An oil spill off the coast of Brazil has sparked a political firestorm in what may one day be a global production leader. The Brazilian government is throwing the books at Chevron, while the U.S. supermajor tries to dodge legal bullets. There's no such thing as too much caution in the wake of the 2010 oil spill in the Gulf of Mexico but Brasilia might be inhibiting its own potential in an effort to send the warning that it means business offshore.
Roughly 3,000 barrels of oil spilled off the coast of Rio de Janiero in November at the Chevron-operated Frade field. Recently, the supermajor reported a "seep" near the same site, though it insists the two incidents aren't related. Nevertheless, the Brazilian government barred top executives from Chevron and rig-owner Transocean from leaving the country and now charges some of those officers with environmental crimes.
Chevron's spokesman said the charges were "outrageous," adding nobody was hurt and no oil reached the shore. There's no "technical or factual" evidence to suggest the company was negligent at the field, he added. Petrobras, Brazil's state-controlled oil company, reported more than 66 leaks last year yet the total volume spilled was only around 1,400 barrels. If Chevron's video of its containment effort is any indication, these "seeps" may be a chronic issue in Brazil's offshore fields.
Frade is Chevron's first oil development effort in Brazil. It operates the field through a partnership that includes a Brazilian company. The deepwater field is about 230 miles off the coast of Rio de Janeiro and Chevron estimates it has a peak annual production of around 80,000 barrels of oil equivalent per day. With an estimated 14 billion barrels of oil reserves, Brazil ranks No. 2 in Latin America, just behind oil-giant Venezuela.
Brazil is eager to attract investors to its oil sector. At the same time, like other Latin American countries, it wants a larger role for the state in the oil sector and is mindful of the fallout from the 4.9-million-barrel Deepwater Horizon accident in 2010. With action against Chevron, Brazil may be sending a message given the complexities involved with pre-salt oil production like the Frade field.
Last year, U.S. Deputy Secretary of Energy Daniel Poneman met with Brazilian Executive Secretary of the Ministry of Mines and Energy Marcio Zimmermann to kick off a bilateral effort aimed at expanding energy cooperation. More than 175 U.S. companies in October took part in an energy trade show in Rio de Janeiro. Brazil, if the numbers are correct, is an emerging oil superpower but with complex reserves. Anything even close to the Deepwater Horizon accident would be disastrous to the country's reputation, not to mention the Amazon River basin. But partnerships should trump punishment off the coast of Rio de Janiero. Too harsh of a response may detract investors like Chevron from working there, meaning Brazil, the 9th largest energy consumer in the world, might have to find its own way to tap into its oil riches.
By. Daniel J. Graeber of Oilprice.com