Monday, August 04, 2008

Brazil to the Rescue

Yet another in the series of "X to the Rescue." It's not news that there's been a lot of hype--some of it warranted--about recent oil discoveries off the coast of Brazil. My goal here is not to explain how challenging these oil finds are (as in how many thousands of feet of sea water, rock, and salt deposits lie on top of the oil), how speculative the reserve estimates are, or how long it will take to bring these fields (such as the headliner "Tupi" field) online. Rather, my goal is just to compare PetroBras (Brazilian state oil company) statements about Tupi with Brazilian internal consumption:

PetroBras plans to start production from their Tupi field in 2009. They plan to produce up to 30,000 barrels per day that year, increasing to 100,000 barrels per day in 2010. It plans to order 28 new drilling rigs between 2013 and 2017, so presumably it plans to increase output over that period.

In 2007, Brazil was a net importer of crude oil, importing 30,000 barrels per day. Between 2006 and 2007, Brazil's internal consumption rose 90,000 barrels per day. Brazil's car sales were up over 24% in the first half of 2008, so there is at least some reason to think that internal oil consumption will keep rising as fast or faster than in the past. If Brazil's rise in internal consumption keeps pace with last year for 2008, 2009, and 2010, they will more than consume all the new oil from Tupi and related fields internally, and place increasing demands on the world export market.

I have little doubt that Tupi and other new Brazilian fields will be good for Brazil, but I think it is a mistake to think that they will significantly impact the world oil market over the next decade.


Anonymous said...

Looks like we reached peak net exports back in 2005, which in essence is peak oil. What do you make of the recent drop in oil prices Jeff?

Best of Luck

Anonymous said...

You forget that most if not all cars sold in Brazil today are flex-fuel vehicles, capable of running on ethanol as well as gasoline. All gas stations are equipped with ethanol pumps, and it is usually cheaper than gas. All of these extra cars may not push oil consumption up that much.

Jeff Vail said...

Brazilian ethanol is a big story in the press, but not a huge percentage of Brazil's fuel consumption in reality. Brazil produced 327,000 barrels of ethanol per day in 2007. That's no small number, but it pales in comparison to its domestic oil consumption of 2,307,000 barrels of oil per day in 2007 (basically 11.6% of Brazil's liquid fuels are ethanol, the rest derived from crude oil). Ethanol production is expected to increase less in 2008 than crude oil production, so it really doesn't change the underlying issue with Brazilian domestic fuel consumption and net exports, especially because the amount of acres in sugar cane cultivation in Brazil will increase much less than the increase in ethanol--it's mostly just shifting food (sugar) to fuel (ethanol) from existing crop yields. If Brazil used 100% of their sugar cane crop to produce ethanol, they would only increase ethanol production by about 150,000 barrels per day, which is about what domestic fuel consumption has increased over the last two years...

Rice Farmer said...

You are right to point out the growing significance of domestic demand, which brings to mind the Export Land Model.

In addition to that, I think the worldwide trend toward resource nationalism will continue to grow, especially when countries with energy resources realize the huge geopolitical advantage they gain by keeping more at home. This will be spurred by high energy prices, because the more money fossil fuel-producing producing countries can get for per unit energy, the less they need to export to earn forex. So if you have lots of oil/coal/gas, it's in your interest to keep their prices high and export less.

For that reason as well, I don't expect oil-producing countries to let the price fall back into the double digits without a fight.

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