Brazil is hoping to take more control of production of its huge oil resources – sparking fears that it will slow down the extraction of oil from what is considered the most significant oil discovery in recent years. But is the fear justified?
Today Brazil is the second biggest South American producer behind Venezuela, but discoveries of oil in “pre-salt” fields, thousands of feet under the sea, could be as big as 56bn barrels of oil. Little of this is expected to come into production until well into the next decade, but the massive deepwater reserves are widely considered the most important oil find in recent years – less politically risky than Iraq’s relatively easy oil, but cheaper than Canada’s oil sands.
The change would make Petrobras the operator for the 62 percent of the new area that has yet to be bid out, consigning foreign companies to the role of financial investors. That would limit their ability to help set the pace for the oil fields’ development, while giving Petrobras significantly more power to generate jobs and award lucrative contracts.
Whether it goes ahead is another question: the opposition is going to fight tooth and nail against these changes passing before next year’s election. However there are signs of popular support for such a move. If Lula’s government does succeed in getting these changes through, the question then is whether this would delay the process of getting the oil out of the ground.
Petrobras already has considerable expertise in deepwater drilling, but, as the EIA points out, the depths of these reserves make them particularly difficult:
… the subsalt reserves contain a high concentration of natural gas, along with oil, and proper handling this gas will require additional infrastructure and consideration. As a result, production from small pilot projects is possible in the next several years, but large-scale development of the subsalt reserves will likely not occur until well into the next decade.
But Petrobras chief executive Jose Sergio Gabrielli told the NY Times the company will need 40 deepwater oil rigs, or more than half the number available in the world. Therefore:
“The question is not whether to speed up or not to speed up,” Mr. Gabrielli said. “We are at the limits of the world capacity for the industry.”
Gregor Macdonald has another take: slow production could actually be a good strategic decision. Why burn through all the oil quickly, as Mexico has done, when you can guarantee your own future supplies for years to come?
For countries like the US however, which import a great deal reasonable amount of oil from Brazil and are seeing their own supplies (not to mention Mexican imports) dwindling, it does not look so promising. And unlike Brazil, with its large fleet of ‘flex fuel’ cars and its cheap ethanol production, the US doesn’t have a great array of alternatives – barring that big technological breakthrough.
Brazil’s elusive pre-salt riches (FT Energy Source, 12/06/09)