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Alternative Energy Powerhouse Brazil Finds Big Oil

AP
Monday, 24 Aug 2009 | 4:42 AM ET

Brazil, long proud of its push to develop renewable energy and wean itself off oil, has a bad case of fossil-fuel fever.

An enormous offshore field in territorial waters — the biggest Western Hemisphere oil discovery in 30 years — has Brazilians saying, "Drill, baby, drill," while environmentalists fear the nation will take a big leap backward in its hunt for crude.

There has been virtually no public debate on the potential environmental costs of retrieving the billions of barrels of oil, a project one expert said will be as difficult as landing a man on the moon.

"The government is whipping Brazil into a euphoria that this is going to be a solution for all our societal problems," said Sergio Leitao, director of public policies for Greenpeace Brasil. "Brazil is no longer seriously looking at alternatives."

Home to the bulk of the Amazon rainforest, Brazil for decades has developed alternative energy as an issue of national security following severe energy shortages in the 1970s.

It uses hydroelectric power for more than 80 percent of its energy needs, is the world's largest exporter of ethanol, and nine out of every 10 cars sold in the nation can run on ethanol or a combination of ethanol and gasoline.

A U.N. study found that in 2008, Brazil accounted for almost all of Latin America's renewable energy investment, to the tune of $10.8 billion.

But since the national oil company Petroleo Brasileiro, or Petrobras, discovered the massive Tupi field off the coast of Rio de Janeiro two years ago — estimated to hold 5 to 8 billion barrels — it is the development of oil fields that has gone into overdrive.

Thirty years ago, more than 85 percent of Brazil's oil came from foreign sources. Today, it is a net exporter.

There have been a series of other discoveries since Tupi — each lying at least 115 miles (185 kilometers) offshore, more than a mile below the ocean's surface and under another 2.5 miles (4 kilometers) of earth and salt.

Estimates of the entire area's recoverable oil range between 50 billion and 100 billion barrels.

Brazil, Brazil Flag
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Brazil, Brazil Flag

Brazilian President Luiz Inacio Lula da Silva hailed the finds as the nation's future, a second declaration of independence and an economic savior for 57 million Brazilians living in poverty — 30 percent of the population.

The military wants new submarines and jets to protect the crude. Leftist groups want it all nationalized. The enthusiasm is also fanned by Brazil's devotion to Petrobras, routinely listed as one of the most-admired companies in national polls.

Founded in 1953 to fend off an economic crisis and dependency on foreign oil, Petrobras has long embodied Brazilian nationalism and the notion of shielding domestic wealth from foreigners — particularly the United States and Europe.

In 2008, Brazil's total oil and natural gas production was nearly 2.3 million barrels per day. Petrobras was responsible for more than 96 percent of it.

"Most Brazilians think of Petrobras like they think of their soccer stars," said Eric Smith, an offshore oil expert at Tulane University in New Orleans who likened efforts to get at Brazil's oil to a trip to the moon. "Try to find Americans who support Exxon like that."

Petrobras fattens government coffers with more than $30 billion a year in taxes and royalties.

The company is led by Sergio Gabrielli, a bearded economics professor-on-leave, who was jailed under the nation's military regime for his political activities. He defends the company's environmental record emphatically.

"Our ethanol program, our biodiesel program is still there. Petrobras is allocating $2.8 billion dollars to develop our infrastructure and production capacity for producing ethanol and biodiesel," Gabrielli told The Associated Press at an economic forum in Rio this spring.

The company's record is not untarnished, however. In January 2000, a pipeline spilled about 350,000 gallons of crude into Rio's Guanabara Bay.

Six months later, there was a spill at a refinery near Curitiba in Brazil's south — 1 million gallons of oil flooded two rivers.

In March 2001, explosions on what was then the company's biggest offshore platform killed 11 workers. The rig sank, releasing more than 300,000 gallons of oil.

Petrobras quickly initiated a $4 billion investment program to prevent future disasters and Gabrielli says Petrobras can safely develop the difficult offshore fields.

Judy Dugan, a founder of OilWatchdog.org, cautions Brazilians against embracing an oil company as a national benefactor. She said the track record of global oil companies shows none "truly have the good of the citizenry first in mind. The oil business creates corruption in many governments and large sources of political influence for an oil company's benefit, not for the benefit of citizens."

Brazil's Senate recently opened an inquiry into corruption at Petrobras. Opposition lawmakers say the company failed to pay more than $2 billion in taxes and that it overpays firms with ties to the Silva administration.

Silva swears Brazil will not go the way of a Venezuela or Nigeria, where petro dollars routinely mix with politics.

Instead, he is pushing a version of the Norwegian model, working to set up a government-controlled oil fund for social projects that he argues would operate with transparency.

The opposition, however, fears giving the central government control of such a fund would give it massive new political influence.

Leitao, of Greenpeace, wonders if the billions of dollars needed to develop the offshore finds will be worth it should the price of oil fall.

"At the beginning of the 20th century, we were the largest producers of rubber in the world. People were lighting cigars with money," he said. "But the hangover came quickly because the English started producing rubber in Asia. The prices fell and our fortunes ended.

"We're not looking at the lessons our own history has given us."

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