Maria das Graças Foster, president and CEO of Petrobras

Petroleum Geopolitics change with US oil production growth and Brazil’s pre-salt oil boom Peter Howard Wertheim

The United States, which is still the largest importer of petroleum in the world, is producing more oil than importing and raises questions about how this will affect the new balance of power in the world.

Exporting countries such as Saudi Arabia or Venezuela will be able to sustain, for example, polemic governments as the US become more independent energetically? China, which in 2020 will become the largest buyer in the world, will be able to maintain this market? And how will be the role of Iran, a country rich in petroleum, living a relation of international sanctions that could once again become the focus for investments?

Analyst Adriano Pires, of the Brazilian Infrastructure Center (CBIE) says that "the world will soon see the impacts of this energy revolution."

From a product that before was scarce in the world, petroleum suddenly became abundant due to the American and Brazilian boom. The result is that the price should drop, affecting the cash flow of regimes that are oil-dependent such as Saudi Arabia, or Venezuela which sell to the US, and of American companies' investments in the sector.

In November 2013 President Barack Obama pointed to the fact that the country produced 7.7 million barrels per day in the previous month, a figure that was greater than the quantity imported, "as a tremendous step towards American energy independence ". Production is expected to grow to 8.5 million barrels per day this year. In 2006 the country imported 60% of the petroleum consumed.

Although the Organization of Oil Petroleum Exporting Countries (OPEC) still dictates the rules of the market, it is going through one of its worse crisis, due to the instability in Lybia, Nigeria and Iraq.

The situation in Venezuela is also critical: the country is more and more indebted to China, and Pires says that “Venezuela’s oil industry can be compared to a black hole.” Its real status is unknown.

Pires believes that unlike Ecuador (also an OPEC member) which diversified its economy, Venezuela is running the risk of “imploding soon” because the government lacks funds to invest.

It is interesting to note that besides the US, Brazil, Argentina and China have large quantities of non explored shale.

Foreign Affairs magazine pointed out that: ”Much has been written lately about the discovery of new oil and gas deposits around the world, but other countries will not find it easy to replicate the United States’ success. The fracking revolution required more than just favorable geology; it also took financiers with a tolerance for risk, a property-rights regime that let landowners claim underground resources, a network of service providers and delivery infrastructure, and an industry structure characterized by thousands of entrepreneurs rather than a single national oil company. Although many countries possess the right rock, none, with the exception of Canada, boasts an industrial environment as favorable as that of the United States.”

However oil boom is also taking place in Brazil points out CEO Maria das Graças Foster of Petrobras, the country’s state-controlled oil giant. The 520,000-barrel-per-day output was achieved a mere eight years after oil was first discovered in the pre-salt layer, in 2006. To reach this milestone, Petrobras had the contribution of only 25 producing wells. The magnitude of the result can best be noted by comparing it with its own production history, president Foster.

“ We were established in 1953, and took 31 years to reach the milestone of 500,000 barrels per day, which occurred in late 1984 and included the contribution of 4,108 producing wells. In the Campos Basin post-salt region, where the first discovery was made in 1974, it took 21 years to produce 500,000 barrels of oil per day. This output level, reached in 1995, included the contribution of 411 producing wells.”

Pre-salt productivity surpasses the world average

The excellent performance of the Brazilian pre-salt also comes under the limelight when compared with other major producing provinces in the world. In the U.S. portion of the Gulf of Mexico, for example, it took 20 years, from the first discovery, to produce 500,000 barrels per day. In the North Sea, the level was reached in ten years.

The average output per well in commercial operation in the Santos Basin pre-salt cluster has been of the order of 25,000 barrels of oil per day, higher than that recorded in the North Sea (15,000 barrels of oil per well/day) and in the Gulf of Mexico (10,000 barrels of oil per well/day).

A few wells in the Santos Basin pre-salt region have productivity above 30,000 barrels per day (bpd), such as LL-11, in the Lula Nordeste pilot project, with an average flow of 31,000 barrels per day, and SPS-77 and SPH-04, in the Sapinhoá pilot, with an average output of 34,000 barrels each.

Another good example is FPSO Cidade de Angra dos Reis, which operates in the Lula field, in the Santos Basin pre-salt region, where only four wells produce enough to nearly take up the platform's entire operational capability of 100,000 barrels per day (bpd). This platform was originally designed to produce from six wells, each with an average contribution of 16,000 barrels per day. However, on account of the high productivity of the wells, which have been averaging 24,000 bpd, well above the initial forecast, only four wells have been interconnected to the platform, representing a huge saving in investments.

Peter Howard Wertheim is an independent oil and gas journalist based in Rio de Janeiro, Brazil. He can be reached at: peterhw@frionline.com.br

Tags: Petrobras