Brazil: "Tupi" Opens Door to Big Oil

Carlos A. Sánchez

The discovery of a huge hydrocarbon deposit along the coast of Brazil feels like a gust of fresh air in a turbulent world upset by the endless hike in oil prices, the campaign of the United States against Iraq and Iran, and forecasts of increasing depletion of world fuel supplies.

It is true the "Tupi" field is about 4.3 miles deep under the seabed and because of that it is estimated to start producing only in about five years. The fact is that this find brings a renewal of hope that the era of big oil discoveries of good quality has not ended and although at a higher cost, still findings of big-scale economically exploitable oil can be made.

The first estimates indicate this oilfield contains between 5 to 8 billion barrels of oil and drilling will require investments for about 100 billion, according to the first press releases.

The information published in the media carry estimates that vary constantly. However, all agree that it is a huge oil layer that jeans many positive consequences for Brazil.

The state oil company Petrobrás confirmed on November 8 a deposit between 5 and 8 billion barrels of oil and natural gas, in a new geological horizon deep in the Atlantic.

The deposit by itself will increase proven reserves in all Brazil by 50 percent. The company also said that oilfield -almost 500 miles long and 124 miles wide- would hold as much probable reserves as to place this country among the exclusive club of the world s 10 most important producers and exporters.

The Tupi oilfield was found in block BM-S-11 of about 38.6 square miles operated by Petrobrás (65 percent) together with Portuguese Galp Energia (10 percent) and British BG Group (25 percent).

This consortium obtained the rights in the year 2000, during a bid organizad by the National Petroleum Agency (ANP) by paying a bonus of 15 million reales (about 8.6 million dollars).

The government withdrew 41 blocks located in the new geological horizon from a new auction scheduled for the end of November, by invoking the need to preserve the national interest.

In the mid-term, the country pretends to double its current production of 2.0 million barrels per day (bpd) of crude and gas.

Tupi oil is light, of high commercial value, but it is located in a horizon never reached before, beyond a salt bed a little over one mile tic which separates it from the country s traditional basins.

Exploration and Production director of Petrobrás, Guilherme Estrella affirmed there are "no objective technological barriers" for the company in Tupi, but only between 2010 and 2011 the real potential of the oilfield will be proven with a structure that should extract 100 thousand barrels per day and would cost about 4.5 billion dollars.

Geologist Giuseppe Baccocoli, oil consultant of the Federal University of Rio de Janeiro, told a European news agency at the beginning of November he refuted the extremes of comparing Brazil to oil powers like Venezuela or the Arab countries. "But there is no doubt the discovery will have world ripples," he said.

Baccocoli estimated the total production cost per barrel after summing up exploration and financial costs in Tupi should not be less than 30 dollars per barrel in the first stage.

President Luiz Inacio Lula da Silva has said his country will enter the Organization of Petroleum Exporting Countries (OPEC) and that once inside the grouping he will battle for a reduction of crude prices, currently near the 100 dollars per barrel, while in 2003 the prices fluctuated between 25 and 30 dollars.

The price of crude set a record of 90.46 dollars in 1980, a few months after the Iran revolution and the beginning of the Iraq-Iran war, two of the largest oil producers of OPEC.

During the following 23 years, prices again fluctuated around 20 dollars per barrel until the invasion and occupation of Iraq, the increasing war threats of the United States against Iran, that is urged to abandon its nuclear development program.

Also, the constant fall of US gasoline reserves and other oil by-products by 9 % in September compared to its June level, the déficit in refining capacity in the United States and other countries and any other oil-related incident, is like flaring up the fire of intense speculation in oil markets.

Speculative fever rises to an extent that prevents from knowing the truth if it is necessary to increase crude supplies and in what amount, in order to achieve price reduction.

OPEC sustains the world market is sufficiently supplied with crude and resists a substantial increase in production. More than 20 developed nations members of the International Energy Agency demand a big increase from OPEC, although they don t say by how much.

Here is another error more frequent than is believed, about the so-called market magic. Speculation alters prices considerably instead of bringing about a balance between supply and demand.

In the face of such a situation, few news and only like those of the magnitude of the Tupi discovery can bring a break from hiking prices, at least in the mid-term.