Brazil, the New Oil Superpower
State-run Petrobras' "monstrous" new oil find has wide-ranging implications for the South American country, the oil majors, oil services providers, and beyond
Brazilian President Luiz Inácio Lula da Silva (center) and Petrobras Chief Executive José Sérgio Gabrielli (right) ANTONIO SCORZA/AFP/Getty Images
In a recent radio broadcast, Brazil's President Luiz Inácio Lula da Silva said he's convinced a "higher power" has taken a shining to Brazil. That, he said, might explain the providence of state-run oil company Petrobras (PBR), whose colossal new oil discovery could transform Brazil from a barely self-sufficient producer into a major crude exporter.
Petrobras announced Nov. 8 it has found between 5 billion and 8 billion barrels of light oil and gas at the Tupi field, 155 miles offshore southern Brazil in an area it shares with Britain's BG Group and Portugal's Galp Energy. Tupi is the world's biggest oil find since a 12 billion-barrel Kazakh field was discovered in 2000, and the largest ever in deep waters. Perhaps more important, Petrobras believes Tupi may be Brazil's first of several new "elephants," an industry term for outsize fields of more than 1 billion barrels.
Initially, Tupi will produce about 100,000 barrels a day but may ramp up to as much as 1 million before 2020—more than the biggest U.S. field in Alaska's Prudhoe Bay, says Hugo Repsold, Petrobras' exploration and production strategy manager. "It's monstrous," says Matthew Shaw, a Latin America energy analyst at consultant Wood Mackenzie in London.
BLOCKING PRIVATE COMPANIES
Given the discovery's magnitude, Tupi already is changing how Brazilians think about their oil riches. It even tempts the kind of oil nationalism that has prompted Venezuelan President Hugo Chávez to expropriate oil reserves and production infrastructure in Venezuela from oil majors ExxonMobil (XOM) and Chevron (CVX).
Indeed, a day after Petrobras announced the Tupi discovery, Brazil said it would remove 41 oil exploration blocks, located near Tupi, from an upcoming auction of potential oil fields open to private oil companies. Brazil still plans to offer 271 blocks for bidding, however, the government said it's reanalyzing whether, and how, to share Brazil's new oil riches with private companies, after a decade of relatively open concessions.
Brazilian oil regulator ANP says it's drafting a new oil bill to present to congress that would change energy laws, perhaps limiting the role of private companies in Brazil's subsalt. Additionally, Lula says Brazil should join OPEC once Petrobras begins oil output from Tupi, around 2011.
"This looks to have triggered a major debate about the role of state vs. private oil companies here," says Sophie Aldebert, a director at Cambridge Energy Research Associates. "But Brazil is going to want to continue working with private companies."
A NUMBER OF CHALLENGES
Despite its size, the Tupi field poses significant engineering hurdles that will drive increased costs in tapping the field. Petrobras currently pumps 1.8 million barrels daily from its Brazilian fields and expects to boost its $112 billion in planned spending over the next five years to assume the Tupi project.
For one, the oil lies some 4.5 miles beneath the ocean's surface. To reach it, Petrobras will have to run lines through 7,000 feet of water and then drill up to 17,000 feet through sand, rock, and a massive salt layer. A decade ago, geologists lacked the tools to glimpse beneath these salt layers, which can be more than a mile thick offshore Brazil. Today, with the help of data-crunching supercomputers, 3D imaging of ultradeep subsalt layers is illuminating billions of barrels of new oil. Geologists say the discoveries challenge one of the notions of the peak oil theory, which claims oil companies already have found nearly all of the world's usable oil.
