Oil and gas in the capitals

	Vol. 229 No. 3
DAYSE ABRANTES, CONTRIBUTING EDITOR, SOUTH AMERICA

Brazil moving toward export

Lightning struck again in the Santos Basin offshore Brazil, when state-owned oil company Petroleo Brasileiro SA (Petrobras) announced on January 21 that a huge pre-salt natural gas and condensate field was found in Block BM-S-24.

According to some experts, the size of the new reserve, dubbed Jupiter, could match the giant pre-salt Tupi Field discovery disclosed in November 2007 in Block BM-S-11. Petrobras estimates that Tupi’s recoverable 5-8 billion boe will move the country into the top category of oil producers.

Oil analyst Marc McCarthy at Bear Stearns said Jupiter could turn Brazil into a natural gas exporter, which is “bad news for Bolivia.” That neighboring country supplies about 50% of the nearly 1.6 Bcf (46 MMcm) of gas Brazil consumes every day.

Petrobras reduced investments in Bolivia due to the nationalization of the oil and gas sector there in 2006. Compensation was negotiated for two refineries the company lost in Bolivia. Before the nationalization, Petrobras was the largest company in Bolivia, which has the second-largest gas reserves in South America after Venezuela.

The world’s largest oil companies have struggled lately to find drilling rigs and global-scale projects worth investing in. Even with oil touching $100 a barrel, Tupi is the world’s biggest oil find since a 12-billion-bbl field discovered in 2000 in Kazakhstan.

According to Petrobras, the pre-salt formations range from the coast of Espírito Santo state south to offshore Santa Catarina state, encompassing a system more than 497 mi (800 km) long and 124 mi (200 km) wide.

“In a conservative estimate, there may be at least 50 billion bbl recoverable reserves in this pre-salt formation,” said Márcio Rocha Mello, president of the Brazilian Association of Petroleum Geologists. Current Brazilian proved reserves are 14.4 billion boe.

Potential deposits in the pre-salt may hike current Brazilian production of 1.86 million bpd to 2.75 million bpd by 2011, and to 3.75 million bpd or more by 2015, by some estimates.

The new oil, along with refining projects underway by Petrobras, could eventually turn Brazil into a large exporter of gasoline as well, adding to supplies for the energy-hungry US, which is heavily dependent on the unstable Middle East and on Venezuela.

As the fourth-largest US supplier, Venezuela exports 1.2 million bpd of oil to American refineries, according to the Energy Information Administration in Washington.

Although Venezuela announces plans to shift exports mainly toward China, the US remains Venezuela’s top trading partner. However, the US government openly disapproves of Venezuela’s “oil sales” to Cuba, which are mainly in exchange for Cuban medical and other services and goods, as well as Venezuelan President Hugo Chávez’s growing ties with Iran.

Recently, President Chavez threatened again to halt oil exports to the US if ExxonMobil succeeds in freezing $12 billion in foreign petroleum assets controlled by Venezuela since last year. The court battle started because ExxonMobil did not agree with the terms Venezuela imposed when it nationalized the company’s oil interest in the country.

Major producers such as the US, Mexico, England and Norway have seen production decline in recent years. Although many non-OPEC producers are faced with wells that are quickly depleting, their overall production numbers are bolstered by the significant increases in production from Brazil, Canada, Russia and a few other former Soviet states.

The International Energy Agency in Paris believes that Brazil will add more new production in 2008 than any other non-OPEC nation.

Brazil is at loggerheads with the US and Europe at the World Trade Organization, leading moves by the emerging market nations against rich nations’ farm subsidies and quotas. Supplying oil will add a powerful lever to Brazil’s argument that the US must bring down its $0.53/gallon tariff on imported Brazilian sugarcane ethanol.

Analysts say that if the US administration (either the present one or its successor) would lower the protectionist tariffs that fence in its farm industry, it would smooth the path toward becoming a preferential energy partner of Brazil. After all, in a world thirsty for gasoline, Brazil will not have any difficulty finding clients for Tupi and Jupiter output when they come onstream.

Brazilian President Luiz Inácio Lula da Silva and other top officials are mulling over a possible membership in the Organization of Petroleum Exporting Countries (OPEC), once Brazil has established its export capacity.

Brazil would join the cartel as the third South American member along with Venezuela, a founder, and Ecuador, which rejoined in November 2007.

While top government officials debate whether Brazil should join OPEC, President Lula says his goal in doing so would be to “reduce oil prices because that is one of the contributions that the countries rich in oil can give.”

Those in favor argue that it will strengthen Brazil’s political clout, since the country may become the first large crude exporter with political stability and a diversified economy with a solid industrial base-i.e., one not solely dependent on oil as revenue.

For them, the Tupi and Jupiter discoveries will place Brazil, a pro-market country, as a counterweight to the growing influence of petrodollar-fueled Venezuela’s leftist diplomacy in Latin America.

Since 1997, when Petrobras’ upstream monopoly was legally revoked, Brazil has become much more open to foreign investment than its neighbors, and has encouraged international oil companies like Royal Dutch Shell, Devon Energy, Chevron, Repsol YPF and ExxonMobil to pour billions of dollars into offshore exploration.

Others argue that Brazil should not export oil so as not to deplete reserves. After all, it was only in 2006 that Brazil started producing as much oil as it consumes.

According to President Lula, Brazil won’t join OPEC for at least five years, the amount of time Petrobras needs to start output from Tupi Field. Lula’s term in office ends in 2010, so at this point no one can say whether Brazil will join OPEC or not.

Dayse Abrantes is an independent journalist based in Rio de Janeiro, Brazil. She is co-authoring a book about Brazil’s oil industry in an international context, to be translated from Portuguese to Spanish and English. She can be contacted at daysew@frionline.com.br.