Is Brazil an emerging energy giant?

October 03 2008 / by Garry Golden
Category: Energy   Year: Beyond   Rating: 9 Hot

Few people think of Brazil as an emerging global energy player. Even the most widely cited future of energy scenarios do not put Brazil into the elite group of energy resource-rich nations.

While it is best known for its domestically produced sugarcane ethanol, Brazil’s real source of energy wealth and future geopolitical power is likely to come from exports of oil and natural gas extracted from its deepwater reserves.

Energy pundits are now tracking early indicators hinting that Brazil is awakening to its full potential as a uniquely diversified energy economy growing around traditional hydrocarbon resources while simultaneously expanding its own renewables and bio energy solutions. Brazil’s rise as a global energy powerhouse will take decades to unfold, but it might turn out to be one of the more interesting geopolitical energy stories of the next century.

Who might follow in Anadarko’s footsteps
On Thursday, Houston, Texas-based Andarko announced a successful deepwater field discovery offshore of Brazil in its Campos Basin region. This could be the beginning of a string of announcements to come from energy majors tapping the deepwater oil fields of Brazil.

Announcements are likely to come from companies based around the world. Everyone is looking to partner with Brazil in advancing deepwater drilling and securing access to their growing reserves. While the general public might see the oil industry organized neatly into brand names like BP, Shell, Exxon and Chevron, the reality is that these companies are all betting on each other. Most projects have a lead company, but the financial risk is spread with smaller stakes held by competitors and specialized development firms.

Brazil’s emergence as an energy giant might be quiet, but they are not going to do it alone. Now that it has overcome the technical challenges of deepwater drilling, it must navigate the complex geopolitical landscape of energy politics.

Brazil: Deepwater brings new opportunities & challenges

While oil has taken a beating in public opinion over the past few years, it remains high on the priority list for resource rich nations and policy makers in charge of economies who depend on liquid fuel for economic growth. Brazil understands how important oil will be in the decades ahead.

Ordem e Progresso
The Brazilian flag motto is “Order and Progress”. So it is not a surprise that the country is an emerging energy giant. In the late 1990s it freed Petrobras to reinvent itself as if it were a private company. The company focused on deepwater technology, and now almost a decade later it has delivered the Brazilian government a giant nest egg of ‘petrodollars’.

Petro-Political Relationships
Brazil is about to travel down a very familiar road of rapid wealth earned from natural resources.

Over the next twenty years its oil exports could grow significantly, bringing vast wealth and geopolitical attention that will be sought after by the US, OPEC and emerging giants of India and China. Everyone wants a date with Brazil.

How much oil? How much bio energy?
Brazil’s future depends largely on how much oil it can extract and grow. In January Brazil’s Petrobras announced a giant ‘elephant’ field named Tupi which is believed to hold the equivalent of five billion to eight billion barrels of light crude oil. The find doubled Brazil’s hydrocarbon reserve.

Three months after announcing the Tupi field, Brazil hinted that its Carioca exploration could be five times larger than the Tupi oil field with high as 33 billion barrels

While it is too early to calculate Brazil’s proven reserves. its deepwater resources could put the country into the top rankings of oil and natural gas resources. Even if oil’s role in energy production slows down in the face of carbon regulations and renewables, those hydrocarbons could also be used for higher value added chemicals and materials.

Brazil’s other energy resource is its plant-based bioenergy. The country is a leader in soy production and sugarcane – both of which can be converted into biofuels. The challenge both of these sources face is the growing criticism of using agricultural plants for fuel. But it seems clear that Brazilian leaders would like to see Brazil rise in the area of bio energy.

What to expect
It is going to take years begin serious deepwater drilling and decades to grow its market share, but Brazil has already started to re-brand itself on the global stage.

It has new finance partners in the US, China and India, and its political leaders are delicately balancing themselves between the US and (oil-rich) Venezuela.

It is not entirely clear which companies might benefit the most from Brazil’s rise as an energy giant. But it is certain to bring with it new global brand names like mineral giant Valle.

Brazil might also find it difficult to justify its growth around oil if public opinion turns permanently sour. So we might expect the country to invest heavily in renewables as a way of countering the negative images of oil and natural gas.

But it would be shocking to see leaders abandon their deepwater plans. This is certainly just the beginning, and it seems clear that Brazil’s energy story is much more than sugarcane ethanol.

And we want to add Brazil to our radar when it comes to talking about the future of energy.

Image: Andrea Fregnani Flickr CC License”:

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