Not Even The Peak Oil Threat Can Slow Brazil's Oil Boom
By Matthew Smith - Aug 01, 2021
The global push to substantially reduce carbon and other fossil fuel emissions is expected to sharply impact demand for fossil fuels. It will eventually trigger a phenomenon known as peak oil demand, where crude oil consumption will cease growing, flat line, and then progressively contract causing prices to fall. A raft of analytical agencies and global oil supermajors believe that it could occur by 2030, or potentially even earlier as fallout from the coronavirus pandemic has indicated. While peak oil demand poses an ominous long-term threat to the global petroleum industry it has not crimped the massive oil boom underway in South America. If anything, global energy supermajors are ratcheting up their investment in the continent’s petroleum industry, particularly the Guyana-Surname Basin and offshore Brazil.
Despite peak oil demand and the global push to cut carbon emissions, hydrocarbon consumption is rising at a steady clip, mostly driven by an energy-hungry China. If India, the world’s sixth-largest economy, can recover from the coronavirus pandemic and return to growth then the rate at which global petroleum consumption is growing will accelerate. Global energy supermajors are increasingly attracted to South America, with investment in Argentina’s oil patch steadily ratcheting up and Colombia’s 2021 bid round gaining attention. But it is offshore Brazil that has become the focal point of the continent’s oil boom. Even the fallout from the coronavirus pandemic and a spat between President Bolsonaro and Petrobras’ highly experienced CEO Roberto Castello Branco, which initially alarmed energy investors, have had little if any material on Brazil’s economically crucial oil industry. In fact, Brazil’s oil output over the next five years is expected to grow at a greater rate than any other nation except the U.S. and those comprising OPEC. This will occur even with big oil pushing to make operations carbon neutral and avoid being burdened with stranded assets, or those petroleum reserves which are uneconomic to exploit in a carbon-neutral world.
It is Brazil’s offshore ultra-deepwater pre-salt oilfields that are attracting considerable interest from foreign energy majors, with breakeven prices that have been steadily falling over the last decade to be some of the lowest globally. Industry analysts estimate offshore projects in Brazil are breaking even at a low $35 per barrel, which with operational costs tipped to fall should fall further, potentially below $30 a barrel. In early April 2020, at the height of the 2020 oil price collapse, triggered by Russia and Saudi Arabia’s brewing price war and the coronavirus pandemic, Petrobras claimed to be operating with a companywide breakeven price of $21 per barrel. Brazil’s national oil company continues to report an impressive total cost of oil produced, which for the first quarter of 2021 was a low $32 per barrel. That, in conjunction with a very low lifting cost of $2.70 per barrel for Petrobras’ pre-salt oilfields, underscores the profitability of Brazil’s offshore oil industry. The attractiveness of investing in offshore Brazil was significantly enhanced by the reforms initiated by the Bolsonaro administration, including a focus on increased privatization. Those legislative amendments have increased competition, reduced regulatory restrictions and provided greater access to the pre-salt oil basins for foreign energy companies. This will also assist with driving breakeven prices lower, further enhancing Brazil’s attractiveness for foreign energy companies.
Related: Oil Tops $75 On Shrinking U.S. Crude Inventories
As a result, big oil is flocking to invest in Latin America’s largest oil producer, particularly after oil prices have recovered since the March 2020 oil price collapse with the international Brent benchmark up by 49% since the start of 2021. Brazil’s hydrocarbon regulator, the National Petroleum Agency (ANP – Portuguese initials) forecast in January 2021 that investment inflows into petroleum exploration and production activities would reach an impressive $13 billion during 2021. This the regulator believes will fund the drilling of 45 exploration wells this year, with 19 slated for offshore Brazil, primarily in the prolific low-cost pre-salt oil basins. The attractiveness of investing in offshore Brazil is underscored by global oil supermajor ExxonMobil announcing that it was prioritizing the region for near-term capital spending because it believes those assets have the potential to generate some of the strongest returns in its portfolio. That commitment is demonstrated by Exxon and its partners Equinor and Petrogal committing to invest a combined $8 billion to develop the ultra-deepwater Bacalhau oil discovery in Brazil’s offshore Santos Basin. Exxon holds a 40% interest in the project with another 40% controlled by Equinor, which is also the operator, and the remaining 20% is owned by Petrogal. The consortium expects the oilfield, which is estimated to contain recoverable resources of up to two billion barrels of oil equivalent, will produce first oil by 2024. Bacalhau is a particularly attractive asset to develop because of the low contaminant sweet light crude oil which the consortium claims possesses a carbon content of nearly half the global average.
To draw further foreign energy investment, the ANP is auctioning 92 exploration and production concessions in the Potiguar, Campos, Santos, and Pelotas offshore basins in Brazil’s pandemic postponed October 2021 bid round. This will further boost investment and ultimately petroleum output in what is shaping up to be one of the world’s hottest offshore jurisdictions, which will lead to global non-OPEC and U.S. oil production growth. While big oil is selling higher-cost aging petroleum assets in developed regions it is ramping up investment in Brazil’s rapidly expanding offshore oil boom. A combination of favorable legislation, low breakeven prices, and high-quality low emission sweet light and medium crude oil makes Brazil an extremely attractive destination for big oil even in a world where developed nations are pushing the decarbonization of their economies.
