Brazil Eyes Major Oil Output Boost Despite Environmental Concerns

Petrobras plans to expand Brazil’s oil production, aiming to become the fourth largest global producer by 2030.
Environmental concerns arise as Petrobras seeks to drill near the Amazon River, conflicting with President da Silva’s ecological promises.
Alongside oil ambitions, Petrobras is actively engaging in renewable energy projects, including a partnership for developing e-methanol.

Brazil’s Petrobras has high hopes for the country’s oil industry, even under socialist President Luiz Inácio Lula da Silva, as it makes moves that suggest it is in it for the long haul. The state-owned oil major has plans to transform Brazil’s global energy presence, which includes boosting its oil output, solidifying new European partnerships and plans to develop new projects.

Brazil was the ninth-largest oil-producing country in the world last year, with an average output of 3 million bpd, growing by 4 percent from 2021. The Brasília government aims to increase this position to fourth in the world by 2030 by producing around 5.4 million bpd, and Petrobras is taking the lead in the industry. Joelson Falcão Mendes, the director of exploration and production at Petrobras, stated “This year we will exceed our goals [and] surpass what we predicted.” Mendes added, “We have significant and growing production for the coming years.” Petrobras recently increased its end-of-year production forecast to 2.2 million bpd, compared to 2.1 million bpd previously. This was mainly due to record subsalt production in recent months, as well as the acceleration of production across its vessels and the connection of new wells.

Much of Brazil’s oil comes from its ‘pre-salt’ region, where 11.5 billion barrels of proven crude deposits sit under a thick crust of sodium chloride, beneath the ocean floor. These deposits lie around 200km from Rio de Janeiro and were discovered during da Silva’s first term in office in 2006. Petrobras now plans to develop 11 more platforms in the waters by 2027. However, output from the region is expected to peak by 2029, meaning many are questioning the long-term potential for oil production in Brazil.

Environmentalists worry that Petrobras’s ambitions are at odds with leftist leader da Silva’s aim for ecological protection and sustainable development. Mendes has made it clear that fossil fuels will remain part of Brazil’s energy mix, seen as vital for bringing in revenues. However, Petrobras has also pledged to spend more heavily on green energy projects, pumping its oil funds into cleaner alternatives. Yet, many worry that with demand expected to wane over the coming decade, it would be wise for Brazil to shift its attention away from fossil fuel to renewable alternatives sooner rather than later.

When da Silva came into office in January, he pledged to increase environmental protections, fight deforestation, and protect those who defend the environment, a dramatic turnaround from his right-wing predecessor Jair Bolsonaro. During his first six months in office, deforestation dropped by 33.6 percent, according to government satellite data. João Paulo Capobianco, the environment ministry’s executive secretary, stated of the achievement, “The effort of reversing the curve of growth has been reached. That is a fact: we reversed the curve; deforestation isn’t increasing.”

However, Petrobras now wants to drill for oil near the mouth of the Amazon River as part of its plan to boost its production levels. Brazil’s environment protection agency Ibama is expected to decide whether this project can go ahead in early 2024. Brazil’s Equatorial Margin is thought to be one of the country’s most promising regions for oil and gas exploration, but it also has great ecological value because of its biodiversity and proximity to the Amazon rainforest. Petrobras has already appealed an earlier decision by Ibama prohibiting the drilling of an exploratory well in the area.

In addition to its oil and gas ambitions, Petrobras has also been moving ahead in its plans to develop Brazil’s green resources. This month, it signed a memorandum of understanding with Danish company European Energy to explore the potential for developing an e-methanol plant in Brazil. E-methanol is a low-carbon fuel produced by combining green hydrogen and captured carbon dioxide. It can be used to fuel industrial activities in hard-to-abate industries, making it highly attractive in the shift away from oil and gas.

Jean Paul Prates, the President of Petrobras, stated, “Petrobras wants to focus on having good partners like European Energy… This partnership will benefit both sides. We can provide our knowledge and help to bring both the companies and our countries closer together.”

This move follows several agreements with renewable energy companies in recent months as Petrobras attempts to make good on its pledge for financial divestment beyond fossil fuels. In September, Petrobras signed an MoU with TotalEnergies and Casa dos Ventos Holding to assess perspectives and joint opportunities in renewable energy and low-carbon hydrogen in Brazil. Patrick Pouyanné, the CEO of TotalEnergies stated, “Brazil is a great country for developing renewable energies. We are therefore delighted to join forces with Casa dos Ventos and Petrobras to identify potential synergies between our activities, and thus develop profitable renewables opportunities.”

Petrobras has high hopes for Brazil’s oil industry, which depend largely on whether the government allows for further drilling to go ahead, potentially at the cost of its pledge for ecological preservation. However, its recent deals with various international energy companies suggest that the oil major has great potential to break into the world of renewables, using its oil revenues and experience to develop Brazil’s green resources and future-proof its operations.

By Felicity Bradstock for Oilprice.com