Brazil set to face deepwater oil challenge

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Petrobras' Mexilhao gas rig in the Santos basin
Image caption,
Brazilian officials insist revenue from oil and gas will be spent wisely

Over the past three years, geology has become a hot topic of conversation in Brazilian homes.

Most people have learnt, through the news, that buried deep under the sea bed, hundreds of kilometres off the Brazilian coast, is a thick layer of salt.

And beneath the salt - in an area that has become known as the "pre-salt"- lies a gigantic oil reservoir that President Luiz Inacio Lula da Silva has referred to as "a gift of God" and "the second independence of Brazil".

The actual wealth remains 7km (4.3 miles) beneath the ocean and a long way off from being exploited, but the federal government has already made grandiose plans for Brazilian education based on these resources. And local governments are involved in bitter disputes over the sharing of the expected profits and royalties.

There is no shortage of pride and enthusiasm in Brazil over the potential of the pre-salt reservoir, and apparently no intention of slowing down deepwater exploration - as other countries like the United States and Norway have done - because of the oil spill in the Gulf of Mexico.

"With the development of the pre-salt reservoir, we believe Brazil will gain its place among the top 10 oil producers in the world. We have already even been formally invited to join Opec [Organization of Petroleum-Exporting Countries]," says the director general of the federal National Oil Agency (ANP in Portuguese), Haroldo Lima.

Risks and rewards

The extent of the reserves in the pre-salt are still largely unknown. The ANP talks about 50bn barrels of oil and gas, and some more optimistic estimates go as far as 100bn. But until now, what is known is that the giant Tupi field has between five and eight billion barrels.

National oil company Petrobras - which producers more than 95% of Brazil's oil - plans to increase its production from the current 2.3m barrels day to 4.1m in 2015.

And if Brazil wants to produce more oil, its only option is to go deeper and deeper. More than 90% of the country's reservoirs are located in deep (over 400m; 1,300ft) or ultradeep (over 1,000m; 3,300ft) waters, and about 80% of the oil currently produced in Brazil already comes from these types of fields.

Petrobras is the largest producer of oil in deepwater provinces in the world and is highly respected in the industry. But drilling in the pre-salt fields will pose challenges greater than Petrobras - or indeed any other oil company - has ever faced before.

"We are talking about a complex and aggressive environment: there's salt, there's corrosion, extreme pressures, weather can change, waves of 10m (33ft) can appear from nowhere... There's no engineering solution that could be 100% safe," says Claudio Sampaio, architect for the naval engineering department at the University of Sao Paulo.

Strict rules

Mr Lima says the accident in the Gulf of Mexico is a "general alert" to all countries with deep-water exploration off their coasts.

"Is it possible to drill in such challenging conditions with the confidence that everything is going to work fine? That's a very important question that we had to ask ourselves after the accident in the Gulf of Mexico," says Mr Lima.

"The fact that a serious company like BP was operating the field only makes this even more worrisome."

Image caption,
Brazil's shipyards are already benefiting from the promised oil boom

Analysts say regulations and controls of the oil industry in Brazil are already stricter than in the US. Many of these rules were introduced in 2001 after an explosion sank a P36 rig and killed 11 workers in a deepwater field in the Campos basin.

Another risk often cited is the so-called "Dutch disease", which occurs when a country's economy is so dependent on oil that all other areas - particularly industry - end up being left behind and damaged.

That is what happened in the Netherlands in the 1960s following the discovery of natural gas in the North Sea.

Mr Lima says, to avoid this, Brazil is only allowing the oil industry to develop at the same pace as the industries that provide it with goods and services.

"We need the ships, the rigs, the equipments and everything else that is used for oil exploration to be made in Brazil."

The shipyards were among the first to feel the positive impact of these new policies. After years of being virtually abandoned, they are springing back to life to supply the offshore oil sector.

The president of the Maua shipyard, Domingo D'Arco, says long-term planning is the most important thing in their business.

"The problem here in Brazil has always been one of inconsistency. One moment, we would be building dozens of ships all at the same time and then not have any orders for years," said Mr D'Arco.

"What we really need is predictability, and I think that we are finally getting this in Brazil."

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