By Matthew Smith for Oilprice.com
https://oilprice.com/Energy/Energy-General/No...-Boom.html
By Matthew Smith - Aug 01, 2021
The global push to substantially reduce carbon and other fossil fuel emissions is expected to sharply impact demand for fossil fuels. It will eventually trigger a phenomenon known as peak oil demand, where crude oil consumption will cease growing, flat line, and then progressively contract causing prices to fall. A raft of analytical agencies and global oil supermajors believe that it could occur by 2030, or potentially even earlier as fallout from the coronavirus pandemic has indicated. While peak oil demand poses an ominous long-term threat to the global petroleum industry it has not crimped the massive oil boom underway in South America. If anything, global energy supermajors are ratcheting up their investment in the continent’s petroleum industry, particularly the Guyana-Surname Basin and offshore Brazil.
Despite peak oil demand and the global push to cut carbon emissions, hydrocarbon consumption is rising at a steady clip, mostly driven by an energy-hungry China. If India, the world’s sixth-largest economy, can recover from the coronavirus pandemic and return to growth then the rate at which global petroleum consumption is growing will accelerate. Global energy supermajors are increasingly attracted to South America, with investment in Argentina’s oil patch steadily ratcheting up and Colombia’s 2021 bid round gaining attention. But it is offshore Brazil that has become the focal point of the continent’s oil boom. Even the fallout from the coronavirus pandemic and a spat between President Bolsonaro and Petrobras’ highly experienced CEO Roberto Castello Branco, which initially alarmed energy investors, have had little if any material on Brazil’s economically crucial oil industry. In fact, Brazil’s oil output over the next five years is expected to grow at a greater rate than any other nation except the U.S. and those comprising OPEC. This will occur even with big oil pushing to make operations carbon neutral and avoid being burdened with stranded assets, or those petroleum reserves which are uneconomic to exploit in a carbon-neutral world.
It is Brazil’s offshore ultra-deepwater pre-salt oilfields that are attracting considerable interest from foreign energy majors, with breakeven prices that have been steadily falling over the last decade to be some of the lowest globally. Industry analysts estimate offshore projects in Brazil are breaking even at a low $35 per barrel, which with operational costs tipped to fall should fall further, potentially below $30 a barrel. In early April 2020, at the height of the 2020 oil price collapse, triggered by Russia and Saudi Arabia’s brewing price war and the coronavirus pandemic, Petrobras claimed to be operating with a companywide breakeven price of $21 per barrel. Brazil’s national oil company continues to report an impressive total cost of oil produced, which for the first quarter of 2021 was a low $32 per barrel. That, in conjunction with a very low lifting cost of $2.70 per barrel for Petrobras’ pre-salt oilfields, underscores the profitability of Brazil’s offshore oil industry. The attractiveness of investing in offshore Brazil was significantly enhanced by the reforms initiated by the Bolsonaro administration, including a focus on increased privatization. Those legislative amendments have increased competition, reduced regulatory restrictions and provided greater access to the pre-salt oil basins for foreign energy companies. This will also assist with driving breakeven prices lower, further enhancing Brazil’s attractiveness for foreign energy companies.
Related: Oil Tops $75 On Shrinking U.S. Crude Inventories
As a result, big oil is flocking to invest in Latin America’s largest oil producer, particularly after oil prices have recovered since the March 2020 oil price collapse with the international Brent benchmark up by 49% since the start of 2021. Brazil’s hydrocarbon regulator, the National Petroleum Agency (ANP – Portuguese initials) forecast in January 2021 that investment inflows into petroleum exploration and production activities would reach an impressive $13 billion during 2021. This the regulator believes will fund the drilling of 45 exploration wells this year, with 19 slated for offshore Brazil, primarily in the prolific low-cost pre-salt oil basins. The attractiveness of investing in offshore Brazil is underscored by global oil supermajor ExxonMobil announcing that it was prioritizing the region for near-term capital spending because it believes those assets have the potential to generate some of the strongest returns in its portfolio. That commitment is demonstrated by Exxon and its partners Equinor and Petrogal committing to invest a combined $8 billion to develop the ultra-deepwater Bacalhau oil discovery in Brazil’s offshore Santos Basin. Exxon holds a 40% interest in the project with another 40% controlled by Equinor, which is also the operator, and the remaining 20% is owned by Petrogal. The consortium expects the oilfield, which is estimated to contain recoverable resources of up to two billion barrels of oil equivalent, will produce first oil by 2024. Bacalhau is a particularly attractive asset to develop because of the low contaminant sweet light crude oil which the consortium claims possesses a carbon content of nearly half the global average.
To draw further foreign energy investment, the ANP is auctioning 92 exploration and production concessions in the Potiguar, Campos, Santos, and Pelotas offshore basins in Brazil’s pandemic postponed October 2021 bid round. This will further boost investment and ultimately petroleum output in what is shaping up to be one of the world’s hottest offshore jurisdictions, which will lead to global non-OPEC and U.S. oil production growth. While big oil is selling higher-cost aging petroleum assets in developed regions it is ramping up investment in Brazil’s rapidly expanding offshore oil boom. A combination of favorable legislation, low breakeven prices, and high-quality low emission sweet light and medium crude oil makes Brazil an extremely attractive destination for big oil even in a world where developed nations are pushing the decarbonization of their economies.
By Matthew Smith for Oilprice.com
https://oilprice.com/Energy/Energy-General/No...-Boom.html
