From: wolda002@umn.edu
Date: Wed Aug 19 2009 - 23:18:29 EDT
August 18, 2009
Brazil Seeks More Control of Oil Beneath Its Seas
By ALEXEI BARRIONUEVO
RIO DE JANEIRO — Faced with the world’s most important oil discovery in
years, the Brazilian government is seeking to step back from more than a
decade of close cooperation with foreign oil companies and more directly
control the extraction itself.
The move is part of a nationalistic drive to increase the country’s
benefits from its natural resources and cement its position as a global
power. But it could significantly slow the development of the oil fields at
a time when the world is looking for new sources, energy and risk analysts
said.
This month, Brazil’s government said it wanted the national oil company,
Petrobras, to control all future development of the deep-sea fields
discovered in 2007, which international geologists estimate could hold tens
of billions of barrels of recoverable oil.
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.
The oil lies beneath about 20,000 feet of water, shifting sand, and a thick
layer of salt. This so-called pre-salt region, stretching hundreds of
miles, is the biggest oil reserve being developed in the world today,
especially given the lack of headway in gaining access to Iraq’s
extensive deposits, said Daniel Yergin, chairman of IHS Cambridge Energy
Research Associates, an energy research consultancy. It is also expected to
be among the most complicated sets of projects in the history of the oil
industry.
“The timing and scale of the development of the pre-salt will be one of
the most significant factors for the global oil balance in the next decade,
and even more so after 2020,” when Brazil is expected to ramp up
production even further, Mr. Yergin said. “If it doesn’t happen it will
be a big setback for Brazil in terms of revenue, and a significant loss for
the world in terms of new oil supplies.”
For Brazil, the stakes are high. Many here see the oil as a magic bullet
for tackling the country’s biggest social challenges. Luiz Inácio Lula
da Silva, Brazil’s popular president, wants to alter energy laws to
funnel more revenue from the undeveloped fields to government coffers and
set up funds to improve education and health care. His proposal will be
delivered to Congress sometime next week, one of his aides said Monday.
Despite its recent economic boom, Brazil still struggles with extreme
poverty, inequality and an illiteracy rate over 10 percent.
Government officials here insist Brazil will not be swept up in the sort of
nationalistic fervor that has washed across Latin America in recent years.
As Mexico did in the late 1930s, Venezuela, Bolivia and Ecuador have
reduced the presence of foreign energy companies, only to have their
production of oil and natural gas stagnate or decline.
Mr. da Silva’s government is not proposing that foreigners be excluded
altogether from energy projects, or even that they not be given the chance
to win majority stakes in some cases. Foreign companies are already
involved in the first set of pre-salt projects, including the giant field,
called Tupi, that Petrobras estimates holds five to eight billion barrels
of oil and natural gas.
Even without the next group of pre-salt fields, Brazil is looking to more
than double its oil production to 5.7 million barrels a day by 2020.
Brazil, which discovered big oil late in its economic development, has a
diversified economy that will help it to avoid the “Dutch Disease” of
natural resource dependence that has afflicted several of the world’s oil
powers, said José Sergio Gabrielli, the president of Petrobras.
“Petrobras is very big,” Mr. Gabrielli said, “but Brazil is bigger
than Petrobras.”
He said the nationalism bubbling up now “is not nationalism against
foreigners” but rather a debate over the speed of the development, who
will get the largest share of the income stream and who will benefit from
the related technology and knowledge.
Still, he acknowledged that nationalistic winds were beginning to blow
again. With Brazil’s green and yellow flag draped over the stage, oil
union members watched a new documentary here last month, “The Oil Must be
Ours — Ultimate Frontier.” In the film, geologists, union leaders and
even a 92-year-old physician, Maria Augusta Tibiriçá, discuss how the new
fields could generate “trillions of dollars” and transform Brazil’s
future.
A dozen union members led off the evening with a rendition of Brazil’s
national anthem, then “It Will Happen,” a song written for the movie
that blends bossa nova and samba rhythms.
If oil “is very deep under the sea,” they sang, “will we play to
win?”
The new nationalistic fervor recalls the 1970s and 1980s, when Brazil’s
military government declared that “the Amazon is ours” to ward off
foreign encroachments on the rain forest.
And that evokes the initial protectionist concerns that were raised after a
trickle of oil was discovered in Brazil in 1939. A few years later, a
general declared “the oil is ours” amid fears that American oil
companies would find a way to take it. Protesters demonstrated through the
1950s outside of Standard Oil’s Esso Building in downtown Rio.
It was in that populist climate that, in 1953, President Getúlio Vargas
founded Petrobras and awarded it an oil monopoly. Only in 1997 were foreign
companies allowed to participate in exploration and production.
Mr. da Silva’s plans for more control of the new fields will face a stiff
battle in Brazil’s Congress, where opposition leaders say they will push
to delay the plan, to deny him a victory that could be a political boost to
Dilma Rousseff, his chief of staff and chosen candidate to succeed him in
next year’s election.
Ms. Rousseff, who is in charge of the government’s pre-salt proposal, is
also the chairwoman of the Petrobras board of directors. The company is
55.7 percent government-owned; other members of the board are also
political appointees.
“The government is going to use every ideological, nationalist and
emotional argument to try to get this approved before next year’s
election, but it is going to be very difficult for it to pass,” said
Tasso Jereissati, a senator from the Brazilian Social Democratic Party who
is critical of the government’s proposal.
Brazil’s Senate is already coping with a broad investigation into
irregularities and improprieties at Petrobras, an inquiry brought by Mr. da
Silva’s political opposition.
Mr. Gabrielli, the Petrobras president, argues that the government has good
reasons for wanting to limit foreign participation. In 1997, oil prices
were much lower and Brazil’s economy was struggling. Today, Brazil has
more than $220 billion in foreign reserves, oil prices are higher and
Petrobras has become the fourth biggest company in the Americas.
“The financial condition is completely different,” Mr. Gabrielli said.
And the development of the new fields, once seen as risky, “now is a
winning lottery ticket.”
With concerns over whether Brazil can procure the estimated $600 billion it
will take to develop new fields over the next 20 years or so, the
government is banking on international oil companies’ willingness to bid
high.
“This is the only large oil discovery in the last few years; there is no
other,” Ms. Rousseff said this month in an interview with the Brazilian
newspaper Valor Econômico.
But the decision to give Petrobras operational control is shortsighted and
risky and could delay Brazil’s ability to use the oil to help transform
the country, said Christopher Garman, an analyst at Eurasia Group, a
political risk consultancy in New York.
“What if we have a technological breakthrough in renewable energy, and
five to eight years from now the price of oil is not what it is today?”
Mr. Garman said. “Is Brazil going to maximize investments now or keep the
oil in the ground for longer?”
Lost in the debate, Mr. Gabrielli said, is the reality that the equipment
needed to drill the new fields is in short supply. Petrobras executives are
trying to motivate suppliers around the world to develop equipment.
Through 2017, Petrobras will need 40 oil rigs capable of drilling deep
enough to reach the new fields — more than half the total number of such
rigs that exist in the world today, Mr. Gabrielli said. The company is
requiring that 28 of them be built in Brazil.
Mr. Gabrielli said the company was keeping its international expansion
spending at $16 billion, so that it could focus on developing deepwater
fields at home.
“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.”
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