Brazil Oil and Gas Report Q1 2012

BMI View: The discovery of billions of barrels of oil in the so-called subsalt oil province offshore Brazil has been one of the most significant developments in the global oil industry for many years. Regulatory reforms under former president Luiz Inácio Lula da Silva place much of the onus for developing those reserves on state-run Petrobras, though foreign companies will also play an important role. We are more bearish on output growth than Petrobras, as we see the possibility of production bottlenecks and delays to project execution as the company juggles a multitude of highly-complex multi-billion dollar projects. Nevertheless, crude production should grow rapidly over the coming years, with the country forecast to add nearly 2mn b/d of output by 2016 and nearly 3mn b/d by 2021.Rising ethanol production should push total liquids production to around 6mn b/d by 2021.
The main trends and developments we highlight for Brazil’s Oil and Gas sector are: .. In spite of Brazil’s bright production outlook, output disappointed to the downside in 2011. Oil production is estimated to have been 2.085mn barrels per day (b/d), a rise of just 31,000b/d on levels recorded in 2010, with ethanol and other liquids production putting overall output at about 2.8mn b/d.
.. While production disappointed in 2011, we remain bullish on the crude production growth outlook both over the short and long term. On the back of a number of major deepwater subsalt projects we see major production increases in each of the next 10 years. In 2012, crude oil production is expected to rise about 180,000b/d, largely thanks to the Guara and Baleia Azul projects, to reach 2.25mn b/d, with ethanol production pushing total output to just over 3.02mn b/d. By 2016, we see crude production hitting 3.9mn b/d, with total output at just over 4.8mn b/d, including ethanol.
.. Growth in production output will continue into the latter half of the decade and into the 2020s, as production levels at existing projects are ramped up and new projects come onstream. We see crude output surpassing 4mn b/d in 2017 and reaching 5mn b/d by 2021, with ethanol production putting total output at 5.265mn b/d and 6.06mn b/d in those years respectively. This remarkable production growth will make Brazil an increasingly important supplier to global oil markets over the coming decade.
.. Rapid economic growth will continue to push domestic oil consumption higher, thanks to the country’s unique ability to alternate between ethanol and gasoline consumption in the transport sector – based on short-term price movements. Oil consumption growth should remain largely in line with the levels recorded in recent years – at around 3% per year – although we anticipate that increased efficiency in the transport sector and in the wider economy will slow this rate to around 2% by the 2021. Total oil consumption is expected to rise from an estimated 2.810mn b/d in 2011 to 3.226mn b/d by 2016 and 3.579mn b/d by 2021
.. Rising fuels demand will see Brazil expand its refining base. We expect four new refineries (Rio Petrochemical, Abreu e Lima, Premium I and Premium II) to come onstream between 2012 and 2017, all of which will be operated by Petroleo Brasileiro (Petrobras). The new plants will see total refining capacity rise from around 2mn b/d in 2010 to around 3mn b/d by 2015 and 3.29mn b/d by 2018. Petrobras will spend over US$70bn on expanding the country’s refining base between 2011 and 2015.
.. While much of the focus, and investment, in the country’s hydrocarbons sector will be on the development of its oil resources, natural gas production is also expected to grow. The country’s somewhat modest gas production of 12.6bn cubic metres (bcm) in 2010 is anticpated to jump to 19.1bcm by 2012, at which point production growth is likely to flatten, rising steadily to 33.6bcm by 2019. There are a limited number of non-associated gas projects in the pipeline, and as a consequence most production growth will come from gas produced alongside new oil projects. The Amazonian Solimoes Basin is an area of potential production growth, though significant investment will be needed to link those reserves – located deep in the Amazon – with major population centres. The country is also thought to have sizable shale gas reserves, though this is not currently the focus of investment.
.. Relatively modest gas production combined with increased gas consumption in the industrial, residential and power sectors will mean that Brazil remains a net gas importer. Indeed, gas import requirements will hover at around 12-15bcm per year over the next decade. Brazil will continue to rely on pipeline imports from neighbouring Bolivia to meet the majority of its needs. However, liquefied natural gas (LNG) imports are likely to play an increasingly important role as Brazil expands its regasification capacity over the coming years. By 2013, Brazil is expected to have total LNG import capacity of 12.76bcm at three terminals. We do not forecast the country having to utilise all of this LNG capacity, though it will provide useful insurance against potential disruption to supplies from Bolivia.
