SÃO PAULO (May 31, 5:45 p.m. ET) — Deep-water oil and gas discoveries off the coast of Brazil may make it one of the world's top-five producing nations within the next few years, and refiners are learning that petrochemical synergies can offer significantly higher profit margins over traditional fuel production.
Brazil is home to more of the 50 largest oil reserve discoveries of the last six years than any country, with 12 lying deep below layers of sub-sea rock and salt off its southeast coast. Three of those were estimated at more than 3 million barrels, meaning Brazil stands to benefit more from new, cheap volumes of fossil fuels than any market, said Enrique Sira, senior research director in Latin America for analytics company IHS Inc. of Englewood, Colo.
Between now and 2030, Brazil should be responsible for more than half the liquids production capacity growth in Latin America, Sira said, and the value-creation performance of offshore Brazil will rank among the best in the world for profitability.
“Even though this [pre-salt] exploration in Brazil will be costly, it will be worth it more than anywhere else,” Sira said at the Latin American Petrochemicals & Polymers Conference, held May 10 in São Paulo. “The U.S. Gulf of Mexico is not even close” in terms of value-creation potential for hydrocarbons, he noted.
Aggressive production targets have been set for the next few years in the pre-salt fields by Brazil's national oil company, Petrobras, requiring around half a trillion U.S. dollars in investment in materials and equipment from local industry.
But without a doubt, Brazil's pre-salt is one of the best hydrocarbon opportunities worldwide, and from a capital point of view a very efficient investment, Sira said. The Brazilian coastal reserves will offer higher productivity and lower costs than the Gulf of Mexico or West Africa.
The oil refining market faces its own challenges, with the growing popularity of alternative fuels and natural gas driving substitution levels for oil in traditional high-demand areas like transportation. One way for refiners to evolve is by pursuing more synergies with petrochemicals.
Brazil should become a net exporter of crude oil, and is arguably the only country in Latin America that will grow its production capacity significantly over the next decade. New refineries in Brazil could tap the oft-ignored market of petrochemicals, which can offer significantly higher profit margins over traditional fuel products, Sira said.
Tremendous synergies lie in integrating refining and petrochemicals. A steam cracker at a petrochemical plant can process off-spec fuels without lowering refinery run rates or downgrading products, Sira said. It also can capitalize on seasonal demand for refined products and petrochemicals, among other advantages.
Brazil's pre-salt exploration could be slowed by high requirements for Brazilian parts and services for use in the work, which have been mandated by the government but may not be available to drilling companies to meet production goals between now and 2015, Sira said.
Project delays of up to two years have been projected by some analysts, and cost overruns of 30 percent or more can destroy up to 50 percent of an offshore drilling project's value, Sira said.
Other offshore reserves off the coast of Guyana, Suriname and French Guyana in northern South America are considered the second-most attractive unexplored basin in the world after southeast Brazil, Sira said. Major deepwater operators like Exxon, CGX and Staatsolie have claimed the biggest shares of this area to explore.