The New Exploratory Frontiers and the Brazilian Impasse, by Rodolfo Henrique de Saboia – Director General of ANP

Exclusive article from TN Magazine

The oil industry’s activity resembles a moving bicycle. Without new impulses, the activity remains for a while, but tends to gradually decline and eventually cease. In the oil sector, these impulses can be given in two ways: with the exploration of new areas; or with investments in existing fields to revitalize production.

In Brazil, the sector is moving at good speed and accelerating. Driven by the pre-salt layer, which already accounts for 78% of the result, national production now reaches 3.3 million barrels of oil per day, compared to domestic consumption of around 2 million barrels per day. As a result, we have a surplus of approximately 1.3 million barrels per day available for export, which places us among the 10 largest exporters of this commodity in the world. In the last month of March alone, for example, oil exports reached almost US$ 5.6 billion – representing 17% of the total value exported by Brazil. Even after discounting oil imports – necessary to supply inputs to Brazilian refineries -, the net balance was still close to US$ 5 billion, contributing significantly to the balance of Brazilian foreign trade.

Due to the investments that are already underway and which include the installation of 12 new oil extraction platforms over the next 2 years, production is still expected to rise by around 20% by 2025, to 4 million barrels of oil per day. As a result, the tendency is to increase the resources earned in various ways by society. One example is government take, which last year totaled R$118 billion. In addition to the Union – sphere to which, by law, R$ 30 billion were allocated directly to the social fund; R$ 9 billion to actions in the fields of education and health; and R$ 480 million to the Ministry of the Environment –, 11 states and 1009 municipalities received these resources directly – and all other federative entities also received them indirectly, through the so-called special fund, for the execution of their public policies.

Although the pre-salt layer is the main driving force, there is another movement underway that is driving the sector. In recent years, the entry of several new companies has brought new impetus to the revitalization of mature fields, which have already produced a lot, but which, with new investments, are still capable of generating more fruits for Brazilian society.

Led by independent companies, many of them specialized in increasing the recovery factor of fields that are no longer of interest to the big oil companies, this second movement is particularly interesting because it is taking place in land areas and shallow waters. In these environments, and especially on land, investments generate an impressive positive impact for the communities involved.

Today, in the terrestrial environment alone, there are 55 groups operating in the exploration and production of oil and natural gas. In addition to royalties and special participations, which totaled R$ 2.2 billion last year, the activities of these companies generate a significant number of jobs which, as they are less specialized than those demanded in maritime areas, are mostly occupied by local populations.

According to preliminary data from the ANP, investments in land activity – which amounted to around R$ 1 billion in 2021 and R$ 2.1 billion last year – should total R$ 3.6 billion this year and R$ 4.1 billion next year. As the average local content realized in land activities is almost 77%, this means almost BRL 6 billion in purchases of Brazilian goods and services this year and next year alone. All this without counting support activities provided by local communities, such as accommodation, food, transportation and other segments benefited by the arrival of resources from the oil industry.

The market is also developing in the natural gas segment, with very positive effects. With the increase in the number of producers offering their product, competition is benefiting from large industries to citizens who consume piped gas in their homes. Just look at the examples of states like Bahia and Rio Grande do Norte, where their distributors have diversified their suppliers – starting to include those companies that are investing in terrestrial activity – and, thus, managed to reduce the tariff charged to their consumers even in a high prices in the international market.

Despite this positive picture, there is a warning sign on the horizon. Although investments in revitalization of mature fields generate faster results, the strongest and most lasting impulses to keep the oil and gas sector moving come from exploring areas with great production potential. And, in these cases, the time between starting this exploration and obtaining the first results usually varies between five and ten years.

In other words, if we want to maintain the sector’s movement from 2030, when pre-salt production should start to decline due to the depletion of reserves, we need to act now, opening new exploratory frontiers. Otherwise, in addition to giving up the already proven benefits that Brazilian society obtains from oil production, we could go from being exporters of this commodity to being dependent on supplies from other countries. We are talking here about the risk of losing our hard-won self-sufficiency in 2006 and returning to the status of oil importers, as in the past.

The energy transition is necessary, inexorable and ongoing. But the conflict in Eastern Europe brought the world’s attention to the need to guarantee energy security throughout this transition process, which will take place over the next few decades. It is not possible to imagine a transition that takes place by abandoning the production of current energy sources that we still depend on before this dependence is overcome. That is, there must be a sufficient supply of renewable sources to the extent necessary for the gradual replacement of fossil sources. Otherwise, we run the risk of heading towards energy shortages, with the first symptom being rising energy prices, which immediately penalize the poorest.

Recent events in the country regarding the opening of a new exploratory frontier show that we are experiencing an impasse. We have a strategic choice to make. Without neglecting care for the environment and human life, we need new momentum to keep the oil and gas industry moving. At the crossroads we are at, depending on the choice we make, we run the risk of giving up on the possibility of transforming this sector’s resources into wealth for the country.

More than that, we may not have a national production that guarantees energy for everyone, at a fair price, until fossil fuels are completely replaced by renewable ones.

About the author: Rodolfo Henrique de Saboia is Director General of ANP

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