LATIN AMERICA ENERGY AND ENVIRONMENT MONITOR

A source of news and analysis on energy and environmental issues in Latin America

By Carmelo Ruiz-Marrero

http://energyandenvironmentmonitor.blogspot.com/

Issue #1, August 13 2010

PETROBRAS, THE GIANT OF THE FUTURE

Russia may be roasting in an unprecedented heat wave and massive chunks of ice may be breaking off Greenland, but the Brazilian government does not seem particularly concerned about climate change.

The state-controlled oil company Petrobras is poised to jump from being the 17^th biggest oil producer in the world to joining the top five. The company's production in 2009 rose 5% to 2.5 million barrels a day, and its sales totaled over $100 billion, a 14% increase over the previous year. An impressive achievement, considering that Exxon, Chevron and Shell saw their profits drop to half of what they were in 2008. In 2009 Petrobras's market value reached $193 billion, making it Latin America’s largest corporation (the second and third place also belonging to state-controlled oil companies, Mexico's Pemex and Venezuela's PDVSA).

But these growth figures pale in comparison to the company's future expectations, which rest on a series of impressive oil finds under the Atlantic Ocean, known collectively as pre-salt. The pre-salt deposits, which are located in a strip 300 kilometers off the Brazilian coast that stretches from the southern state of Santa Catarina all the way north to Espirito Santo, just north of Rio de Janeiro, are in waters whose depth averages 2 kilometers (roughly 6,000 feet), and are lodged 5 kilometers (16,000 feet) under the sea floor, underneath an ancient layer of salt- hence the name pre-salt.

How much oil is in there? Just one of the pre-salt deposits, the Tupi oil field, has between 5 and 8 billion barrels, which Bear Stearns values at between $25 and $60 billion. It is the largest oil deposit discovery in the western hemisphere in more than 30 years. Brazilian president Luiz Inacio "Lula" Da Silva calls Tupi "Brazil's second independence".

Extracting this oil will require a massive amount of capital. The company's investment plan, unveiled last June, calls for an investment of $224 billion for the period 2010-2014. That is $44.8 billion per year, or $122.7 million per day. No other oil company in the world has this pace of investment. Petrobras foresees an annual growth rate of 9.4% for that period. In order to fund this expansion the company plans to issue a stock offering in September, expected to be between $50 and $80 billion, which would make it one of the largest stock offerings in history.

"Petrobras is in a situation that is the envy of many of its rivals: it has gigantic reserves of crude, an internal market that doesn't stop growing, Asian markets with a voracious appetite for oil, and industrialized countries that sooner or later will resume their growth and will therefore demand more crude", according to a recent article in the Spanish-language web site Plataforma Energética.

Domestic energy consumption is no small issue in this developing country of 193 million people whose population increases by 2 million every year. Brazil's Energy and Mining Ministry calculates that electricity demand will increase 5.9% through 2019- faster than the country's economic growth. Most of this new demand will be met with new hydroelectric dams, but the country's energy plan also includes a new nuclear reactor and several power plants that will burn coal, oil and natural gas.

As for renewable energy, the energy plan includes a quadrupling of the country's wind power capacity over the next ten years, but that means wind will supply less than 4% of the country's electricity.

SOURCES:

América Economía. "La estrategia de Petrobras para ser la mayor empresa de América Latina". July 31, 2010. http://plataformaenergetica.org/content/1672

Alan Clendenning. "Offshore discovery could make Brazil major oil exporter". USA Today/Associated Press, November 9 2007. http://www.usatoday.com/money/industries/energy/2007-11-09-brazil-oil_N.htm

Mario Osava. "La sed de energía en Brasil multiplicará las represas en toda la amazonia. IPS, June 2010. http://www.plataformaenergetica.org/content/1382

Upstream Online. "Tupi oil is 'second independence' for Brazil". May 4, 2009. http://www.upstreamonline.com/live/article177455.ece

For more information: http://carmeloruiz.blogspot.com/search/label/Brazil

Carmelo Ruiz-Marrero is an independent environmental journalist and an environmental analyst for the CIP Americas Program (www.cipamericas.org), a Fellow of the Oakland Institute and a Senior Fellow of the Environmental Leadership Program. In addition, he is founder and director of the Puerto Rico Biosafety Project (bioseguridad.blogspot.com). His bilingual web page (carmeloruiz.blogspot.com) is dedicated to global environmental and development concerns. He can be contacted at ruizcarmelo@gmail.com