Brazil is the largest oil producer in South America, the eighth largest global oil producer, eighth largest oil consumer, and has the largest recoverable ultra-deep oil reserves in the world. Brazil’s oil production is predominantly offshore (96.7 percent), with the national oil company Petrobras accounting for 73 percent of Brazil’s oil and gas production. The oil and gas market has, for years, accounted for most investments in the Brazilian economy, with about 10% of the country’s GDP. Brazil is placed in a leading position for the exploration and production of offshore oil due to owning the prolific pre-salt province, whose oil is of high quality, with equally high productivity of the fields. The International Energy Agency (IEA) highlights the relevance of Brazil, which will become responsible for the production of about 50% of the world’s offshore oil in 2040, about 5.2 million barrels/day.
Significant energy reforms, frequent oil finds, along with recent and future oil bidding rounds have been attracting International Oil Companies (IOCs) from around the world to bid on opportunities in Brazil. Furthermore, some international companies have also started to show interest and invest in the Brazilian downstream subsector through the acquisition of gas pipeline networks and the construction of liquified natural gas terminals. There is an increased potential for U.S. exports of equipment and services, with lower local content requirements. Brazil´s 2021-2030 Energy Expansion Plan (PDE) forecasts that oil and gas exploration and production (E&P) investments will range from US$ 415 billion to US$ 454 billion during this period. These figures reflect an evaluation of aggregated investments of all E&P in Brazil, including those from national oil company Petrobras.
Current Market Needs/Trends
Upstream Oil and Gas
Oil Exploration and Production: Brazil is Latin America´s top oil producer, and has surpassed Mexico and Venezuela. The 2020 average oil production was 2.94 million barrels per day according to the Brazilian National Oil and Gas (ANP) data. Brazil’s 2020 natural gas production amounted to 127 million cubic meters/day - up 4.1% in relation to 2019. The domestic oil production growth, especially since 2013, was mainly due to the pre-salt Santos Basin´s high productivity, which relied on oil outputs per well above the global oil industry´s average. This high reservoir productivity has required fewer wells per production system, reducing budgeted costs.
Pre-salt continues to attract most investments, and its production already accounts for more than 60% of the national production. The rapid rise in production was enabled by the aforementioned productivity, but was also supported by high drilling success rates. Likewise, continued investments in new technologies have improved well construction efficiencies, which reduced drilling and completion times. The combination of these factors allowed a 61% fall in well lifting costs from 2014 to 2021 from US$ 15.3 per barrel to US$6.66, for non-pre-salt fields, and to about US$4.35 for pre-salt ones.
The 2020 ANP data shows that Brazil´s proven natural gas reserves reached 338 billion cubic meters, making Brazil rank 33rd in world proven gas reserves. Associated gas currently represents approximately 80% of Brazil’s natural gas production, which is expected to reach its peak production of 183 million m³/day by 2028.
In 2020, on the supply side, domestic gas production accounted for 58%, while imports from Bolivia represented 23%, followed by LNG imports (20%). Common challenges facing the Brazilian gas market include high CO2 content, distances from the offshore gas fields to the coast, limited gas pipeline infrastructure, and the need to boost domestic demand. However, a new Gas Law, approved in April 2021, is expected to gradually unbundle the market thus generating more competition among players and investment in new pipelines.
LNG EXPORTS TO BRAZIL: To complement the average domestic NG demand of 72.08 mm3/d in 2020, Brazil imported an average of 17.8 mm3/d from Bolivia and 8.38 mm3/d from LNG through the four LNG regasification terminals in operation. This data and others on Brazil´s natural gas can be viewed in the Brazilian Ministry of Mines and Energy natural gas bulletin.
LNG suppliers to Brazil in 2020 included the United States, Angola, Argentina, Nigeria, and Trinidad Tobago, according to the Foreign Trade Office of the Brazilian Ministry of Industry Development (http://comexstat.mdic.gov.br/en/home). Until Brazil solves its pipeline infrastructure bottlenecks to bring all the pre-salt gas to the market, industry contacts believe there are opportunities for continuous LNG exports to Brazil. The main LNG offtakers will be the existing and new gas fired power plants that provide base load to complement Brazil’s renewable energy supply.
Downstream Oil and Gas
Brazilian constitutional amendment number 9 of 1995 broke Petrobras’s monopoly over the downstream sector in favor of a more competitive and open regime. However, refining, import, and export activities have remained almost a monopoly, due mainly to Petrobras’s hold on the Brazilian fuel logistics infrastructure. Competition has been more effectively introduced on the wholesale of oil products, with companies competing with BR Distribuidora’s market share. BR is a former Petrobras subsidiary. In July 2019, and more recently, in mid 2021, in line with the ongoing Petrobras divestment plan, Petrobras sold its shares in BR, hence it is no longer a shareholder. BR has been renamed as VIBRA.
