARNINGS APPLICABLE FOR BRAZIL ? Pricing model • Subsidy system changed from product to individual • Market pricing is related to international prices • Pricing strategies in place to cope with volatile pricing Procurement Infrastructure • Imported cargoes are shared between various receivers • Access to existing infrastructure is possible based on official pricing structure • Legal framework for individual imports is existing • Infrastructure programs (terminal investments) are ongoing 20

CONSIDERATIONS Pricing model • Review existing P 13 (subsidized) pricing – consider Indian model • Move the local market pricing to a pricing policy related to international prices • Understand how to cope with future volatile pricing Procurement Infrastructure • Review current volume appointment model • Provide access at competitive terms to existing infrastructure • Provide legal framework for individual import hubs and individual imports • Consider joint imports to increase flexibility and decrease cost Petrobras Transpetro • Define clear and specific rules for access to assets • Clarify future positioning of Petrobras as producersupplier after having left distribution market 21

Obrigado! 22
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