South America’s Offshore Oil Boom Will Challenge OPEC’s Dominance

• South America’s offshore oil boom is set to make the region a major play in global oil markets, challenging OPEC's dominance.
• The combined efforts of Guyana and Brazil alone are expected to add nearly three million barrels per day of oil production by the end of the decade.
• Brazil aims to boost its oil production to 5.4 million barrels per day by 2029 while Guyana is expected to be lifting at least 1.2 million barrels by 2027.

In Guyana’s territorial waters, after Exxon’s swathe of world-class petroleum discoveries, gigantic ships called floating production storage and offloading (FPSO) vessels are sucking crude oil from reservoirs up to four miles below the Earth’s surface. Since then, it has been estimated the former British colony of just over 800,000 possesses at least 11 billion barrels of recoverable oil resources. These discoveries not only garnered the attention of energy supermajors, notably Exxon, Chevron, and TotalEnergies but heralded a new oil era for South America. Those developments coupled with Brazil’s push to become the world’s fourth-largest producer see South America once again on the cusp of becoming a leading oil-producing region with the potential to challenge OPEC’s dominance.

After the spectacular two-decade-long implosion of Venezuela’s hydrocarbon sector, it is Guyana’s massive oil boom, which only keeps getting bigger, that is garnering considerable attention from big oil and will propel South America’s oil production higher. In a mere five years, Guyana went from first discovery to first oil. This is an incredibly short timespan that is unprecedented in a global energy sector where it can take a decade or longer to develop billion-dollar world-class oil discoveries and bring them to production. Guyana is now a major regional petroleum producer, pumping an average 350,000 barrels per day at the end of September 2023, and described by industry analysts as the world’s most exciting frontier oil play. 

The 6.6-million-acre Stabroek Block, where Exxon has made more than 30 discoveries since 2015 which are estimated to contain 11 billion barrels, is pivotal to tiny Guyana’s mega-oil boom. Exxon, Hess, and CNOOC make up the consortium controlling the block holding 45%, 30%, and 25% working interests respectively. The consortium is investing heavily to develop world-class oilfields across the acreage. So far, the partners have approved the development of five projects and are evaluating a sixth project, the nearly $13 billion offshore Whiptail development, with the final investment decision (FID) expected during the first quarter of 2024. As each of those operations is commissioned and reaches capacity, Guyana’s oil production will grow at a solid clip. In October 2023, U.S. supermajor Chevron announced plans to acquire Hess in a $53 billion all-stock deal. In the announcement, Chevron cited the Stabroek Block as a key reason for the deal describing it as an “extraordinary asset with industry-leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade.” 

Industry analysts estimate Guyana will be lifting at least 1.2 million barrels by 2027, which based on 2022 production data will rank the tiny South American country as the world’s 16th largest producer, ahead of OPEC member Algeria. It is increasingly apparent that Guyana’s oil output could exceed that number with the FPSOs Exxon is installing capable of producing greater than nameplate capacity as various operational efficiencies are implemented. Those developments have sparked speculation Guyana’s expanding oil production, which analysts expect to peak during 2035 at around two million barrels per day, will diminish OPEC’s ability to control global oil prices. 

Brazil, which is Latin America’s largest oil producer and economy, is on track to significantly expand production by the end of the decade at a time when many OPEC countries are facing potential declines. The regional giant was once a marginal oil producer, but output skyrocketed after a series of world-class oil discoveries in the offshore pre-salt layer were made nearly two decades ago in what is now the prolific Santos Basin. The first supergiant discovery was the mammoth Tupi oilfield in the Santos Basin. According to data from the National Agency for Petroleum, Natural Gas and Biofuels (ANP – Portuguese initials), Tupi is pumping 497,000 barrels daily making Brazil’s largest oilfield responsible for 16% of total production. Meanwhile, the prolific Santo Basin, where three out of five of Brazil’s top-producing oilfields including Tupi are located, accounts for 28% of the country’s petroleum output.

Due to the extent of those world-class discoveries and their rapid development, with foreign energy investment inflows surging since 2008, Brazil is now Latin America’s largest oil producer along with being the region’s most powerful economy. The federal government in Brasilia plans to rapidly expand oil production to 5.4 million barrels per day by 2029. If that lofty target is achieved, Brazil will become the world's fourth largest oil producer after Canada and before Russia, based on 2022 global production data. 

There is considerable speculation among analysts that Brasilia’s ambitious target may be unattainable. Data from the ANP shows September 2023 production hit a record 3.67 million barrels per day, while overall hydrocarbon output, including natural gas, hit an all-time high of 4.67 million barrels of oil equivalent per day. For petroleum output to reach 5.4 million barrels daily, Brazil’s production must grow by 47% or 1.73 million barrels over the next six years. 

To achieve such an ambitious target Brazil’s government, in the capital Brasilia, launched the Potencializa Exploration and Production program. This forms a key plank in Brazil’s Ministry of Mines and Energy’s strategy to make the country the world’s fourth-largest oil producer by encouraging investment in frontier, mature, and marginal oil basins. This initiative will attract further domestic and foreign energy investment with Brasilia’s 2031 Energy Expansion Plan (PDE – Portuguese initials) forecasting a total investment of $428 million to $474 million for oil and gas exploration and production. 

Brazil’s national oil company Petrobras, in its Strategic Plan 2023 – 2027, committed to investing $78 billion over that period, with 83% budgeted for upstream operations which will see nearly $65 billion spent on exploration and production activities. The national oil company plans to spend 67% of its upstream budget on pre-salt assets. Those operations are believed to offer the greatest potential to boost output because of low lifting costs and the high-grade and medium-grade sweet oil they produce, which is popular among refiners, especially in Asia. By the end of 2027, Petrobras anticipates that pre-salt assets will be responsible for 78% of oil production. 

As part of that strategic plan, Petrobras will drill 42 exploration wells with 24 planned for Brazil’s Southeast Basins, another 16 in the Equatorial Margin, and 2 for offshore Colombia. Brazil’s national oil company will also deploy 16 FPSOs, between 2023 and 2027, with 11 destined for the Santos Basin and the remainder for the Campos Basin. 

Importantly, six of the 11 production units bound for the Santos Basin will be deployed to the Búzios field, which as the world’s largest deepwater oilfield and responsible for 8.7% of Brazil’s production is a key focus of Petrobras’ development efforts. By 2027, Petrobras estimates that operated production from the Santos and Campos Basins will reach 4.4 million barrels daily. Petrobras’ strategic plan along with growing foreign energy investment will help to revitalize exploration and production in frontier as well as mature offshore basins to achieve Brasilia’s 2029 production target of 5.4 million barrels daily.

By the end of the decade, it is estimated that Guyana and Brazil combined will add nearly three million barrels per day of oil production, significantly boosting South America’s oil output. This once again will make the continent a leading global oil producer which is attracting considerable attention from big oil. Regional production will grow further because of Washington’s decision to ease sanctions against Venezuela and there is also rising output from Argentina’s massive unconventional hydrocarbon boom, where production hit an all-time high for March 2023. Those developments will challenge OPEC’s dominant role as a global price maker while bolstering nearby supply to U.S. refineries further diminishing the need for petroleum imports from OPEC. That will reduce Washington’s exposure to geopolitical risks in the Middle East and reliance upon Saudi Arabia, where Riyadh has taken a less cooperative approach to U.S. energy needs.

By Matthew Smith for Oilprice.com

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