Brazil’s massive offshore oil boom, especially in pre-salt oil fields off the deep sea, continues to grow despite weak oil prices and the sharp impact of the COVID-19 pandemic. Strong demand from Asian refiners, especially in China, for lighter and sweeter crude has seen demand for Brazilian crude soar since the end of 2019. The COVID-19 pandemic, the second round of lockdown among Europe’s largest economies, has slowed the world’s economy with fast, and the poor global economic outlook has done little to curb China’s insatiable thirst for crude. Data presented by Reuters shows that China’s crude oil imports for the first 10 months of 2020 increased by almost 11% year over year to the equivalent of 11 million barrels per day. Brazil has emerged as a major suppliers crude oil to the second largest economy in the world. This can be attributed to the introduction of IMO 2020 in January which significantly reduced the sulfur content of maritime fuels and was a key driver of growing Asian demand for Brazil. sweet crude oil oil. The global push to reduce emissions means that demand for lighter, sweeter, lower sulfur crude, which is cheaper and easier to refine, will continue to grow. Latin America’s largest economy is now the third largest supplier of petroleum to China compared to fifth in 2019. There are concerns that the latest news from Brazil’s national oil company, Petrobras, could thwart Brazil’s offshore oil boom. Integrated energy major recently announced Its Strategic Plan 2021-2025 where it marks 27% cut expenses compared with last year, to $ 55 billion. This, according to Petrobras, was due to the impact of the COVID-19 pandemic on demand for crude oil and its derivative products which caused oil prices to weaken sharply. While this sparked some concerns about how it would impact Brazil’s burgeoning offshore oil boom, downfall must be minimal. Petrobras stated that it intends to spend $ 46 billion, or nearly 84% of the planned CAPEX budget, on exploration and production with a focus on its pre-salted oil assets. This is Brazil’s vast deepwater pre-saline oil field producing medium grade sweet crude that has become immensely popular in China and is gaining greater market share in other parts of Asia.
There are two reasons for this; First, the low sulfur content of crude oil produced for the Lula and Buzios varieties were 0.27% and 0.31%, respectively. This makes them particularly attractive to refiners in a world where stricter emissions and sulfur content regulations are in place. It was the introduction of IMO2020 which was the main reason for the surge in demand for Brazilian sweet crude among Asian refiners in a region that is a global shipping hub. The significant increase in demand for sweet crude has mixed Brazilian Lula and Buzios trade at a premium at international Brent prices. Second, Brazil’s pre-salt oil fields have low breakeven costs, estimated by Natural Resources to average around $ 45.50 per barrel while Petrobras pegs the break-even price of its pre-salt operations at $ 21 per barrel, meaning they very profitable even in today’s tough operating environment where Brent is selling for less than $ 50 per barrel. Petrobras announced it just invest in projects that are Brent resistant for $ 35 a barrel. While the $ 46 billion earmarked for exploration and production expenditure is less than the $ 64 million allocated in the previous plan, the focus on low-cost pre-salt production will drive increased production of higher margin light sweet crude. Petrobras made a series of moves to make sure this happened. The national oil company increased activity in the Buzios field in response to strong demand for this type of crude. They plan to bring 8 more FPSOs online by the end of the decade, giving Buzios 12 an operational platform to see the field pumping in excess of 2 million barrels daily or more than triple its current output of around 600,000 barrels. Petrobras also, at a cost of $ 353 million, re-deployed the 150,000 barrels per day P-71 floating production storage and offloading platform from the Tupi oil field to the newly discovered Itapu field. Petrobras hopes that production can start next year, two years ahead of the original 2024 schedule.
Despite the sale of assets, the sharp decline in spending and the closure of operations was not economical for Petrobras pre-salt oil output spiked 32% year on year for the first nine months of 2020 to nearly 1.6 million barrels per day. As a result, total hydrocarbon production for that period grew by 7.6% to a daily average of 2.9 million barrels of oil equivalent. Brazil’s state-controlled oil company is a key driver of pre-salt operations in Latin America’s largest economy, responsible for more than 60% of the country’s pre-salt oil production and 77% total oil production (Portuguese). The latest strategic plan confirms Petrobras’ central role in developing Brazil’s abundant pre-salt oil reserves and will ensure that the country’s economically important oil production continues to expand. This will ensure that Brazil’s oil boom continues to grow, sees Latin America’s largest economy to be the world’s leading offshore oil domain.
By Matthew Smith for Oilprice.com
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