.. State-run Petrobras is the undoubted champion of Brazil’s booming oil sector. With a US$224.7bn 2011-2015 capex programme aimed primarily at developing the Brazilian oil and gas industry, and a regulatory environment that enables it to maintain a privileged position in the sector – something that is unlikely to change. However, there is plenty of room for foreign players to operate grow. The biggest foreign players include Royal Dutch Shell (Q311 production of 51,138boe/d), Chevron (Q311 production of 41,494boe/d), BG Group (Q311 production of 16,982boe/d), and a Japanese consortium known as Frade Japao (Q311 production of 14,644boe/d). Foreign companies will undoubtedly look to expand through two hotly-anticipated licensing rounds, which are expected to take place in 2012.

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BMI Industry View 7
SWOT Analysis 10
Brazil Oil and Gas SWOT 10
Global Energy Market Outlook 11
Table: Global Oil Consumption (000b/d), 2009-2016 14
Table: Global Oil Production (000b/d), 2009-2016 15
Regional Energy Market Outlook 16
Oil Supply And Demand 16
Table: Latin America Oil Consumption (000b/d), 2009-2016 18
Table: Latin America Oil Production (000b/d), 2009-2016 19
Oil: Downstream 20
Table: Latin America Oil Refining Capacity (000b/d), 2009-2016 20
Gas Supply And Demand 21
Table: Latin America Gas Consumption (bcm), 2009-2016 22
Table: Latin America Gas Production (bcm), 2009-2016 22
Liquefied Natural Gas 23
Table: Latin America LNG Exports (bcm), 2009-2016 23
Brazil Energy Market Overview 24
Table: Brazil – Upstream Projects Database 27
Industry Forecast Scenario 31
Table: Brazil’s Oil And Gas Sector – Historical Data And Forecasts, 2009-2016 31
Oil and Gas Reserves 32
Oil Supply and Demand 33
Biofuels Production 34
Gas Supply and Demand 35
Liquefied Natural Gas 36
Refining and Oil Products Trade 36
Revenues/Import Costs 37
Key Risks To BMI’s Forecast Scenario 37
Oil And Gas Infrastructure 38
Oil Refineries 38
Table: Refineries In Brazil 38
Service Stations 41
Oil Terminals/Ports 41
Oil Pipelines 41
LNG Terminals 42
Gas Pipelines 42
Regional and Country Risk/Reward Ratings 44
Latin America Region 44
Composite Scores 44
Table: Regional Composite Risk/Reward Ratings 45
Upstream Scores 45
Table: Regional Upstream Risk/Reward Ratings 46
Downstream Scores 47
Table: Regional Downstream Risk/Reward Ratings 47
Competitive Landscape 48
Executive Summary 48
Table: Key Players In Brazil’s Oil And Gas Sector 50
Overview/State Role 50
Licensing And Regulation 50
Licensing Rounds 51
International Energy Relations 53
Table: Key Upstream Players In Brazil’s Oil And Gas Sector 55
Table: Key Downstream Players In Brazil’s Oil And Gas Sector 55
Company Monitor 56
Petróleo Brasileiro 56
Shell Brasil 60
Repsol YPF Brasil 63
Esso Brasileira de Petróleo 66
Chevron Brasil 68
Ultrapar Participações (Grupo Ultra) 71
BG do Brasil 73
BP Brasil 76
Statoil do Brasil 78
OGX Brazil 80
Galp Energia – Summary 83
Eni – Summary 83
Mitsui – Summary 83
Devon Energy – Summary 84
Maersk Oil – Summary 84
Total – Summary 85
Cosan – Summary 85
Vale do Rio Doce – Summary 86
Anadarko Petroleum – Summary 86
Partex – Summary 87
Sonangol – Summary 87
Service Companies – Summary 88
Others – Summary 88
Appendix: Oil And Gas Long-Term Forecasts 90
Regional Oil Demand 90
Table: Latin America Long-term Oil Consumption (000b/d), 2014-2021 90
Regional Oil Supply 91
Table: Latin America Long-term Oil Production (000b/d), 2014-2021 91
Regional Gas Demand 92
Table: Latin America Long-Term Gas Consumption (bcm) 2014-2021 92
Regional Gas Supply 93
Table: Latin America – Long-Term Gas Production (bcm), 2014-2021 93
Methodology And Risks To Forecasts 94
Glossary Of Terms 95
Table: Glossary Of Terms 95
Oil And Gas Risk/Reward Ratings Methodology 98
Ratings Overview 98
Table: BMI’s Oil & Gas Business Environment Ratings – Structure 99
Indicators 99
Table: BMI’s Oil & Gas Upstream Ratings – Methodology 99
Table: BMI’s Oil & Gas Business Environment Downstream Ratings – Methodology 100
BMI Methodology 102
How We Generate Our Industry Forecasts 102
Energy Industry 102
Cross checks 103
Sources 103
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