ANP data shows that there are 300 fuel distribution logistics bases spread throughout Brazil. Data also notes an increase in the number of fuel distributors and resellers in 2020 (e.g.: 239 up from 232 in 2019).
In an April 2021 presentation during a Seminar, ANP summarized Brazil´s downstream supplier profile as follows:
Source: ANP April 2021 Presentation (“Seminário de Avaliação do Mercado de Combustíveis 2021-Ano Base 2020”)
In the same Seminar, ANP noted that total domestic sales of oil by-products (gasoline, fuel oil, LPG, aviation gasoline, diesel oil, etc.) amounted to 131.76 billion liters (34.8 billion gallons) - - a 5.97% drop from the previous year due to the pandemic. Sales of diesel B (contains 12% of biodiesel) represented 44% of total fuel sold (e.g.: 57.47 billion liters/15.2 billion gallons).
ANP data lists 41,673 gas stations in operation in Brazil in 2020. Main resellers of gasoline, diesel oil, ethanol, and vehicular natural gas are VIBRA (holds 27.49% of Brazil´s fuel distribution market); Raízen; Ipiranga, and several other smaller fuel distributors.
The sale of lubricants reached 1,323 billion liters (349.5 million gallons) in 2020. ICONIC (Texaco and Ipiranga) has the largest lubricant market share, followed by VIBRA Energia, COSAN Lubrificantes, Shell, Petronas, and several others. ANP´s dynamic fuel statistics panel can be viewed here.
In 2020, Brazil manufactured a total of 2,020,229 vehicles - - 32% down from 2019 due to the pandemic. Brazil´s vehicle matrix in 2020 comprised diesel oil (43.2%); gasoline (22.2%); hydrated ethanol (16.36%); anhydrous ethanol (8.22%); biodiesel (5.61%); and GNV (vehicular natural gas – 4.37%). Conversion of gasoline or flexfuel automobiles (e.g. gasoline or ethanol) into vehicular natural gas (GNV) has been growing in Brazil, mainly by taxi and Uber drivers. The Brazilian Ministry of Mines and Energy is studying the use of NGV for heavy vehicles to gradually replace diesel, in line with climate concerns.
Foreign Trade Statistics:
Overall oil and gas statistics can be viewed in English, at ANP 2021 Yearbook.
Oil Refineries: ANP data shows that Brazil holds the 8th largest refining complex in Latin America with 19 refineries that processed a total of 1.8 million barrels of oil per day (bpd) in 2020 of which 1.6 bpd were from domestic oil. Petrobras owns 98% of Brazil’s refining capacity; however, a divestment program is in progress and new players are expected to enter the market in the short term (e.g. the Mubadala fund acquired the RLAM refinery in early 2021).
Petrobras plans to retain five of its refineries and invest US$ 3.7 billion in main projects such as three hydrotreatment units (HDTs) and hydrocatalytic cracking systems to increase the S-10 (10 mg of sulphur for each diesel oil kilogram) diesel production in the Gaslub Complex. The Gaslub will also produce more advanced lubricants. A renewable diesel fuel, with 15% less GHG in comparison to the regular biodiesel, is also under development at selected Petrobras refineries.
Liquefied Natural Gas: There are five LNG terminals in operation (Petrobras owns three of them); three are in the development stage; and a few others are planned for the coming years. Among the new terminals, the Port of Açu LNG-to-power project, developed by GNA, is the largest of its kind in South America. Two natural gas-fired power plants with a combined capacity of 3GW are fed by the LNG import terminal with regasification capacity of 21mm m3/day. U.S. company New Fortress Energy leads new LNG regasification terminal projects in Brazil, while U.S. company Excelerate Energy has recently finalized a long-term lease of one of Petrobras owned LNG terminals and associated pipelines, located in Bahia State, with a 20mn m3/day import capacity.
Competitive Landscapes/Best Prospects for U.S. Exporters
Aside from Petrobras, which accounts for 73% of Brazil’s oil and gas production, and will invest $68 billion from 2022 to 2026, another 47 local and 50 foreign companies hold oil rights to exploration and appraisal areas in Brazil, representing additional opportunities for U.S. companies. Petrobras´main investments(84%) will be directed to exploration and production (E&P) activities. About US$ 16 billion will be directed to the revitalization of the Campos Basin fields with three new FPSOs and over 100 wells to be drilled during this period. The Brazilian Association of Oil Service Companies (ABESPETRO) believes that “projects of great magnitude in the pre-salt layer will prevail because they are key for Petrobras´ (and its partners´) cash generation in the coming years.
