Stop me if I go on about it, for I am in danger of becoming a Brazil bore. After having just revisited – for the first time in a decade – I am convinced that it is probably the most exciting, happening country on earth.
Who says that politicians cannot make a difference? After eight years of President Lula’s pragmatic socialism, the Brazilian economy is booming. Wealth, of which there is a great deal, is being gradually redistributed so that there is now a vast new consumer market. Unemployment is low. And when Lula left office, he had an 85% approval rating for all of this.
My enthusiasm will not come as a surprise to many in the offshore oil & gas sector who have already discovered the joys and potential of Brazil. At present, the country produces 2.1million barrels a day, and exploration is going on at a merry pace.
The Brazilian economy will continue to grow on the basis of natural resources and this just might be one of those rare countries that uses the resultant wealth to maximum advantage.
The big prize which is getting the oil world excited lies in the quite recently discovered “pre-salt” fields, which are trapped beneath several kilometres of seawater, rock and a hard-to-penetrate layer of salt. Estimates put these reserves at 100billion barrels or more of oil & gas, which would take Brazil into the big league of global producers.
In all of this UK companies are well placed. However, the Brazilians have a long history of protectionism and firmly believe that their own companies should be in the lead – mainly the mighty Petrobras which is still effectively state-run, though part-privatised since the 1990s.
But there is also plenty of room for international companies. British Gas has been there since 1994 and has invested $5billion in Brazil. BP is partnering Petrobras in six exploratory blocks and has deepened its commitment to the country by buying assets from Devon Energy. And Shell has invested more than $3billion since 1998.
The depths at which drilling activity will be carried out are awesome. Some horizontal wells are estimated to reach depths of more than 5,000m. There is going to be a huge market for all kinds of subsea activity and support services, and it is difficult to think of a market better suited to UK companies with offshore experience.
UKTI is very well versed in these opportunities and recently organised a high-profile energy seminar in Rio de Janeiro. Some 400 Brazilian decision-makers turned out and the organisers were delighted with the quality of response. The welcome truth is that Brazil wants to do business with British companies.
Not least, this is because the alternative is often American. As I have found throughout Latin America, there is a definite reluctance to put too many eggs in that particular basket. The US treated Latin America as its “backyard” for too long and supported several military coups too many. Virtually the whole continent is now stable and democratic. And they want to hedge their bets about where they place their economic chips.
While I was in Brazil, President Obama was on a hearts-and-minds visit. It was seen as the most important leg of his South American tour precisely because of the oil & gas dimension.
With so much instability elsewhere in the oil-producing world, not to mention the need for American noses to be held when doing business with Venezuela under Hugo Chavez, Brazil must seem like an extremely attractive option for Washington policy-makers.
Under Obama, the US has been providing Petrobras with $2billion worth of loans, so it will buy American equipment. But there is a lot of historical baggage and some major current issues to resolve before the Americans can get the kind of deal that Obama was pursuing when he spoke in Rio of “energy partnerships” between the two countries, to mutual advantage.
The biggest one is the fact that Washington imposes a 50% import tax on Brazilian ethanol in order to protect its own wheat producers. It is a long-standing source of Brazilian grievance but any move to make it easier for them to sell ethanol into the US market would be politically dangerous for Obama, no matter how much he might want privileged access to their oil. Obama has also faced bitter criticism from political opponents, particularly in states fronted on to the Gulf of Mexico, for the perceived double standard of encouraging offshore drilling by Brazil while banning much of that activity in US waters following the BP disaster. Production in the Gulf will be down by 130million barrels this year, which translates into a lot of lost jobs and business.
There are plenty of other players in Brazil, but our companies that do business there testify to an overwhelmingly positive experience.
As UKTI says, “there will be a further increase in the demand for offshore support services”, as well as in “supporting and maintaining production facilities, onshore and offshore”.
There are also likely to be “considerable demands for skills training, conversion and upgrading”.
That shopping list covers a lot of items that our own companies could supply.
I hope that many more will look west towards Brazil. And, when work is done, the social life is not bad either.
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