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The Brazilian government has committed to increase oil exports amid a U.S.-led effort to mitigate the impacts on global supply in the face of U.S. sanctions on Russian production and to contain the appreciation of the barrel on the international market.
Yet, despite its growing share in global exports in recent years, Brazil has a limited capacity to raise domestic production immediately. The Brazilian contribution in the short term, therefore, is expected to be marginal, experts say.
Overall, Brazil exported, on average, 1.3 million barrels/day in 2021, equivalent to 45% of the volume extracted from domestic fields. The country is one of the ten largest producers of the commodity in the world and is on its way to becoming one of the most relevant exporters in the next ten years.
The Ten-Year Energy Plan, from the Energy Research Company (EPE), projects that, starting in 2022, most of what Brazil produces will be exported. The forecast is that 51% of the volume produced in the country will be sold on the foreign market this year. In 2031, about two thirds of the national production will be shipped, which could raise Brazil to the position of one of the five largest exporters in the world, the state-owned research company says. It turns out that the growth of exports will be gradual and there are no prospects that the country can, immediately, contribute in a relevant way to replace a potential reduction in the Russian supply. Brazilian oil accounts for about 4% of global production of the commodity.
Fernando Valle, a senior oil and gas analyst at Bloomberg Intelligence, says that Brazilian production, concentrated mainly in the pre-salt layer, has particularities that make a short-term response to the increase in global production difficult when compared to the reality of onshore unconventional oil and gas fields (shale) in the U.S. and Canada – where producers take between three to nine months to increase production, depending on market conditions.
In the pre-salt layer, the development of new projects takes years to getting off the drawing board, Mr. Valle said. Floating platforms (FPSO), for example, are typically leased three to four years in advance, and Asian shipyards now concentrate the business – which now face delays in the delivery of orders due to the imbalance of global chains after the outbreak of the pandemic.
“In addition, Brazil imports diesel and gasoline, so exporting oil means importing oil products. [Any increase in exports] is marginal. Can it increase 100,000 barrels/day? Yes, but the only way [to increase exports substantially] would be if there was a drop in domestic demand, but this scenario is not the best for Brazil,” Mr. Valle said.
Overall, Brazil produced on average 2.905 million barrels/day of oil in 2021, 73% of which from the pre-salt, according to data from the National Petroleum Agency (ANP). This year, only one major rig is expected to start operating in the country: the Mero 1 unit, in the Santos Basin pre-salt.
Petrobras, which accounts for 72.5% of the volume produced in the country, is the largest exporter of domestic oil. Yet, foreign oil companies like Shell, Repsol Sinopec, Petrogal, Equinor, TotalEnergies and Petronas have reported growths in the volumes produced in Brazil – and, unlike Petrobras, which sends most of its barrels to domestic refineries, they have the foreign market as the main destination for local production.
Onshore production, whose production structure is simpler and has a faster response capacity, is small in the country, accounting for 3% of domestic production last year.
The skyrocketing price of oil, driven by the uncertainties in the international market with the war in Ukraine, led the United States to ask Brazil and other major producers, including Venezuela, to expand global production. The U.S. Energy Secretary, Jennifer Granholm, made the request to the Minister of Mines and Energy, Bento Albuquerque, during a videoconference talk last week.
Eberaldo Almeida Neto, head of the Brazilian Institute of Oil and Gas (IBP), is also skeptical about a substantial increase in Brazilian exports in the short term. “Brazil is a market economy and will always produce according to economic rationality, unlike OPEC [Organization of the Petroleum Exporting Countries] countries, which are subject to supply quotas, or countries under sanctions,” he said. “Furthermore, to make offshore areas viable, it is necessary to prove long-term resilience. These investments will not be made based only on the short term,” he added.
Mr. Almeida Neto believes, on the other hand, that a scenario of high barrel prices in the international market, as the current one, tends to favor the extension of the lifespan of mature fields – which are in a natural decline phase, especially in the Campos Basin post-salt and onshore basins. According to him, more expensive oil can make viable reserves that would not be economically attractive with a cheaper commodity. These fields, however, tend to have a lower potential for increasing volumes.
In late February, when commenting on the possibility of Petrobras accelerating investments, in view of the recent rise in oil prices, the company’s chief financial officer, Rodrigo Araujo, said he did not see “much room” for that.
“The only space is when we consider new wells on existing platforms. There is no room to change the production plan in the next three to four years,” said João Henrique Rittershaussen, the company’s head of production development, on the same event.
Marcelo de Assis, head of Latin America upstream research at Wood Mackenzie in Latin America, also believes that Brazil has limitations to respond immediately to the new market conditions. He says that, in the short term, what oil companies operating in the country can try to do to capture the gains from an appreciated oil is to postpone by a few months the maintenance shutdowns of platforms. The analyst also sees limitations in the possibility of adjustments to existing projects, through the connection of new offshore wells to platforms that are already producing. “These are also time-consuming processes, the drilling and connection of the wells takes months,” he said.
Source: Valor International