Rio games

Ed Hernandez, io oil & gas

September 1, 2016

Brazil has been a global leader in deepwater technology. If it can put its troubles behind, it has a real opportunity to be the world leader, says io oil & gas’ Ed Hernandez.

International Olympic Committee President Thomas Bach participates in the Olympic Torch Relay in Rio de Janeiro before the opening ceremony of the Rio 2016 Olympic Games.  Photos by Ian Jones/IOC.

As host of the Rio 2016 Olympic and Paralympic Games last month, the world’s eyes have been turned to Brazil this summer. Yet, there were clouds on the horizon.

Only weeks before the games, the price tag for the Rio 2016 Olympic and Paralympic Games had risen by 400 million reais (US$124 million) since August 2015, primarily due to rising costs of supplying temporary power and seating at venues. The projected total cost for the games, including large and troubled infrastructure projects like an extended subway and reformed port area, now stands at 39.1 billion reais ($12.1 billion).

For many observers, this is a story of Brazil’s obvious potential being compromised by its over-reaching leaders. Such a tale will be familiar to those in the oil and gas industry, who will associate Brazil with its embattled President Dilma Rouseff and the issues currently facing Brazil’s national oil company, Petrobras. Yet, beyond the headlines, changes are afoot that suggest the future for Brazil might be very bright indeed.

Promisingly, after many years of relative isolation, Brazil is finally taking steps to open its oil and gas sector, making it more attractive to foreign investors. Driven by the country’s new Energy Minister Eduardo Braga, reforms are being put in place to allow foreign oil and gas firms to access Brazil’s major offshore oil deposits without needing to work in partnership with Petrobras (as is currently the case).

Indeed, in July, Statoil made the most of this opportunity and paid $2.5 billion for a substantial part of the Carcará oil discovery in the Santos Basin, one of the largest discoveries in the world in recent years.

While some of the reforms being implemented might be controversial in the eyes of Brazilian nationals, these measures could allow the country to finally benefit from its long underexploited assets.

The fact remains that, despite the current corruption scandals and the low global oil prices, Brazil has led the way in the region with respect to research and development, policy creation and exploration campaigns in deep and ultra-deepwater.

Brazil’s pre-salt offshore contains an estimated 56 billion bo, but also presents a significant technical challenge. There are difficulties around ultra-deepwater, deep carbonate reservoirs, the high gas-oil ratio of areas, CO2 content, high-pressure and low-temperature, thick salt layers (more than 2000m in places) as well as long distances from the coast and often turbulent oceanic conditions. The specific geology of the area also means that petroleum is extremely hot, which can cause precipitation in extraction lines that are in contact with sea water.

However, such difficulties are not insurmountable, and there are significant returns to be made for operators who can meet these technical challenges. By liberalizing Brazil’s oil and gas industry, the country’s government has made it more attractive for IOCs (independent oil companies) to commit research and development resources to the province, accelerating the rate at which these technical problems can be solved.

Importantly, recent discoveries in shallow waters have also surprised the market with estimates reaching 3 billion bo in a single well. The new big discoveries in this region could make Brazil the sixth largest oil and gas producer in the world in future years.

Ever since Stefan Zweig, writing in 1941, dubbed it “the land of the future,” Brazil has been reproached for failing to live up to the promise that its size, its resources and its insulation from the wars and troubles afflicting other parts of the world seemed to hold out. However, when it comes to oil and gas, putting recent scandals behind itself, and embracing innovative ways of working and thinking, particularly in ultra-deepwater, Brazil has a real opportunity to be the world leader many hoped it would become.

Ed Hernandez is vice president of operations – Americas, for io oil & gas consulting, where he is responsible for business development in Latin America. He has more than 20 years’ experience in the energy industry, working on numerous international and domestic projects from oil and gas production and pipelines to power generation. Hernandez holds a BS in mechanical engineering from Texas A&M University.

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