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Brazil: The future energy superpower

If Brazil is able to achieve the targets set to increase oil production, this is bound to have repercussions for the Arab countries

Dr. Naser al-Tamimi

Published: Updated:

When Brazil, Latin America’s largest economy and the seventh largest in the world, discovered in 2006 the deepwater oil fields called pre-salt, then-President Luiz Inácio Lula da Silva stated that “God has given us another chance.” The International Energy Agency (IEA) believes that Brazil can seize that “chance” over the next two decades and change fortune of the country forever.

In fact, many people do not know that Brazil is the seventh largest total oil consumer and 10th largest producer in the world. According to the BP Statistical Review 2013, Brazil had 15.3 billion barrels of proven oil reserves or less than one percent of the world reserves, the second-largest in South America after Venezuela. In 2012, Brazil produced 2.1 million barrels per day (mb / d) of crude oil (2.7 percent of the world production), consumed 2.8 mb / d (3.0 percent of the world consumption) by the end of 2012. The IEA is expecting it to consume over 3 mb/d by the end of this year.

The heavy weight

Nevertheless, Brazil’s energy landscape could change dramatically over the next two decades. Last March, Brazil launched a 10-year energy plan that aims to expand oil production to over 5 mb / d and sets targets for oil exports of over 2.2 mb / d by 2021. The plan took a big step forward when the country last month (October) awarded a consortium (state-owned Petroleo Brasileiro SA, European oil giants Royal Dutch Shell SA and Total SA, plus two Chinese firms, Cnooc Ltd, and China National Petroleum Corp.), Rights to explore the deepwater fields.

If Brazil is able to achieve the targets set to increase oil production, this is bound to have repercussions for the Arab countries

Naser al-Tamimi

The future may arrive even sooner; Brazil could become a net oil exporter and top 10 producers from 2015 if it overcomes hurdles to developing its super-giant offshore discoveries. These deep-water reserves are buried under a layer of sodium chloride that is up to two kilometers thick that some experts say could hold 50 billion barrels or more of high-quality crude oil. In the long term, the IEA in its latest annual report, “World Energy Outlook 2013” predicts that Brazil would be the world’s sixth-largest oil producer by 2035, while the country’s net bio-fuels exports would grow to account for some 40 percent of global biofuels trade over that period.

Based mainly on a series of recent discoveries, Brazil’s energy sector plays a central role in meeting the world’s oil needs through to 2035, accounting for one-third of the net growth in global supply in the IEA’s new policies scenario. Brazil’s oil production rises to 4.1 mb / d in 2020 and to 6 mb / d in 2035, making it the world’s sixth-largest oil producer in 2035. Natural gas production (mainly associated with oil production) grows more than five-fold, reaching more than 90 bcm by 2035 enough to cover all of the country’s domestic need. In addition, Brazil’s production of bio-fuels expands more than three-fold to 1 million barrels of oil equivalent per day in 2035.

Against this optimistic backdrop some experts are still skeptical. Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis argues that “pre-salt is very difficult, it’s going to be very expensive and the technology is not developed yet. Brazilian oil company Petrobras has not done shale. They didn’t believe in shale. They were betting the entire company store on this.” Indeed the IEA warns that Brazil’s success would hinge on maintaining high levels of energy investment at around $ 90 million a year, two thirds of which must go to the oil sector. “The heaviest burden lies with Petrobras, the world’s largest deepwater operator, placing an emphasis on its ability to deploy resources effectively across a huge and varied investment program,” it said. More importantly, the Business Monitor International in its latest report (October 2013) about Brazil highlights one of the weakness that Petrobras has been given a regulatory mandate to lead the development of Brazil’s pre-salt oil province, limiting growth opportunities for other investors.

Looking ahead

If Brazil is able to achieve the targets set to increase oil production, this is bound to have repercussions for the Arab countries. First, Brazil may stop importing energy products. Second, Brazil could compete strongly with Arab countries in the global oil markets, especially in North and South America. In this regard we should note that trade flow between Brazil and Arab countries reached nearly $26 billion in 2012. Brazil imported over $11 billion worth of goods, while Brazilian exports to the Arab states totaled almost $ 15 billion according to the latest data from UN Comtrade. Energy products (over $9 billion) topped the list of goods imported by Brazil. Last year, Brazil total crude oil imports from the world reached 15.45 tons a day (almost 311 thousand barrels a day), nearly 38 percent provided by Arab countries (GCC: 23 percent, Iraq: 8 percent, and Algeria: 7 percent).

In this context, the Arab states should strengthen their dialogue with Brazil, to deepen relations to include other areas, not only energy and food products. Our region can’t ignore the rising power of Brazil. With the largest country of South America (8.5 million square kilometers), housing the largest population (200 million inhabitants) and economy ($ 2.2 trillions), Brazil is expected within the next two decades to become the fifth largest (if not the fourth) economy in the world.

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Dr. Naser al-Tamimi is a UK-based Middle East analyst and the author of the forthcoming book “China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance?” He is also a regular contributor to Al Arabiya, with particular research interest in energy politics, the political economy of Saudi Arabia and the Gulf, and Middle East-Asia relations. The writer can be reached at Twitter: @ nasertamimi and email: nasertamimi@hotmail.com

Disclaimer: Views expressed by writers in this section are their own and do not reflect Al Arabiya English's point-of-view.
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