Sharp oil prices, the COVID-19 pandemic, and increasing geopolitical uncertainty have done little to blunt Brazil’s epic oil boom. In September 2020, Brazil has jumped to the third largest supplier crude oil to China, the world’s second largest economy. The scale of Brazil’s deep sea offshore oil boom is underlined by the pre-salt Tupi oil field which for the third quarter of 2020 reached an impressive milestone by pumping out two billion barrels of accumulated oil production in the decade since commercial oil production began. The main reason for this is the rapidly growing popularity of sweet medium crude oil produced from Brazil’s pre-salt oil fields, particularly the world’s largest deep-sea Tupi oil field, and the Buzios field.
Petrobras, which is spearheading development of Brazil’s vast offshore pre-salt oilfield, reported record crude exports for September 2020, of which about 87% were shipped to China. There are signs off the coast of Brazil oil explosion will continue unhindered despite China oil imports slow down. Petrobras Chief Executive Roberto Castello Branco believes China has the capacity to absorb all crude oil produced for export by Brazil, even with production growing steadily. The increasing popularity of Brazilian sweet medium-grade Lula and Buzios crude pumped from the Tupi and Buzios fields has led them to sell at a premium to Brent in China. The soaring demand for these crude blends has caused their price gap to widen further, fueling speculation that they could become world oil. most expensive crude oil varieties. Petrobras is active looking for new an export market in Asia where demand for light sweet crude is increasing on a push for higher levels of gasoline, diesel and maritime fuels. India has become a major target market. The world’s fifth largest economy, prior to the COVID-19 pandemic, was developing at a solid clip of GDP growth to 8% in recent years, making it the fastest growing major economy globally. While the IMF predicts that India’s economy will contract by more than 10% during 2020, it is expected to return to growth in 2021 with the IMF anticipating an impressive annual GDP growth rate of 8.8% year on year. Solid economic growth in India coupled with a large, growing, and getting richer population will cause it demand for energy and fuel has increased significantly. US sanctions preventing Indian refiners from buying Venezuelan crude have forced them to look elsewhere while enforcing them IMO2020 this year has substantially increased demand sweet crude oil in Asia.
The new maritime regulations have also triggered an increase in demand for Brazilian medium sweet crude from Singapore, which is a regional shipping hub. This increased demand for Brazil’s sweet pre-salt medium crude oil will be met by an ever-increasing supply. Despite the COVID-19 pandemic and sharply weakening oil prices following the March 2020 price crash, Brazil’s pre-salt production continues to increase. Data from Brazil’s national petroleum regulator, the National Agency for Petroleum, Natural Gas and Biofuels (ANP – Portuguese initials), shows September 2020 (in Portuguese) pre-salt oil production was nearly 2.6 million barrels per day, which was 13% higher than the previous year. That sees pre-salted oil production responsible for 89% of Brazil’s total petroleum production for the period compared to 78% for the equivalent month in 2019.
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The volume of sweet medium crude pumped from Brazil’s pre-salt oil fields will continue to grow. Petrobras, which is responsible for more than 60% of Brazil’s pre-salt oil production, is investing in enhancement activities in its pre-salt assets, particularly the Buzios oil field. Brazil’s national oil company recently announced purchase of shares of Shell and Petrogal Brasil for $ 353 million, a subsidiary of Galp Energia from Portugal, in the floating production storage and offloading vessel P-71. The FPSO will be stationed at the Tupi field but Petrobras has chosen to place the ship, which has a production capacity of 150,000 barrels per day, at the Itapu oil discovery site. The Brazilian national oil company expects to bring Itapu online during 2021, much earlier than its planned 2024 start date. Therefore, Petrobras, owner of the 65% Tupi oil field, has partnered with Shell partners who have 25% shares, and Petrogal, the owner of the remaining 10%, to design a new development plan for Tupi which will later be built. sent to ANH in 2021. Tupi’s huge potential is underlined by Galp’s belief that deep sea oil fields have up to 20 billion barrels of oil. Production from the Buzios pre-salt field grew at a rapid rate reaching an average of 604,000 barrels per day for the third quarter of 2020, or more than one-third of Petrobras’ total pre-salt oil production for the period. For September 2020 alone, Buzios produced an average of 749,810 barrels of oil per day while 1% lower than August 2020 is an impressive 84% greater than the same period during 2019. Sweet medium crude, which has an API gravity of 28.4 degrees, low sulfur content of 0.31%, and low aromatic, is rapidly gaining popularity among Asian refiners. Responding to this increased demand, especially from China, Petrobras stepped up activities in the field. Brazil’s national oil company plans to install 12 FPSOs in the Buzios field by 2030 which is expected to pump more than 2 billion barrels of crude daily, making it Brazil’s largest oil field. Meanwhile peak oil demand, which is expected occur by 2030, and sharply weakening oil prices are weighing on petroleum investment, strong demand for Buzios crude and low break-even costs, which estimated to $ 35 a barrel, underlining the reasons for Petrobras’ significant investment in the oilfield.
Brazil is rapidly heading for the world’s major offshore oil boom. The combination of the enormous potential for oil, a blend of light and medium crude with very low sulfur, and the increasing demand from refineries for lighter sweet crude coupled with low break-even costs make it a very attractive jurisdiction for investment from major global energy companies. For this reason, investment will continue to flow into Brazil’s pre-salt oil basins strengthening the Latin American nation’s proven oil reserves and production despite headwinds filed by the COVID-19 pandemic, sharply weakening oil prices, and the emergence of peak oil demand.
By Matthew Smith for Oilprice.com
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