Brazil's oil 'blessing' is no energy panacea

Brazil struck oil last month, and it was a true throw-your-hat-in-the-air, whoopee, eureka discovery.

Buried under at least 3.7 miles of Atlantic Ocean, rock, and thick salt deposits, engineers confirmed a reservoir of black gold containing up to 8 billion barrels, making it the biggest find anywhere in the world this millennium.

The discovery by state-controlled oil company Petrobras had Brazilians giddy with excitement. President Luiz Inácio Lula da Silva called Petrobras "a blessing from God," and his chief of staff declared Brazil could now proudly rub shoulders with the world's major oil producers.

It was a landmark moment for a nation already blessed with more than its fair share of animals, vegetables, and minerals. But it is not the answer to Brazil's energy problems, at least not in the short term, experts say. Cautioning the politicians and nationalists to curb their enthusiasm, industry specialists say Brazil must address infrastructure and planning issues before declaring its energy future secure.

"Brazil has oil, gas, biomass, hydropower," said Saturnino Sergio da Silva, vice president of the São Paulo Federation of Industries (FIESP), the state's most important business organization. "If we develop them then we won't have any problems. But Brazil has always lacked forward planning."

Brazil sees need to invest in energy

Brazil recognizes it needs to invest in energy in order to ensure supplies are available and economical enough to keep the country competitive and growing at a rate predicted to be close to 5 percent per year over the next few years.

The government's Growth Acceleration Plan released last January envisages spending around $154 billion on energy projects before 2010.

But the immediate challenges are what worry industry experts and the most pressing of them involves not oil but gas.

"In the short term we have a gas shortage," said Marcio Pereira, an industry expert with Rio-based energy consultancy firm PSR. "We don't have enough gas to supply industry, residences and cars as well as thermoelectric plants. The situation is not dramatic but there is a yellow light."

Experts forecast energy shortages

A recent report by the Acende Brasil Institute, a private sector energy think tank, warned that the shortage of gas and water could cause blackouts similar to those in 2001 and stunt growth and force up prices.

"We are going to be strongly dependent on rain in 2008," says Acende Brasil president Claudio Sales. "There will be an increasing risk of rationing."

One alternative being implemented in São Paulo state is the use of bagasse, the remains of sugar cane. São Paulo produces the majority of Brazil's sugar and ethanol and industrialists can triple the amount of energy they get from bagasse by modernizing their sugar cane plants, says FIESP's da Silva.

Another medium-term solution could come from gas. A gas field producing an estimated 20 million cubic meters a day is scheduled to come online from the state of Espirito Santo by the end of next year, and two years after that, fields in the Santos Basin are scheduled to pump an additional 15 million cubic meters. Petrobras will also start buying Liquid Natural Gas on the spot market in 2009.

And then, as early as 2012, Brazil hopes to be pumping oil from the Tupi field it announced off Rio de Janeiro last month.

The discovery is a major boon to a nation that last year declared itself self-sufficient in terms of oil. The find greatly adds to its proven reserves of 14 billion barrels of oil and gas.

However, getting it to the surface is a long and expensive challenge. Although Petrobras is a world leader in deep sea exploration, securing oil from such depths has never been done before.

The oil is below 2,000 meters of water and between 3,000 to 5,000 meters or rock. Drilling the first test well took a whole year and cost $240 million, according to the company.

Today, Petrobras says it can drill an equivalent well in 60 days at a cost of $60 million. To company directors that is a sign of its commitment.

But it does not convince skeptics.

"Petrobras has very little credibility," says Mr. Sales. "[It] has changed its plans for gas [multiple] times over the last few years. You absolutely cannot believe what it says."