Worldwide players like Shell, Equinor, Chevron, Total, Repsol-Sinopec, Murphy Oil, and Exxon are among the foreign oil companies with assets in Brazil.
Brazil´s 2021-2030 Energy Expansion Plan (PDE) forecasts that oil and gas E&P investments will range from US$ 415 billion to US$ 454 billion during this period. These figures reflect an evaluation of aggregated investments of all E&P companies in Brazil, including those from national oil company Petrobras.
In line with climate commitments, oil operators are seeking to increase efficiency while reducing costs and the industry’s carbon footprint. The Brazilian National Oil and Gas Regulator (ANP), who oversees oil operators’ mandatory R&D spending, has recently reported that in the last three years, artificial intelligence, machine learning, smart completion, and CO2 capture have been the most frequent keywords in new R&D projects. Over the past five years, oil companies have invested US$230 million in R&D projects related to digital transformation, renewable energy, and decarbonization.
The 2022-2026 Petrobras Strategic Business Plan calls for 15 new Floating Production Storage and Offloading (FPSO) platforms in six major oil fields, as it can be seen on slide number 40 in this presentation. Interested US companies can view a list of published Petrobras tenders at the Petronect website.
U.S. companies can also look to purchase assets that Petrobras is looking to sell under its ongoing divestment program. They include upstream offshore and onshore oil fields as well as downstream facilities. Divestment teasers can be viewed at https://www.investidorpetrobras.com.br/en/results-and-notices/teasers
Opportunities also exist for U.S. oil companies to bid on the Open Acreage program of onshore and offshore water blocks under permanent offer by ANP, as it can be seen at: https://www.gov.br/anp/pt-br/canais_atendimento/imprensa/noticias-comunicados/anp-publica-novo-edital-oferta-permanente-com-inclusao-377-blocos
Market Entry/Registration Process
U.S. oil and gas suppliers are encouraged to secure a supplier’s registration, at: https://www.petronect.com.br/irj/go/km/docs/pccshrcontent/Site%20Content%20(Legacy)/Portal2018/en/lista_licitacoes_publicadas_ft.html to facilitate contracting procedures with Petrobras.
Being pre-registered is no longer a requirement to bid on Petrobras tenders, according to the new procurement legislation number 13,303/16 that Petrobras has been following since about mid 2018. However, if a bidder wins a tender and is not registered as an approved supplier, it will need to secure the registration process then.
Registration requires that foreign firms have a legal representative. It is our recommendation that U.S. firms not established in Brazil consider partnering with a local firm that is registered as a supplier to Petrobras rather than attempting to register directly. The U.S. Commercial Service in Brazil can assist with making those connections.
The best combination of price and technical requirements normally prevail in Petrobras tenders, especially for critical types of equipment and services.
Over the last years, the Brazilian government has approved several initiatives seeking to build Investor confidence and increase predictability. Among those was the promulgation of Law nº 13,586/2017, regulated by the Normative Instruction RFB nº 1,781/2017, that extended Repetro Sped, a special customs program exempting the export and import of goods for the industry of certain taxes until 2040.
The government has also established a special tax regime allowing certain investments to be tax deductible. The goal was to stimulate further investments on new and existing oil fields. Extensions for the concessions of older mature have also been granted in order to improve recovery rates and to stimulate further investments.
An even more favorable tax regime and incentives are under consideration by a government program led by the MME to stimulate onshore oil and gas exploration and production (“Reate” Program). Once established, the Reate program will reduce royalties of onshore oil fields to be revitalized.
Another important change was when the National Council on Energy Policy (CNPE) removed local content as an auction parameter, and specified predefined and lower percentages for future contracts. The percentages came down from an average 79.5% in the 13th bidding round, in 2015, to values between 18% and 40% for prospective rounds.
Further, as noted previously, CNPE has also authorized ANP to keep fields and blocks not awarded in previous bidding rounds on permanent offer. They represent nearly 1,000 areas or blocks, in several different basins.
Another regulatory landmark took place in November 2016, with the approval of the “new pre-salt law” – Law nº 13,365/2016. It revoked Law nº 12,351/2010 to entitle Petrobras the option of choosing to participate as an operator, with a minimal 30% stake, in consortia formed to explore oil blocks licensed under the production sharing contracts (PSC). Petrobras is no longer required to be the sole operator of PSC projects. The state-controlled company now has the option to request a 30% stake in the winning bid, in case it does not win the bid.
ANP oil and gas regulations in general, under public hearing, can be viewed here.
Upcoming Trade Events
September 26-29, 2022
Rio Oil and Gas Show
Rio de Janeiro, RJ
Sources consulted for this report included the following:
Ministry of Mines and energy (MME) Gas Bulletin: Ministry of Mines and Energy (MME)