Skip to comments.Brazilís oil euphoria hits reality hard
Posted on 01/07/2014 6:35:36 AM PST by thackney
When fields said to hold billions of barrels of oil were discovered off the coast here, exuberant government officials said the deep-sea prize would turn Brazil into a major energy player.
More than six years later, the outlook for Brazils oil industry, much like the Brazilian economy itself, is more sobering. Oil production is stagnant, the state-controlled oil company, Petrobras, is hobbled by debt, and foreign oil companies are wary of investing here.
Its funny, a few years ago, everybody loved Brazil, said Roger Tissot, a longtime consultant on Latin American energy. And now it seems the love is gone.
Brazil once saw itself as an up-and-coming oil power that would help meet the worlds demand, but it now faces a hard reality and might have to scale back its expectations, former energy officials, oil executives and advisers say.
The countrys deep-sea bonanza has suddenly become less alluring to big, rich oil companies. Other promising energy sources have emerged around the world, including fields in Africa, tar sands in Canada and shale gas deposits unlocked by hydraulic fracturing technology, also called fracking, in the United States.
These companies have the financial muscle and engineering capacity and technologies to move around the world, said Ramón Espinasa, an oil specialist at the Inter-American Development Bank in Washington. They are able to pick and choose. And that explains why they are not in Brazil.
Some oil experts say Brazilian energy planners, who spoke of unproven reserves that could rival those of some of the biggest oil powers, may have vastly oversold the deep-sea bounties, which are called the pre-salt because the oil is under a shifting cap of salt.
There were a lot of government authorities saying the reserves of Brazil were 50 billion barrels, 100 billion barrels, even 240 billion barrels...
(Excerpt) Read more at washingtonpost.com ...
A few years back I was on a design team for new refineries in Brazil. Brazil required 15% tax on anything not made or done in Brazil. They also required a large percentage of the manhours spent on design done in Brazil. Everyone competing for the work teamed up with local firms that we would have to train. They were good in their capabilities, but not up to the level needed for the amount of work and the type of work required for several brand new refineries.
Also the refineries had to be placed in remote areas to help build up those areas. Power plants were required to be larger than needed for the refineries. Small cities were to be built to supply operational workers with places to live, eat, shop and basic entertainment like movie theaters.
In the long run, this strategy makes them a stronger economic nation. In the short run, it makes it difficult to entice oil companies to invest their dollars versus other locations.
You mean Obama touched it?
Like he touched Solyndra? Fisker Automotive?
In the long and short run, the policy is misguided, because there is no free lunch. East Asian countries have flourished, and overtaken Brazil despite a paucity of natural resources because they've always kept things simple. They provide infrastructure and cheap (relative to their level of education/training) labor, and foreign companies provide capital and knowhow. And those countries upgrade their infrastructure and labor as foreign companies get their economies off the ground. Brazil, like India, wants to sit back and zero out foreign company profits. Without its vast natural resources, Brazil would be worse off than India, which has 1/4 China's nominal GDP per capita.
Ha...small potatoes......when the Green River Formation weighs in at 3 trillion barrels.
Brazil elects a communist as President and their financial surplus disappears and their economy tanks.
My company did a lot of work with Petrobras in the last 5 years or so. Yes, the “local content” becomes an issue, as they ratchet the requirement up and up. And everything is either expensive to buy there or expensive to import.
And they definitely bit off more than they could chew with trying to build/expand at numerous sites simultaneously. There are only so many qualified workers/engineers.
Then, on top of that, they make it difficult to have foreigners come in to work. I had a proper visa to provide “technical assistance” and they would not renew it after the year expired.
A VERY large chunk of southern Brazil (and neighboring countries) sits over gas shale.
Green River isn’t oil, rather Kerogen that has to be retorted (cooked) out of the rock then made into a syncrude. It cannot be produced just by drilling, like the Presalt oil.
Once again, the government throttles the golden goose thinking that if they squeeze hard enough they can force the goose to produce more. In the end, of course, they deprive the throttled goose of the necessary oxygen it needs to survive. The result is always the same with this government strangulation, misery for many through the unnecessary destruction of the means of production.
Yes. Obama is the inverse Midas. Everything he touches turns to crap. His “home” town is now murder central. Thankfully, his administration has pushed hard on gun “control” (citizenry control under a transparent cover phrase) and yet the citizenry is now more heavily armed than ever in our history. His singular “achievement” is a health care law which is systematically destroying the most advanced and successful medical industry in the history of mankind. And there are of course all his “successes” in Libya, Egypt, Iraq, Iran, and Afghanistan.
Reporting for this article was supported by a grant from the Pulitzer Center on Crisis Reporting.
Found the above at the end of the article. Seems odd to me. I didn’t know they were contracting stories to non democrat party groups
Maybe if i buy more amazon stuff they won’t need the extra income.
Poor George Soros!!! ROFL!!!
I'm sure it has absolutely nothing to do with the knuckle dragging, mouth breathing Marxist/Socialist the Brazilians elected as their President in 2010.....
Brazil is turning into Argentina, Argentina is turning into Venezuela and Venezuela is turning into Zimbabwe. - WSJ
They actually have some decent manufacturing and design capabilities. Just no where near enough for how fast they want to grow production/income. And they keep policies that strangle outside help.
IOW: It is a country that should be a first World dominant nation, but Latin American Leftism and poor governance strands it in a second/third World existence
Socialism does that to business. If they take it all for themselves and won't let you make your investment back with some profit why invest?
Sounds like this century’s Brazil = last century’s Mexico and the oil execs know how that turned out.
I recently saw a TV show on Henry Ford and his Brazilian boondoggle was featured in the show. Most interesting way to pour money into a hole, most rich people did that with boats in Henry’s day.
The government of Brazil was suspicious of any foreign investments, particularly in the northern Amazonian region, and offered little help. Ford tried again, relocating downstream to Belterra where better weather conditions to grow rubber existed, but by 1945 synthetic rubber had been developed, reducing world demand for natural rubber. Ford’s investment opportunity dried up overnight without producing any rubber for Ford’s tires, making Fordlândia a total disaster. In 1945, Henry Ford’s grandson Henry Ford II sold it for a loss of over US$20 million ($208 million 2013 dollars).
The Hugo virus.
I was down there in 2010 on a business trip. A buddy of mine and I were looking at buying a company down there until we realized their labor rates are higher than ours because of their cradle to grave Socialism. From what our host described their bureaucracy is worse than ours, too. Employers must match employee salaries 100%, paid to the gubmint to fund the employee’s social welfare. They lack infrastructure, too, primarily highways between their major cities. You see it when you fly in. You’ll see towns of say, 50,000- 100,000 with roads leading out of the city. About 8-10 miles out the roads just end. The only way to get around in Brazil is to fly. It’s a young, highly motivated society, though. Highly caffeinated, too. I think the lack of roads, the Socialism and the obstacles their government puts up to foreign investment are the three main culprits keeping Brazil in 3rd world territory. Otherwise, it’s a beautiful country and the people were very friendly. I was in Porto Allegre, down south, almost to Uruguay. That area was settled by Portuguese, German and Italian immigrants. Everywhere you looked were some of the most beautiful women I’ve ever seen. I mean real jaw-droppers. By contrast, the men were mostly short, fat and bald. Go figure!