In 2007 Brazil announced significant offshore oil discoveries in the Santos Basin. Out of the 16 wells discovered so far, all have found oil. The sub-salt Tupi field, one of the largest fields, has been hailed as the second largest oil discovery in the last 20 years. Tupi, which is estimated to contain between five and eight billion barrels of recoverable oil reserves, is estimated to cost US$50bn to develop.
When state-run oil company Petrobras announced the finds to the world, President Luiz Inácio Lula da Silva called it "a gift from God" and pledged to end Brazil's chronic poverty while narrowing the country's broad gap between rich and the poor. But the president’s pledge to re-build Brazil is likely to remain just that if Petrobras develops the fields. With 60% of the stakes in the company controlled by foreign investors, Brazil’s economy is unlikely to reap the benefits of the oil finds.
"Brazil is likely to get shut out of the whole development, which is why it is trying to develop a new company altogether, to keep the investment inside the country," says independent oil analyst Richard Miller.
While plans are being drawn up by Brazil’s government to form a new company, Petrobras remains keen on the deal. But its ambition to develop fields in the Santos basin may now be hampered by the global credit crunch.
In a recent announcement, Petrobras said it may need to assist its smaller suppliers, which are being squeezed by the economic downturn, as the company moves forward to produce oil from all its offshore reserves. Petrobras president Jose Sergio Gabrielli said the depth of the worldwide credit crisis has led to the delay of the release of its latest strategic business plan for two months, which includes details of the investment in Tupi.
While Gabrielli said he believes the companies building the deep-sea oil rigs required to develop the deepwater Santos Basin will be financed, concerns for financing the supply chain in the short term could delay development plans.
With plans to install FPSO’s now firmly in place, the problems for developing the fields still remain. The general squeeze on equipment, men and steel across the industry will demand a massive technical response to develop the fields, which require the latest technology to penetrate up to 2,000m of salt.
"There are currently only 21 rigs in the world which are capable [of drilling in these conditions] and Brazil is negotiating to buy 17 of them", says Miller.
Financial and technical problems aside, Miller says the exact number of reserves in the Santos Basin remains unclear. Miller believes the president is keen to please a domestic audience and is ambiguous in his estimation of the basin's reserves.
"When the president is speaking you don’t know whether he is talking about oil in place or recoverable and you don’t know whether is talking about the field or the play as a whole."
Even if the fields hold as many reserves as the North Sea, as said by supermajor BP, Saudi Arabia’s fields will still have a longer future, says Miller. But the comparison with the world’s largest oil producer could in fact harm both Brazil and the western world, which remains reliant on Saudi production.
"Brazil’s capacity could defer development of Saudi Arabia’s longer-term reserves if they perceive Brazil as stealing some market share," Miller says. "Therefore, by the time we really need that extra Saudi production, it may not be there - hence Brazil may potentially jeopardise future western oil supplies."