Brazilian state-run oil giant Petroleo Brasileiro (PBR, PETR4.BR), or Petrobras, expects a recovery in the country's sugarcane ethanol production in the next two years to "resolve" its need for gasoline imports, Chief Executive Maria das Gracas Foster said Tuesday.

In a press conference, Ms. Foster said she believes Brazil's ethanol output, which has been in decline for the past two years because of weak cane harvests, should be "back" by 2014.

"What I hear from the cane millers, with whom I have very little contact...is that there's a positive expectation that alcohol will start coming back next year and that by 2014 it will be present," Ms. Foster said.

Given that outlook, Petrobras doesn't intend to alter its investment plan's focus on expanding refining capacity for diesel fuel.

"I'm a bit rigid when it comes to changing the scope of projects," she said of the company's "vocation" to produce more diesel rather than gasoline. "If we try to start over it's a serious problem."

Ms. Foster also downplayed the negative impact of imported gasoline--which Petrobras sells at a loss in Brazil--on the company's balance sheet. Of the "five or six variables" that contributed between April and June to Petrobras's first quarterly loss in more than a decade, "price was not the one that caused the biggest impact."

Brazil's sugarcane industry frequently complains that by selling gasoline at below-market prices, Petrobras hurts ethanol producers' ability to invest in expanding capacity. Analysts say the Brazilian government pressures Petrobras to keep gasoline prices low to help control inflation.

But Ms. Foster said Petrobras looks beyond the short term for its pricing strategy to consider the massive investments it has made in domestic oil production.

"I want the Brazilian people consuming more gasoline," she said. "It's very bad to imagine a slowdown in that consumption."

As a result, Ms. Foster said "the fastest way" for Brazil to resolve its need for fuel imports is "the return of ethanol."

"As long as alcohol doesn't match growth in the [domestic auto] fleet, we're certainly going to need to import gasoline to attend the domestic market," Ms. Foster said.

Write to Paul Kiernan at paul.kiernan@dowjones.com

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(END) Dow Jones Newswires

August 07, 2012 16:42 ET (20:42 GMT)