In a shock development, Latin American energy giant Brazil announced it will join the OPEC+ group of oil-producing countries, including some of the world’s biggest such as Russia and the Kingdom of Saudi Arabia. The consortium works in concert to coordinate and unify petroleum production to secure pricing for the benefit of its members. Brazil, which government data shows pumped 3.5 million barrels per day for October 2023, intends to join OPEC+ during January 2024.
In a surprise development, the CEO of Brazil’s national oil company Petrobras announced that Latin America’s largest oil producer will not participate in the consortium’s coordinated production caps. This news highlights how much of a risk Brazil’s oil boom and growing hydrocarbon production pose to OPEC+’s ability to control global petroleum prices.
In less than two decades, Brazil went from being a marginal oil producer to the world’s ninth largest with the country poised to enter the global top five by the end of the decade. Brazil, which is Latin America’s leading economy, possesses the region’s second-largest oil reserves after neighboring Venezuela. According to the hydrocarbon regulator, the Brazilian National Agency of Petroleum, Natural Gas and Biofuels or ANP, at the end of 2022 Brazil held proven reserves (1P) of 14.9 billion barrels and proven and possible (2P) reserves of 21.9 billion barrels.
The federal government in Brasilia initiated the Potencializa E&P program to expand Brazil’s oil reserves and production. The plan aims to secure investment for the development of marginal as well as frontier oil basins to boost production to 5.4 million barrels per day by 2029, an increase of 54% over October 2023, making Brazil the world’s fourth largest oil producer.The primary contributor to such a substantial hike in petroleum production will be state-controlled Petrobras.
Brazil’s national oil company, as part of its 2024 to 2028 Strategic Plan, has budgeted total capital expenditures over that period of $102 billion, which is a 31% or $24 billion increase over the previous 2023 to 2027 strategic plan. Petrobras has earmarked 72% or $73 billion of that budget for spending on exploration and production activities, leading to higher hydrocarbon reserves as well as production. Of that amount, $7.5 billion is earmarked for exploration activities between 2024 and 2028. This will fund the drilling of 50 new wells with 25 planned for Brazil’s Southeast Basins another 16 in the Equatorial Margin and the remainder to be drilled in offshore Colombia.
The balance of $65 billion will be invested to develop oil-producing assets. According to the Strategic Plan, $22 billion is set aside for projects in the Campos Basin with four new floating production storage and offloading (FPSO) vessels to be put in place by the end of 2028. Petrobras also will invest $41 billion in projects in the Santos Basin, where nine production units are to be installed. The company anticipates those projects, on completion, will lift production to 3.2 million barrels of oil equivalent per day by 2028, which is 14% higher than the revised 2.8 million barrels per day forecast for 2023.
Importantly, Petrobras’ petroleum production will hit 2.5 million barrels per day by 2028, representing a nearly 14% increase compared to the 2.2 million barrels per day expected this year. Petrobras’ investment is key to driving Brazil’s petroleum output to 5.4 million barrels per day by 2029.U.S. Gasoline Prices Fall to 11-Month Low.Brazil is also an appealing destination for foreign energy investment which is attracting considerable attention from Big Oil. The ANP forecasts $90 billion of investment in exploration and production activities between 2022 and 2026, with 22% to come from non-Brazilian companies.
The popularity of Brazil’s medium sweet oil coupled with competitive breakeven costs of less than $35 per barrel lifted and a low carbon intensity to extract, makes the country’s pre-salt basins an attractive destination for foreign investment. Norway’s Equinor aims to grow its hydrocarbon production in Brazil more than fivefold from 90,000 barrels of oil equivalent per day to 500,000 barrels daily by 2033. For this reason, the energy supermajor committed with its partners, Sinopec and Petrobras, to invest $9 billion in developing the BM-C-33 offshore concession which contains one billion barrels of natural gas, condensate, and crude oil.
French supermajor TotalEnergies pledged during October 2023 to significantly boost its presence in Brazil, committing to an investment of around $99 billion in oilfields where the company owns stakes and renewable energy projects.There are indications that OPEC+ is losing control of the global oil market and the ability to regulate prices. Recent production cuts made at the consortium’s November 30, 2023, meeting failed to lift prices as expected. The international Brent price has fallen by roughly 6% since that meeting, despite eight members volunteering to combined cuts of around 2.2 million barrels per day.
There are a range of reasons for this, the key being rising U.S. oil output as well as higher export volumes from the world’s largest petroleum producer and concerns over China’s weakening economy. It is surging U.S. oil production, which hit an all-time high of 13.2 million barrels per day for September 2023, which is the main factor weighing on petroleum prices.
There is the threat of rising oil production from non-consortium members, notably Guyana and Brazil, for OPEC+ to consider. Tiny Guyana is experiencing a mega oil boom that made it the world’s fastest-growing economy for 2022. Production capacity hit an all-time high of 620,000 barrels per day in mid-November 2023 after Exxon’s Prosperity FPSO came online in the Payara oilfield ahead of schedule. That field is situated in the prolific, Exxon-operated, 6.6-million-acre Stabroek Block where the supermajor has made more than 35 high-quality discoveries with an estimated 11 billion barrels of oil.
Unlike Brazil, Guyana rejected a June 2023 offer from OPEC to join the cartel meetings. For the reasons discussed, OPEC’s offer for Brazil to join the consortium makes sense, with it bolstering the group of oil-producing countries’ ability to influence global energy markets and control the price of oil.
Source: https://oilprice.com