• 3 minutes Nucelar Deal Is Dead? Iran Distances Itself Further From ND, Alarming Russia And France
  • 5 minutes Don Jr. Tweets name Ukraine Whistleblower, Eric Ciaramella. Worked for CIA during Obama Administration, Hold over to Trump National Security Counsel under Gen McCallister, more . . . .
  • 9 minutes Shale pioneer Chesepeak will file bankruptcy soon. FINALLY ! The consolidation begins
  • 12 minutes China's Blueprint For Global Power
  • 16 mins Pioneer's Sheffield in Doghouse. Oil upset his bragging about Shale hurt prices. Now on campaign to lower expectations, prop up price.
  • 1 hour Tesla Launches Faster Third Generation Supercharger
  • 29 mins Passerby doused with flammable liquid and set on fire by peaceful protesters
  • 9 mins Who writes this stuff? "Crude Prices Swing Between Gains, Losses"
  • 10 hours EU has already lost the Trump vs. EU Trade War
  • 12 hours Joe Biden, his son Hunter Biden, Ukraine Oil & Gas exploration company Burisma, and 2020 U.S. election shenanigans
  • 13 hours Atty General Barr likely subpeona so called whistleblower and "leaker" Eric Ciaramella
  • 8 hours China's Renewables Boom Hits the Wall
  • 7 hours Climate Change Consensus Shifts in Wind, But Gas Is Still the Right Move
  • 17 hours Iran's Master Plan?
  • 16 hours Iran Finds New Oil Field With Over 50 Billion Barrels: Rouhani
  • 15 hours Saudi Aramco IPO Will Not Save Kingdom

Breaking News:

Oil Rebounds On Surprise Crude Draw

Alt Text

Canadian Oil Prices Crash After Keystone Spill

Canadian crude continues to trade…

Alt Text

Economic Uncertainty Leaves Oil Markets Paralyzed

The Federal Reserve cut interest…

Alt Text

A Bear’s Guide To Oil Markets

2019 hasn’t been the year…

Alexis Arthur

Alexis Arthur

Alexis Arthur is energy policy associate at the Institute of the Americas, a think tank on Western Hemisphere Affairs based in La Jolla, Calif. She…

More Info

Premium Content

Can Brazil’s Oil Sector Make The Transformation Needed To Survive?

In July 2015, Brazil’s pre-salt production topped 1 million barrels of oil equivalent per day. This is quite the milestone for a nation that is currently battling a severe political and economic crisis, and struggled to attract serious attention during its first pre-salt auction in 2013.

But despite its troubles, Brazil is moving forward with its next oil and gas auction, on October 12. Optimism is important in times of crisis but how is Brazil’s energy sector really faring?

In August, Brazil produced 2.69 million barrels of oil equivalent per day, a record high. This was largely due to a new pre-salt operation coming online in the Santos Basin, which is producing 150 thousand barrels of oil and 8 million cubic meters of natural gas per day.

While this is good news, Petrobras’ own projections see little room for growth. Petrobras’ five-year outlook estimates just 2.8 million barrels of oil equivalent per day in Brazil, revised down from 4.2 million at the height of the pre-salt fever. Related: Does OPEC Have An Ace Up Its Sleeve?

The company - in line with oil majors across the globe - has cut its own investment budget by 37 percent in light of low oil prices. What remains will be weighted heavily towards offshore E&P (83 percent). Given that the projections assume an average Brent crude price of $60 in 2015 and $70 in 2016, these figures may need to be reviewed again.

Still, the country’s energy outlook is not all bleak. There is some hope that the latest scandal results in real reforms within Petrobras and the broader energy and infrastructure sectors, making investment opportunities more attractive.

In the meantime, Brazil is still open for business. The Round 13 oil and gas auction has attracted 37 interested parties from 17 countries. No mean feat given the current circumstances and disappointing outcome during the last round.

Expectations were high for Brazil’s first pre-salt round in October 2013. The ANP put on a brave face when just 26 companies registered their interest and only one bid was received. The high-risk nature of ultra deepwater drilling, combined with what many viewed as onerous local content requirements kept investors away.

The latest bid round looks more promising. It is more diverse - attracting 22 international companies and 17 Brazilian outfits - and includes more big names. Global majors ExxonMobil, BP, Total, and Shell are joined by China’s CNOOC, Russia’s Rosneft, and Colombia’s Ecopetrol, among others. Related: Fed Defers Rate Hike, But Oil Fundamentals Don’t Matter Anyway

Still, a better marker for success would be a comparison with Round 12 - the general oil and gas auction also held in 2013. The auction attracted bids from 39 companies totaling $1.4 billion.

Like many other commodity-driven economies, Brazil is being battered by China’s slowdown. Brazil sends 35 percent of its petroleum exports to China, a figure that has grown in spite of the downturn.

Beyond the upstream, Brazil’s energy sector is struggling. Refinery capacity has consistently lagged behind production, and has been plagued by mismanagement, cost overruns, and delays. The Comperj refinery has already cost Petrobras $11 billion and the company is now seeking a partner to finance an estimated $4.3 billion to complete the project, which is behind schedule and on track to become one of the most expensive ever built.

Infrastructure more broadly has been a consistent problem in Brazil. Poor roads, long distances, and inadequate pipeline transportation are not new problems. But they only make Brazil’s energy comeback more difficult. Related: This Is What Needs To Happen For Oil Prices To Stabilize

Finally, in a low oil price environment, Brazil needs to be more competitive. The country is facing stiff competition from Mexico, which is opening new deepwater areas for exploration and production by international players.

Brazil should also be looking south. Argentina holds presidential elections in October and with current President Cristina Fernández de Kirchner unable to run, investors are hoping that the incoming administration will be more business friendly. Lucrative shale opportunities in the Vaca Muerta will be particularly attractive in a more open environment.

Still, investment in Brazil’s energy sector has always been a bet on the long game. And there is reason for optimism. In the midst of a scandal and recession, Brazil is moving ahead with Round 13, demonstrating that the country is still open for business. Although Round 13 is unlikely to attract as much investment as the Brazilian government would like - and the energy sector needs - it is an important step towards recovery.

Another critical move would be to make some real changes to the way Brazil runs its energy sector. Time will tell if this is the kind of transformation the country is willing to make.

By Alexis Arthur for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play