By Jonathan Wheatley in São Paulo and Dino Mahtani in London
The discovery of what could be massive oil reserves off the coast of Brazil, announced last week, has the potential to transform its oil industry and catapult the country up the league table of oil-producing nations.
“We could be heading to the same level as Saudi Arabia and Venezuela,” said Dilma Rousseff, chief of staff to President Luiz Inácio Lula da Silva.
She was, perhaps, letting herself be carried away by the euphoria of the moment. Nevertheless, many analysts agree that the discovery has the potential to transform Brazil’s role in the region and the world, making it more confident in the pursuit of goals such as a permanent seat on the United Nations Security Council and membership of the G8 group of leading industrialised nations.
Last week’s news centred on the Tupi field – at present, little more than a couple of exploratory wells 280km off Brazil’s coast in the Santos Basin. But those two wells have confirmed that the field holds between 5bn and 8bn barrels of oil, not far short of the entire reserves of Norway, which were 8.5bn last year, according to figures from BP. The field, potentially, would add more than 50 per cent to Brazil’s 14.4bn barrels of proven reserves of oil and natural gas equivalent.
Yet Tupi could be just the start. Its oil is trapped under a giant salt shelf, 800km long, 200km wide and up to 2,000 metres thick. Its average thickness is about 500 metres, according to Nilo Azambuja of HRT, a Rio de Janeiro company that provides geological services to Petrobras, Brazil’s publicly controlled oil company.
The Tupi field lies at a depth of 6,000 metres, beneath 2,000 metres of sea and 4,000 metres of rock and salt.
“The salt presents enormous operational difficulties,” Mr Azambuja says. The first is that it absorbs seismic waves, making it much harder to “see” what lies beneath. The second is that, under great heat and pressure, the salt is “plastic”, meaning that wells are hard to drill and collapse easily.
Nevertheless, Petrobras and its partners have sunk 15 wells through the salt layer and analysed the results of eight: four in the Santos Basin, one in the neighbouring Campos Basin and three further north off the coast of Espírito Santo state.
“All the wells tested have given positive results,” Sergio Gabrielli, president of Petrobras, told the FT last week. “All of them confirmed the same conditions and structures as Tupi.”
The discovery suggests that all the oil so far produced off Brazil’s coast has seeped through the salt layer, picking up impurities along the way – which is why it is low-quality, heavy crude. The oil under the salt is lighter, high-quality oil. And there is a lot of it. “It’s very big. I can’t say more than that,” Mr Gabrielli said.
Matthew Shaw, an analyst at energy consultants Wood Mackenzie, says the Tupi find opens the possibility of exploiting “tens of billions of barrels” in the area – although the truth can only be known with more drilling.
The Brazilian government is nevertheless taking precautions now, removing 41 blocks from an exploration acreage auction planned for this month, to assess their true potential and perhaps consider asking for better terms from companies that might consider developing them. The blocks removed are all located over the salt shelf.
Mr Gabrielli said production from Tupi could begin in 2011, with a pilot project producing 100,000 barrels a day. Production would scale up to several times that amount over later years.
But industry analysts say the task ahead is complex and that the cost of developing Tupi could reach $50bn. Across the industry, oil companies are already straining under the burden of escalating costs and a scarcity of skilled engineers and rigs.
Mr Gabrielli told the FT in August that it would be a “real challenge” to pull off the management of his company’s projects. “Supply chains are under stress,” he said.