Brazil could potentially strengthen its position in the geopolitics of oil

Russia’s invasion of Ukraine and the resulting sanctions have raised energy security concerns in Brazil, although the crisis also offers the country the potential to become a stronger player in the geopolitics of oil.

On March 11, the mines and energy ministry (MME) set up the national fuel and biofuel supply monitoring committee to propose actions related to domestic fuel supply, in view of the geopolitical situation affecting energy markets, especially oil.

The committee is supported by the executive and legislative branches and some measures were already approved. Among them are a changed calculation of the ICMS tax for gasoline, anhydrous ethanol, diesel oil, biodiesel, and liquefied petroleum gas (LPG). But implementation depends on the states and the federal district.

The measure also eliminates federal taxes for diesel oil, biodiesel, LPG, and aviation kerosene (QAV), especially the rates of the contribution to the social integration and public service employee savings program (PIS/Pasep) and the contribution to social security (Cofins).

Meanwhile, mines and energy minister Bento Albuquerque said Brazil will increase oil production to contain the oil price hike and guarantee supply to the global market at Washington’s request. 

A ministry spokesperson told BNamericas the prospects for higher oil production are “very optimistic.” 

The spokesperson said, “the expansion is expected to reach more than 70% in the next 10 years, reaching 5.3Mb/d [million barrels per day] and indicating that the country will maintain its status as an exporter.”

This year, national oil production is expected to increase about 7.3% over last year.

“Brazil, as a major player in oil and natural gas exploration and production, has created the conditions for legal security and attractiveness for new investments and a progressive increase in oil and natural gas production,” the spokesperson added. 

According to the latest data from watchdog ANP, national oil output in January totaled 3Mb/d (million barrels per day), of which about 1Mb/d were exported on average, with federal oil company Petrobras accounting for about half that amount.

“Petrobras' exportable oil surplus is averaging 500-600,000b/d,” a company spokesperson told BNamericas, adding that so far the portfolio of buyers of Petrobras oil remains largely unchanged.

Fernanda Delgado, executive director of Brazilian petroleum association IBP, said higher prices and energy security concerns indicate a return of E&P investments, especially in Brazil.  

“With this signaling of investments, the OECD countries will seek energy sources in more stable nations, and Brazil has a more stable internal environment than other major exporters, such as Nigeria, Russia and the United Arab Emirates. So it would be more interesting to have Brazil as a supplier,” she told BNamericas. 

The executive secretary of independent oil producers’ association Abpip, Anabal dos Santos Junior, said investments could come to Brazil, but not solely as result of the war.

“E&P investments are made on a long-term [basis] and we're living in a period of great volatility with very abrupt highs and lows,” he told BNamericas.  

But Santos Junior highlighted that higher oil and gas prices could lead independent operators to start previously unfeasible projects.

“Especially those with lower investment and lower production. These low NPV [net present value] projects may be viable in boom times like these,” he said. 

Investments could be redirected to Brazil if Russia remains a hostile market, according to Rodrigo Leão, technical coordinator at petroleum think tank Ineep.

“But this will depend on the pace of the new bidding rounds and the appetite of companies. Also because their investments there were very concentrated in LNG [liquefied natural gas], a different project profile,” he told BNamericas.  

Cristiano Pinto da Costa, Shell Brazil’s executive vice-president, would not predict possible impacts on the oil major’s new projects or exploration campaigns.

"What I can say is that our ambition to pursue growth here remains unchanged. In general, I see that the industry is especially attentive to discussions about how to ensure supply over the coming months," he told BNamericas. 

One of Shell’s major local undertaking is the Gato do Mato field, in the Santos basin pre-salt, whose FPSO is being tendered and first oil is planned for around 2025. 

Another key player in Brazil, Norway’s Equinor, remains confident in the business outlook. In Brazil, it owns E&P assets that require investments for 40 or 50 more years.

“It’s important that Brazil creates the necessary conditions to attract investments and make possible the continuity of projects, as our projects in Brazil compete with the other projects in Equinor’s global portfolio. Investors need predictability, a stable framework and respect for contracts, and Brazil is progressing in the right way,” a company spokesperson told BNamericas. 

Equinor’s projects include the Bacalhau field in Santos basin, with planned 2024 start-up, and block BM-C-33, in Campos, whose schedule has yet to be defined. 

Production at the company’s Peregrino field has been halted since April 2020, but a restart is planned for the northern hemisphere summer. 

First oil of Peregrino’s phase II, which will extend the lifetime and value of the field and add 250-300Mb, is planned for the same period. 

A fast-growing oil and gas operator, 3R Petroleum plans to invest US$120mn in 2022 and US$750mn by 2025 in the development of eight oil and gas production assets that were mostly acquired through Petrobras’ divestments. 

“The company's focus is on the organic development of its portfolio, starting with the execution of the development plans of the assets in an efficient and safe manner, with an expected increase in production,” a spokesperson told BNamericas. 

REGIONAL OPPORTUNITIES

Elsewhere in South America, oil producers might also benefit.   

In Guyana, ExxonMobil and Hess are expected to post larger profits given the high oil prices, while the government deems the embargoes on Russian oil an opportunity to attract investments and fast-track E&P developments.

In Colombia, regulator ANH has recently indicated that a new oil and gas round will be launched soon.