My Brazilian friends are recovering from their Rio carnival, which ended on Tuesday. One of these years, I’ve got to go and throw my Dutch, and usually somewhat reserved, self in the energetic mix.
Brazil is not just famous for its carnivalistic energy, but also for its liquid energy. In the Bush years, Brazil was heralded in DC as the big example for ethanol production. The sugarcane ethanol produced in Brazil would not make a great dent in our consumption. At its peak it is just under 0.5 million barrels per day, which is around two-thirds of the daily US ethanol production and under 3% of our total daily consumption. I am no fan of biofuels and would not applaud a growth in this area, not here and not anywhere. Sugarcane plantations in Brazil have driven other crops further into the Amazon leading to deforestation, have led to depletion and erosion of valuable land, and many have been proven to abuse large numbers of poor workers for the benefit of the few, as Father Tiago so passionately describes in his 2007 interview.
But, it is not really ethanol that Brazil is known for in liquid fuel circles. Instead it is its growth in oil and gas production, particularly offshore. The oil, and gas, production in Brazil is predicted to increase dramatically in the next decades. Petrobras, the Brazilian oil company, is rapidly growing, in Brazil and overseas. In 1999, Petrobas was listed as the 27th largest energy company in the world. This year, it surpassed Chevron and Shell, based on total value (not on annual production) and entered the top 3. This is an incredible growth in just over a decade.
And Petrobras is hungry to expand further through a five-year investment program of over 200 billion dollars total. This should allow Petrobras to double its production in ten years to over five million barrels of oil per day. Where would it get all this extra oil and gas? The company would tap into the vast pre-salt reserves that have been discovered far offshore and very deep below the ocean floor. These reserves are very hard to get to as they reside underneath large salt layers or domes. Pre-salt drilling requires much higher pressure than typical offshore oil and the salt layer may shift after drilling. Known for its technological know-how in deep and ultra-deep drilling, the company can probably get to the pre-salt oil, if investors bite. Investors are wary, though, after the BP disaster in the Gulf, and it is not clear if the confidence they have in Petrobras, which is a very well respected company in this field, is high enough to warrant the loans. The tenacious relation that Petrobras has with the Brazilian government doesn’t help. The government now also requires that Petrobras be the lead operator on offshore developments in Brazilian territory. Norway has similar requirements and it has served that country well. The Brazilian government no doubt hopes that revenues will help lift Brazil out of poverty and support its rapid growth.
Despite these uncertainties, there is no doubt that Brazil will be a strong and growing exporter of oil in the years to come. With a dwindling excess capacity in OPEC, and turmoil in the Middle East, this is perhaps not so bad.