Bloomberg News

Brazil to Become Major Oil Exporter as Output Triples, IEA Says

November 12, 2013

Brazil will triple oil production by 2035 and become a major exporter as it develops the Americas’ largest discoveries in almost four decades, the International Energy Agency said.

Latin America’s largest economy will produce 6 million barrels a day in 2035 and account for one-third of the increase in global crude output, the Paris-based agency said. The IEA forecasts that Brazil will be the world’s sixth-largest producer, up from 12th now.

The new production will come mostly from deposits trapped under a layer of salt more than two miles beneath the Atlantic Ocean’s floor, the so-called pre-salt fields. Deep-water fields including Libra and Lula, the largest oil discoveries in the Western Hemisphere since Mexico’s Cantarell field in 1976, have attracted investments from Royal Dutch Shell Plc (RDSA) and Total SA. (FP)

“The increase in oil and gas production is dependent on highly complex and capital-intensive deepwater developments, requiring levels of upstream development beyond those of either the Middle East or Russia,” the IEA said.

Most oil exploration in Brazil is carried out by Petroleo Brasileiro SA (PETR4), the country’s state-controlled oil company. Petrobras, as the company is known, plans to invest $237 billion over five years to develop fields, build refineries and boost output.

Brazilian Rules

The development of the fields must satisfy local content rules that require companies to buy goods and services locally as part of a government policy to spur economic growth.

“Commitments made to source goods and services locally within Brazil add tension to a tightly stretched supply chain,” the IEA said.

The requirement lured equipment suppliers including Rolls-Royce Holdings Plc (RR/) and General Electric Co. (GE:US) to build plants in Brazil as they seek to tap demand for drillers, platforms and ship engines.

Natural gas production is set to expand more than fivefold, the IEA said. The increase will be enough to cover Brazil’s needs for the next two decades.

Energy consumption in Brazil has increased as a swelling middle-income class buys cars, TVs and air conditioners. The country added 35 million people to its middle class in the past decade, according to research company Datapopular. The jobless rate has declined to 5.4 percent this year from more than 10 percent in 2007.

Middle Class

“Meeting this demand requires substantial and timely investment throughout the energy system,” the IEA said, estimating the amount at $90 billion a year on average. “The development of a well-functioning gas market, attractive to new entrants, can likewise help spur investment and improve the competitive position of Brazilian industry.”

The agency also said that a policy focused on energy efficiency would help reduce the potential strains. Electricity demand is set to double by 2035.

Brazil’s output of renewable energy is expected to almost double by 2035. Renewables including hydropower account for 43 percent of Brazil’s energy, and the IEA predicted that percentage will hold in 2035. Production of biofuels including ethanol is expected to more than triple without encroaching on environmentally sensitive areas like the Amazon region.

The country will also further diversify its sources of power by expanding wind farms, boosting natural gas production and using electricity generated from renewable sources like sugarcane waste.

To contact the reporter on this story: Lucia Kassai in Houston at lkassai@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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