By Peter millard in 7/26/2021
RIO DE JANEIRO (Bloomberg) – If an energy transition is underway around the world, it has not reached the streets of Ilha da Conceicao, the working-class district at the heart of Rio de Janeiro’s oil renaissance.
There, buses and trucks crowd into the Baker Hughes Co. shipyard, where the energy services giant is churning out hundreds of miles of oil and gas pipeline. One street away, Exxon Mobil Corp. is loading supplies to explore the nation’s largest offshore oil fields. Royal Dutch Shell Plc and TotalEnergies SE have similar plans for the end of this year. The scene points to an uncomfortable truth: First world politicians may be trying to turn the world away from fossil fuels, but in resource-rich and cash-hungry nations like Brazil, oil is still king.
Outside of the US and OPEC, Brazil is poised to add more crude production through 2026 than any other country. Last year, while the rest of the world was holding back oil production amid the pandemic, Brazil was one of the few to increase production, adding more than any other non-OPEC country apart from Norway. It wants to double crude production by 2030 to become the world’s fifth-largest exporter, and even if it falls short of that goal, the low-cost oil games have positioned the country to emerge as one of the world’s last reducers in energy. . transition.
” We are going through the best time in years, ” said Matheus Rangel, a Rio-based oil worker who has a YouTube channel that offers advice on how to get jobs in the industry. He spoke from a hotel where a full wing with oil workers heading to offshore platforms is reserved.
“The energy transition? I do not know anything about that. If you have oil, you drill down to the last drop. “
World-class oil reserves, favorable legislation, and the country’s broad political support for oil and gas mean hundreds of millions of dollars are spent finding new sources.
In 10 years, Big Oil could stop pursuing these kinds of massive expansion projects, said Schreiner Parker, vice president for Latin America at consultancy Rystad Energy. But in the meantime, they need to secure supplies that can last into the 2040s with consumption still on the rise, especially in China.
So to see what’s happening in Brazil now: “It’s almost like the last hurray,” Parker said.
While Europe and the US push for aggressive climate policies that rely on a huge surge in renewables, some developing countries are lagging behind in the energy transition as they build their economies. Brazil, along with Guyana and Suriname, will help Latin America account for a quarter of the growth in oil production outside of OPEC in the next five years, despite only pumping 12% of barrels outside of OPEC. , according to projections from the International Energy Agency.
This global tug of war shows how tough the fight to free itself from fossil fuels will be even as the IEA, which represents consumer countries, has called for oil exploration to be stopped to save the planet.
And while production is also expected to increase in the US, Canada and Russia in the coming years, it is Brazil that is uniquely positioned to be the oil star outside the Middle East.
Brazil is the newest place on Earth where Big Oil spent billions on exploration licenses before Covid crippled the global economy and caused prices to plummet. The cash already committed means that even European giants Total, Equinor ASA and Shell, which have aggressive carbon reduction plans, are proceeding to drill. On top of that, offshore fields in Brazil, unlike American shale, have a longer useful life, which makes them more profitable. Production per well also dwarfs deepwater fields in Nigeria, the Gulf of Mexico and the North Sea, increasing resilience in times of lower prices.
President Jair Bolsonaro, a former military man who favors the industry and has dismissed climate concerns, is further opening up Brazil’s oil industry to outside capital. The government will offer additional offshore licenses later this year on more attractive terms than before the pandemic.
Few oil industries outside the Middle East are as well positioned as Brazil’s to survive an aggressive decline in consumption and prices as developed nations tackle emissions with more urgency. Photographer: Dado Galdieri / Bloomberg
All of this makes the South Atlantic a kind of safe haven for an industry increasingly on the run from the weakening economy and more aggressive climate policies elsewhere. Brazil’s oil regulator, known as ANP, expects to quadruple the number of wild cats offshore this year to 19. Rystad expects a more modest doubling of exploration, with even more wells next year.
“All the big companies are preparing to drill,” said Roberto Monteiro, CEO of Petro Rio SA, the Brazilian independent oil company that sold $ 600 million in bonds in June to finance an offshore drilling program. “The action is here.”
That’s what Mary Silene is betting. In May, he opened a bar and restaurant on Ilha da Conceicao to take advantage of the renaissance in the oil port district. On a recent Tuesday, Brazilian country music known as Sertanejo filtered through the speakers as Silene took a breather after tending to port workers during a busy lunch hour. Across the street, two oil pipe factory workers, still in their blue overalls and helmets, paid for loaves of bread at a bakery.
“I managed to rent this place here. There are shipyards and I think things are going to grow, ”said Silene, 53, who recently closed a restaurant in a fish market, which was closed due to the pandemic. “God willing, things will recover.”
To be sure, Brazil’s oil industry is nothing like a decade ago, when expats from Houston to Oslo flocked to exclusive Rio clubs and waterfront skyscrapers. Investments by Petroleo Brasileiro SA, or Petrobras as the Brazilian state’s oil titan is known, are just a fraction of the $ 40 billion a year it spent during the boom years.
And just because more drilling is taking place, it doesn’t mean that oil production will necessarily skyrocket as much as the government predicts. Like what is happening in the US shale fields, this explosion of activity is partly necessary even just to maintain current production levels as older wells begin to decline.
To take production to significantly higher levels, companies like Exxon and other large companies must do a better job of finding more oil. None of the more recent wild wells in Brazil have resulted in follow-up drilling, indicating disappointing results and that the easier-to-find deposits may have already been discovered.
It’s an interesting twist to see this fossil fuel push in a nation that was once a leader in green energy. Brazil had built a hydroelectric industry even before it began exploiting offshore fields in the 1970s, and dams still provide more than 60% of the country’s electricity. But this has left the entire economy exposed to devastating droughts for dams, which have grown more intense and prolonged in recent years amid climate change. That pushed the country to expand thermal power plants to provide greater security to the grid.
Meanwhile, an expansion in crude production will stimulate more exports to hungry consumers in Asia.
Latin America has traditionally relied on commodity exports to help boost local economies, and Brazil is no exception. That is part of the reason why crude expansion does not face the same negative vision that can be found in other parts of the world. Even in countries like Mexico and Argentina, where production is expected to decline or falter near current levels, it is not because governments are avoiding oil.
The leftist Mexican administration of Andrés Manuel López Obrador is trying to prop up state national champion Petróleos Mexicanos, even though he has suffered for years from mismanagement, high debt and outright corruption. In Argentina, a toxic combination of price and currency control policies, not green initiatives, has hampered shale development.
For Bento Albuquerque, Brazil’s energy minister, the energy transition is a wake-up call to find as much oil as possible before it begins to be phased out, although the country will simultaneously seek biofuels and seek to reduce emissions from oil operations and gas to meet your climate goals.
“There is no date for oil to lose its importance, but obviously in 30 years, oil will not be as important as it is today,” said Albuquerque, adding that this is why it is important for Brazil to take advantage of its position now while it is still there. may.
“The reality is different when it comes to the United States, Europe and other developed countries. Brazil continues to be a developing country with a great abundance of natural resources, ”he said.
Even if ongoing exploration efforts fail, Petrobras has already found enough oil to keep growing for most of this decade. A giant floating oil factory currently targeting one of those fields, Sepia, will start pumping in August. Up to 15 floating production, storage and offloading vessels, including the Carioca that just left a shipyard in Rio state, will come into operation in the next five years, according to Rystad.
“There are more new hires all the time,” said Brenda Siqueira, a 25-year-old contractor who wears the telltale uniform of an oil industry worker: a blue suit, with black gloves hanging from her belt. Her hair is tied up in a tight bun and goggles rest on her head, while a white mask is placed over her face.