Published: Tuesday, 18 Aug 2009 | 1:03 PM ET

Text Size

Faced with the world’s most important oil discovery in years, the Brazilian government is seeking to step back from more than a decade of close cooperation with foreign oil companies and more directly control the extraction itself.

The move is part of a nationalistic drive to increase the country’s benefits from its natural resources and cement its position as a global power. But it could significantly slow the development of the oil fields at a time when the world is looking for new sources, energy and risk analysts said.

AP Petrobras Oil Rig

This month, Brazil’s government said it wanted the national oil company, Petrobras, to control all future development of the deep-sea fields discovered in 2007, which international geologists estimate could hold tens of billions of barrels of recoverable oil.

The change would make Petrobras the operator for the 62 percent of the new area that has yet to be bid out, consigning foreign companies to the role of financial investors. That would limit their ability to help set the pace for the oil fields’ development, while giving Petrobras significantly more power to generate jobs and award lucrative contracts.

The oil lies beneath about 20,000 feet of water, shifting sand, and a thick layer of salt. This so-called pre-salt region, stretching hundreds of miles, is the biggest oil reserve being developed in the world today, especially given the lack of headway in gaining access to Iraq’s extensive deposits, said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, an energy research consultancy. It is also expected to be among the most complicated sets of projects in the history of the oil industry.

“The timing and scale of the development of the pre-salt will be one of the most significant factors for the global oil balance in the next decade, and even more so after 2020,” when Brazil is expected to ramp up production even further, Mr. Yergin said. “If it doesn’t happen it will be a big setback for Brazil in terms of revenue, and a significant loss for the world in terms of new oil supplies.”

For Brazil, the stakes are high. Many here see the oil as a magic bullet for tackling the country’s biggest social challenges. Luiz Inácio Lula da Silva, Brazil’s popular president, wants to alter energy laws to funnel more revenue from the undeveloped fields to government coffers and set up funds to improve education and health care. His proposal will be delivered to Congress sometime next week, one of his aides said Monday.

Despite its recent economic boom, Brazil still struggles with extreme poverty, inequality and an illiteracy rate over 10 percent.

Government officials here insist Brazil will not be swept up in the sort of nationalistic fervor that has washed across Latin America in recent years. As Mexico did in the late 1930s, Venezuela, Bolivia and Ecuador have reduced the presence of foreign energy companies, only to have their production of oil and natural gas stagnate or decline.

Mr. da Silva’s government is not proposing that foreigners be excluded altogether from energy projects, or even that they not be given the chance to win majority stakes in some cases. Foreign companies are already involved in the first set of pre-salt projects, including the giant field, called Tupi, that Petrobras estimates holds five to eight billion barrels of oil and natural gas.

Even without the next group of pre-salt fields, Brazil is looking to more than double its oil production to 5.7 million barrels a day by 2020.

Brazil, which discovered big oil late in its economic development, has a diversified economy that will help it to avoid the “Dutch Disease” of natural resource dependence that has afflicted several of the world’s oil powers, said José Sergio Gabrielli, the president of Petrobras.

“Petrobras is very big,” Mr. Gabrielli said, “but Brazil is bigger than Petrobras.”

He said the nationalism bubbling up now “is not nationalism against foreigners” but rather a debate over the speed of the development, who will get the largest share of the income stream and who will benefit from the related technology and knowledge.

Still, he acknowledged that nationalistic winds were beginning to blow again. With Brazil’s green and yellow flag draped over the stage, oil union members watched a new documentary here last month, “The Oil Must be Ours — Ultimate Frontier.” In the film, geologists, union leaders and even a 92-year-old physician, Maria Augusta Tibiriçá, discuss how the new fields could generate “trillions of dollars” and transform Brazil’s future.

A dozen union members led off the evening with a rendition of Brazil’s national anthem, then “It Will Happen,” a song written for the movie that blends bossa nova and samba rhythms.

If oil “is very deep under the sea,” they sang, “will we play to win?”

The new nationalistic fervor recalls the 1970s and 1980s, when Brazil’s military government declared that “the Amazon is ours” to ward off foreign encroachments on the rain forest.

Print

Email

Text Size