Brazil unlikely to be deterred from deepwater riches

Brazil pre-salt map, Financial TimesBy Jonathan Wheatley, Brazil correspondent

The BP debacle in the Gulf of Mexico has thrown a shadow over the global oil industry that, strangely, has not reached as far as Brazil.

“The debate is really at the margin,” says Christopher Garman of Eurasia Group. “There’s been no questioning or even any concern that given what’s happened in the Gulf we should think again about the pre-salt.”

This is odd, given that the risks soon to be faced in Brazil are similar to or greater than those found in the Gulf.

Brazil’s pre-salt fields were discovered in 2007 and are in the early stages of exploration. They are, as their name suggests, trapped beneath a hard-to-penetrate layer of salt that poses technical problems not yet faced anywhere in the world. They are also under a lot of rock and seawater. The much-talked-about Tupi field, for example, lies under 7,210 feet of water, rather more than the 4,920 feet of water under BP’s Deepwater Horizon rig.

As Peter Millard pointed out in Business Week, Petrobras, Brazil’s national oil company, is easily the world’s biggest deepwater oil company. This, he argues, leaves it “more exposed than any oil company on the planet” to the risk of a Deepwater Horizon event.

Financial TimesShould Petrobras put its plans on hold? Kenneth Rogoff of Harvard University thinks it’s possible. Yet the chances of that happening seem extremely slim.

Nobody knows how big the pre-salt fields are. But a reasonable guess from what has been found so far is 50bn to 100bn barrels or more. If true, that would put Brazil on a par with Iraq, the world’s fourth biggest oil nation in terms of proven reserves.

With those kinds of riches in store, Brazil is unlikely to be put off easily. Indeed, Mr Garman says the Gulf of Mexico disaster could even make Petrobras’s job cheaper, as other oil companies cancel orders for deep sea rigs. But those savings could be cancelled out by demands for duplification of some safety equipment.

Petrobras insists it has the expertise to work the pre-salt fields in safety. Brazil’s environmental regulations are as strict as any in the world. The ANP, the industry regulator, keeps a close watch on all stages of operations and will allow none of the self-inspection that may have contributed to the Gulf disaster.

With Petrobras now ready to raise an estimated $25bn in a share issue as early next month, it seems unlikely to allow its plans to be blown off course.

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