Energy Outlook: Brazil

Brian Fonseca,Senior Political & Security Analyst
Florida International University

This paper was written in January 29, 2008. The views expressed in this publication are those of the author(s) and do not necessarily reflect the views of Florida International University and the Applied Research Center.

Summary Points
Information on Jupiter gas deposits is preliminary;

Jupiter is the 3rd find in Brazil’s Santos Basin since November 2007;

Jupiter is a large natural gas and condensate deposit estimated to contain approximately 5bn to 8bn barrels equivalent.

This fossil fuel discovery combined with the recent one in Tupi and a small discovery in the same area announced in DEC could place Brazil ahead of the U.S. in oil and gas reserves;

Although technology challenges exist, Petrobras is a leader in deep water off-shore drilling;

Administration and financial challenges pose the greatest short term concerns;

Jupiter could make Brazil self-sufficient in natural gas 5-10 years out, impacting Bolivia and others in the region;

Brazil could pass Mexico and Venezuela as the number one supplier to the U.S., given investment in infrastructure to support export capabilities;

Newfound wealth will play into Brazil’s regional and global ambitions.

The Discovery of Jupiter

21 January 2008, Brazil’s state-owned oil company, Petrobras, announced the discovery of Jupiter, a natural gas deposit found 23 miles from Tupi and the third discovery of fossil fuels since announcing Tupi in November 2007. Tupi marked the biggest fossil fuel find since the 2000 discovery of Kazakhstan’s Kashagan, a 12bn barrel field in the North Caspian Basin. Although various independent sources have confirmed the discoveries, much remains to be done in terms of accurate assessments of reserves, and development costs and production. However, initial estimates place Tupi’s recoverable reserves between 5bn and 8bn barrels of oil and gas and Jupiter’s natural gas deposits are estimated to be the same size. If proven, each field would be comparable to Norway’s total proven reserve base of 8.5bn barrels. Petrobras reports commencing a pilot project in 2010 to exploit Tupi. Recent discoveries could place Brazil among the top ten global leaders in terms of oil and gas reserves.

Jupiter’s figures are very preliminary. Its natural gas deposits are located in a 120meter stretch of rock at nearly 7,000 meters below the Atlantic Ocean (2,000 meters of water and 5,000 meters of rock). According to Petrobras, as of 2003 the platform on the Roncador well was drilling in approximately 2,000 meters of water but no information was released regarding the depth of the rock below the water. Jupiter will present technological challenges. However, Petrobras is a global leader in deep water off-shore drilling and production. It is currently the world’s largest deepwater producer, with about 65% of its offshore exploration blocks below 400 meters and 70% of its production coming from deep and ultra-deep waters. Most of their investment is going towards off-shore drilling and production capabilities. Early estimates are that development costs could range between $50 billion - $100 billion. By comparison, Petrobras five-year budget for all spending is estimated at $118 billion. Even at a low price case of $60 per barrel, the field should be profitable over its production life.

These two giant discoveries in the Brazilian Santos Basin resulted in Brazil immediately withdrawing several exploration blocks from the Santos Basin that had previously been submitted for international bidding. Many believe the recent addition of Jupiter would make Brazil self sufficient in terms of natural gas. Furthermore, if both Tupi and Jupiter’s estimates are confirmed, it would more than double Brazil’s current reserves and turn the country into an important exporter of gas and oil in the Western Hemisphere, surpassing Mexico and possibly even Venezuela, whose oil industry has been in decline since Chavez assumed power. This requires Brazil to invest heavily in infrastructure to support export out of the region to the U.S. and Europe.

Brazil imports 1.5bn barrels equivalent of natural gas each year from Bolivia. With Peru’s Camisea, the largest natural gas field in South America, and Bolivia having the second largest gas reserves after Venezuela, Brazil’s recent discoveries will make it more independent of Bolivia’s nationalistic posturing and mitigate the delays in Peru’s gas development. Jupiter will give Brazil a much stronger negotiating hand when dealing with Bolivia and Peru. Venezuela and Bolivia will be impacted as Venezuela will no longer be able to assert itself as the single significant energy leader in Latin America and Bolivia will be forced to find new markets for its gas as Brazil’s import demands decrease.

Coupled with its aggressive ethanol production program and three liquefied natural gas terminals scheduled to go on-line in early 2008, Brazil is rapidly moving toward much greater energy independence. Sources suggest that Brazil might join OPEC later this year after they have determined what their export capacity will be.

Some believe that Brazil’s newfound access to wealth will increase the potential for mismanagement and corruption while the country sets out on its priority to pursue social and infrastructure programs. Brazil will have an opportunity to leverage its wealth and influence to further its pursuit of regional and global influence which will subsequently encourage the enhancement of military capabilities. Finally, this could give further justification for Brazil’s pursuit of nuclear capabilities to safeguard their perceived place in the world.

ACKNOWLEDGEMENTS

CONTRIBUTORS:

Dr. Edward Glab, Executive Professor & Director, Knight Ridder Center for Excellence in Management, College of Business Administration, Florida International University

Jorge Gomez, Adjunct Professor and Energy Analyst, Applied Research Center, Florida International University

REFERENCES
Gentile, Carmen. Analysis: Brazil Strikes Gas Again. 2008. Available from United Press International http://www.upi.com/International_Security/Energy/Analysis/2008/01/23/analysis_brazil_strikes_gas_again/5903/.

Strategic Forecasting, Inc. Brazil: The Implications of the Jupiter Field. 2008. Available from STRATFOR http://www.stratfor.com/analysis/brazil_implications_jupiter_field.