Pre-salt oil reserves could net Brazil billions
Brazil is already a strong oil-producing nation, pumping more than two million barrels of crude every single day. While not solely reliant on crude oil, Brazil’s economy would certainly benefit from continued – if not increased – production.
Fortunately for Brazil, it is located on top of what is believed to be one of the largest oil reserves on the planet. There could be as many as 110 billion barrels of oil sitting off Brazil’s Atlantic coast, and the revenues that these reserves could generate is mind-boggling.
What’s more, exploitation of Brazil’s extensive pre-salt oil reserves could give the country additional political weight, and a bigger influence on global financial policymaking – all of which are good reasons for Brazil to push ahead with the expansion of its exploration industry.
But what is pre-salt oil?
Something that has been proving problematic for Brazil in terms of expanding its energy industry is that the majority of its crude oil reserves are located underneath a huge plateau of compressed salt which sits three miles beneath the seabed. If that wasn’t enough, the seabed is a further 1.8 miles from the surface, making the oil an extremely difficult resource to get at.
State-owned oil exploration firm Petroleo Brazileiro (Petrobras) only has the capacity to drill to a depth of just over one mile beneath the ocean surface – not enough to even reach the compressed salt layer. Moreover Petrobras is heavily reliant on foreign technology, something which would remain the case if the pre-salt oil reserves are to be extracted.
How can Brazil get at the pre-salt oil?
The only way for Brazil to make the most of its oil reserves is by farming out contracts to international exploration firms with the expertise and technology to break through the deep, compressed salt layer. But before Brazil opens up its reserves and takes bids from oil industry giants, the country’s parliament is hoping to secure Brazil’s financial future by ensuring the Petrobras, which owns a majority stake in the oil in question, benefits from any oil extraction programme.
The government, which owns Petrobras, will fund the exploration of pre-salt oil to the tune of $200-$220 billion (£140 billion), and will allow the firm to enter into any number of joint ventures with third parties capable of extracting oil. However, one of the major stipulations is that Petrobras maintains a minimum of 30 per cent share in every exploration agreement it enters into – giving it a monopoly on pre-salt production.
How close is Brazil to pre-salt oil extraction?
The Brazilian National Congress has passed all necessary legislation to begin exploiting its massive Atlantic oil reserves with third party oil exploration corporations – with the exception of the oil revenue redistribution bill, which has come up against opposition from officials in Rio de Janeiro, Sao Paulo and Espirito Santo. The three states account for 90 per cent of Brazil’s oil production and are reluctant to see wealth generated from exploitation of pre-salt crude siphoned off to other parts of the country.
But the new oil exploitation legislation that has been passed recently has not come without compromise and there is still some financial juggling left to do before exploration can begin.
However, Brazil’s desire to tap into the billions of barrels of oil of its coast makes the ramping-up of the country’s oil industry an inevitability and many analysts believe the country will begin steadily increasing capacity between now and 2014. And if Brazil’s exploration projects are successful the country could soon be cashing in a massive crude oil windfall, allowing it to invest in and strengthen other areas of its highly diversified economy.
