Latin America’s largest economy Brazil is experiencing a massive offshore energy boom which has seen the country overtake Venezuela and Mexico in little over a decade to become the region’s largest oil producer. This is driven by pre-salt petroleum discoveries in offshore Brazil, with the first being made by national oil company Petrobras in the Santos Basin in 2006. First oil was pumped two years later, in 2008, from the Jubarte field in the Campos Basin. After nearly two decades and a swath of multiple high-quality mega oil discoveries, Brazil’s proven reserves are estimated to be 12.7 billion barrels or roughly 1.5 billion barrels more than those it possessed in 2006. In 2021, Brazil pumped a total of 1.06 billion barrels of oil equivalent, which despite being 1.65% less than 2020 was a positive development because the volume of pre-salt production had grown 4.47% year over year. Most of Brazil’s petroleum output, around 95%, is extracted offshore. There are obvious signs of further significant growth for Brazil’s hydrocarbon sector, especially for crucial pre-salt petroleum production, with the Lula and Buzios crude oil grades becoming exceedingly popular in China and other parts of Asia.
According to data from the industry regulator, the National Agency of Petroleum, Natural Gas and Biofuels, Brazil’s hydrocarbon production is soaring. For April 2022, Latin America’s largest petroleum producer pumped an average of 3.86 million barrels of oil equivalent per day, which was 78% weighted to petroleum. That number represents a nearly 1% month-over-month increase and is a healthy 1.56% higher than the same period in 2021. Key to the Brazilian national government’s plans to become a top-5 global oil exporter are plans to aggressively expand the country’s crude oil output. It is Brazil’s vast offshore pre-salt oil discoveries that are the primary driver of the country’s steadily growing petroleum production. By April 2022 pre-salt crude oil production totaling 2.298 million barrels per day was responsible for 76.62% of Brazil’s total petroleum production, up from 73.36% a year earlier and 5.3% higher than a year earlier.
It is Brazil’s state-controlled energy company, Petrobras in which the national government owns 50.3% of common stock, which is driving the Latin American country’s massive offshore oil boom. Petrobras announced in November 2021 plans to invest $68 billion in its operations over a five-year period with 84% of that amount, or $57.3 billion, to be spent on exploration and production. Pre-salt assets will receive 67% of that amount, while $5.5 billion will be directed to exploration activities over that period. Petrobras estimates that this substantial investment will lift total production to 3.2 billion barrels of oil equivalent daily by 2026, which is an 18.5% increase over the forecast 2022 output of 2.7 billion barrels per day. By 2026, Brazil’s national oil company expects to be pumping 2.6 million barrels per day with 79% of that total extracted from its pre-salt oilfields. That will go a long way to lifting Brazil’s total oil production, adding 500,000 barrels of crude oil alone to total national output by 2026.
Foreign energy majors are also making significant investments in offshore Brazil. TotalEnergies, ExxonMobil, and Shell have drilling programs underway in offshore Brazil. A key project under development in offshore Brazil is the Bacalhau oilfield in the Santos Basin. In June 2021 Equinor and its partners Exxon, Petrogal, and Pré-sal Petróleo made the final investment decision to proceed with developing the Bacalhau field in the Santos Basin. The greenfield development requires an $8 billion investment with the Bacalhau field expected to pump its first oil in 2024 and have a production capacity of 220,000 barrels per day. In a recent announcement published by Reuters, Equinor stated that it is seeking to ramp up activity in the field and start planning for phase 2 of the development, which will see a second drill rig and FPSO being considered along with a 100-mile-long natural gas pipeline. That, on completion, would significantly lift the production capacity of the Bacalhau field on completion.
These developments point to Brazil cementing its position as a leading oil producer and becoming a top global oil exporter, with analysts estimating that the country will experience the most oil production growth of any non-OPEC country between now and 2030. In 2021, Brazil’s energy minister, Bento Albuquerque, who was replaced last month by Adolfo Sachsida, claimed that steadily growing oil production will see the country emerge as the world’s fifth largest oil exporter by 2030. While that is possible, especially given Petrobras’ considerable spending to develop offshore oilfields and rising foreign investment it will not be plain sailing. Petrobras CEO Jose Mauro Coelho resigned from his role after a skirmish with Brazilian President Jair Bolsonaro over a sharp increase in fuel prices. That is the third CEO to step down from Brazil’s national oil company in less than two years as politicians place ever greater pressure on Petrobras to not pass along higher oil prices to consumers through fuel price hikes. If oil prices remain elevated there is the risk that political pressure will force Petrobras to subsidize domestic fuel prices impacting profits and potentially the ability to make the massive investments needed to develop Brazil’s vast offshore oilfields. A looming general election, to be held on 2 October 2022, coupled with Bolsonaro’s rising unpopularity further ratchets up the political risk for Petrobras and Brazil’s oil industry.
Source:The Biggest Threat To Brazil’s Oil Boom | OilPrice.com