Brazil's November asset sales fall short against background of surging production

• Date: 01 December 2019
• DOI: http://doi.org/10.1111/oet.12745
• Published date: 01 December 2019

FOCUS

Brazil's November asset sales fall short against background

of surging production

Brazil's oil and gas production set new records over recent

months amid ongoing rapid output growth in its prolific off-

shore sub-salt region. However, plans to sell off upstream

assets in an auction this November failed to attract any bid-

ders, apart from state-Petrobras itself and its Chinese

partners—which could limit investment further forward

and does not bode well for planned downstream sales and

the possible privatization of the state oil giant itself. Never-

theless, output is likely to keep growing—most of which

will be exported, adding to the growth in non-OPEC supply.

Brazil's production of petroleum and other liquid fuels

rose to 3.43 mn bpd in 2018, up from 3.37 mn bpd in

2017, continuing a trend of rising output (seeTable 1), and

making it the third largest producer in the Americas after

the US and Canada. Crude oil (including condensate)

accounted for 2.59 mn bpd of this, with the remainder

biofuels and natural gas liquids (NGLs). Brazil's biofuel

production is the second highest in the world behind the

US, with ethanol accounting for 16% of transportation fuel

in 2017,

1

although this has been much higher in other

years. The ratio of biofuels to diesel and gasoline often

depends on the relative price of the two types of fuel.

Brazil's oil and gas production is almost all offshore

(offshore fields produced 96% of oil and 83.7% of gas in

2018),

2

with an increasingly large share coming from pre-

salt deposits which lie deep, 5 to 7 km below the ocean

floor. Production of oil in the pre-salt layer grew 26%

from 2016 to 2017, pushing it up to over a half of total

crude and condensate production, and in December 2018

it reached 56%, according to National Petroleum Agency

(ANP). The pre-salt's large accumulations and high-

quality reservoir characteristics make wells highly pro-

ductive, with overall average lifting costs below $7/boe,

according to Brazil's state oil and gas company, Petrobras.

This year, crude output has risen even further,

reaching an average of 2.775 mn bpd in July (of which,

subsalt fields produced 1.732 mn b/d, or 62%). Gas output

is also rising, reaching 124.2 mcm/d in July, and an aver-

age of 111 mcm/d in 2018 (total output was 40.8 bcm)—

which was up 1% on 2017.

The latest rises have come on the back of several new

floating production, storage and offloading (FPSO) ves-

sels that Petrobras and its partners have begun installing

at subsalt fields in the past 12 months. The vessels are

still ramping up production, with output expected to keep

growing into 2020, and more are planned. OPEC predicts

Brazil will expand production by 190 000 bpd in 2019

and 290 000 bpd in 2020; although in September, Petro-

bras (which produces the bulk of the total) lowered its

2019 production target by 100 000 boe/d to 2.7 mn

boe/d. Petrobras expects deep offshore areas to account

for 88% of its exploration and production activities in

2020, up from 55% currently.

3

Looking further ahead, ANP expects Brazilian pro-

duction will reach 3.75 mn bpd by 2023, and possibly

exceed 7.5 mn bpd by 2030 (with existing planned pro-

jects alone providing 5.5 mn bpd of that). Most of the

additional barrels are likely to be exported - ANP said late

last year that exports could quadruple from around

1 mn bpd to 4 mn bpd by 2023. Most of those new export

TABLE 1 Brazil production

(k bpd)

Year 2015 2016 2017 2018 2019 2020

Total (including biofuels, NGLs) 3186 3243 3366 3428 3618

a

3908

a

Crude/condensate NA 2500 2600 2586 2776

a

3064

a

Abbreviation: NGL, natural gas liquid.

a

Estimates.

Source: EIA/OPEC/ANP/IEEE.

DOI: 10.1111/oet.12745

4© 2019 John Wiley & Sons Ltd Oil and Energy Trends. 2019;44:4–13.wileyonlinelibrary.com/journal/oet