The saga of the Brazilian oil industry is an extraordinary success story. From its beginnings in the 1950s, marked by high hopes and many doubts, to a leading position on the world stage in the development of geological provinces and deep water technologies.
This industry is currently experiencing its deepest crisis. The collapse of oil prices, at the end of the last commodity supercycle, combined with the Brazilian crisis – political, economic and ethical – form what many classify as a perfect storm that hit our victorious oil industry.
However, a reflection on the factors that led Brazil to the prominent place that it has already occupied among the main poles of attraction of investments in exploration and production - the Brazilian geological potential and the local technological capacity - will allow to conclude that the foundations of the success of the Brazilian oil industry continue, despite the current circumstances, preserved and still robust.
Only the resources already discovered and to be developed in the Brazilian pre-salt, currently around 45 billion barrels, are capable of promoting investments that exceed US$ 500 billion. Thanks to the extraordinary productivity of its carbonate reservoirs, the pre-salt province is able to remunerate and, therefore, attract investment even in a scenario of depressed oil prices in the range of US$ 40-50 per barrel. It is important to point out that oil companies make investment decisions not based on the day's oil prices, but on long-term projections, which are still above the oil prices that make the Brazilian pre-salt viable.
Petrobras' current well-known financial difficulties, together with greater selectivity and the budgetary restrictions that the current scenario of low oil prices imposes on private companies, lead to a projection of investments in the Brazilian oil sector for 2016 of the order of US$ 20 billion, a mere 4 % of global investments by the oil industry this year, a figure clearly incongruous with the Brazilian oil potential.
We at the IBP are convinced that the Brazilian oil industry has the capacity to multiply its current level of investments, increase the supply of jobs, tax revenues, energy, thus offering a path for the recovery and support of the growth of the Brazilian economy. To do so, it does not depend on subsidies or complex legislative reforms, just some regulatory improvements and fiscal stability that expand its ability to compete for investments.
Life is all about choices. At COP21 in Paris, 196 countries chose to limit greenhouse gas emissions and reduce climate change, a choice that is expected to have a profound impact on the global energy industry as it signals the anticipation of the fossil fuel time horizon.
In the past, Brazil has made choices that are now overcome by the force of the current reality and, as for the future, it faces three possible scenarios. 1) The maintenance of the current regulatory model that undermines Brazilian competitiveness for investments and represses its growth potential. 2) To embark on even more harmful paths, such as those that lead to the imposition of taxes recently sanctioned by the state of Rio de Janeiro, which, in addition to being unconstitutional, practically make the future of the industry in Brazil unfeasible. 3) Accelerating the growth of the oil sector by promoting the diversity of operators in the pre-salt province; the improvement of the local content policy; better predictability in environmental licensing; greater frequency and regularity of auctions for exploratory blocks.
The Brazilian oil industry has the potential and an agenda for the resumption of competitiveness and growth, and, depending on our choices, a future even brighter than its past.
Jorge MT Camargo has been in the oil industry for 38 years. He is President of the Brazilian Institute of Oil, Gas and Biofuels (IBP); member of the Board of Directors of Mills Engenharia, Prumo Logística Global and Grupo Ultrapar; member of the Advisory Boards of Energy Ventures and Nexans do Brasil. He also serves as a senior consultant for Karoon Petróleo e Gás and McKinsey&Company do Brasil. He worked for 27 years at Petrobras, in Brazil and abroad, where he held positions such as Exploration and Production Director and then President of Braspetro. At Statoil, he was Senior Vice President at the headquarters in Stavanger, Norway and President of Statoil in Brazil.