Beruflich Dokumente
Kultur Dokumente
Bulletin
Analysis of the Brazilian Oil and Gas Industry
September 2003 Year 4 n.9
Energy Economics Group Institute of Economics UFRJ
www.ie.ufrj.br/infopetro
INTRODUCTION
The Editorial this month focuses on Brazils energy agenda, arguing that the biggest challenge
facing policymakers today is to make national energy policy compatible with the policies currently
guiding the different sectors of the energy industry
In the first article, Edmar de Almeida and Leandro Arajo analyze the results of Leasing Round
Five, held in August by Brazils National Petroleum
Agency (ANP). The authors estimate the impacts
of this latest round on exploratory activity in the
country.
STAFF
Editor-in-Chief:
Edmar Luiz F. de Almeida
Editorial Board
Edmar Luiz F. de Almeida
Carmen Alveal
Helder Queiroz Pinto Jr.
Ronaldo Bicalho
Editors
Mariana Iootty
Nicholas Trebat
Akio Nakamura
Contact
Tel: (21) 3873-5270
Fax: (21) 2541-8148
e-mail: infopetro@ie.ufrj.br
THIS ISSUE
Editorial...........................................................................................................2
Petroleum
Leasing Round Five: Performance and Impacts ..........................................3
The Evolution of Oil Consumption in China
and its Impact on the International Market ................................................6
Essay of the Month
Competition in the Electric Power Market:
A Complex Institutional Construction........................................................8
News Briefs ..................................................................................................13
Statistical Annex ........................................................................................15
Support
ONIP / FINEP / FNDCT / CTPETRO
Editorial
For an Integrated Energy Policy
industry-wide standpoint. Policy alternatives,
therefore, need to be considered and negotiated
within a much broader context.
It is reasonable to believe that, with such resources and potential, it is possible to find an
economic-institutional solution that combines resources and available capacity to generate
synergies and sustainable gains through time.
In deciding upon a policy for the power industry, it is very easy to become entangled in minor,
short-term details that do not concern the industry
as a whole. Observing, reflecting upon and negotiating energy policy is by definition a lengthy
process requiring deep analysis of data and structural factors (both the favorable and unfavorable
ones). Nonetheless, by enduring this process it
will be possible to identify which possibilities are
economically viable. And in Brazil the range of
possibilities are wider than most think.
Infopetro Bulletin
Editorial Board
August 2003
PETROLEUM
Market
Infopetro Bulletin
August 2003
PETROLEUM
Market
should define the extent of exploration (in terms of
work-units) in the first period of the block lease.
The size of this offer will account for 30% of the final evaluation of the company`s bid.
Since the PEM data for Round Five has not yet
been released, it is more difficult to estimate the
impacts of this latest round in terms of wells drilled
by 2010 (see Infopetro, January 2003). To estimate the exploratory effort on recently-leased
blocks, we extrapolated the PEM from Round
Four. Graph 2 demonstrates the estimate for well
drilling before and after the results of Round Five.
Observe that, based on the estimate, the latest
round offers a boost to the drilling cycle, whose
peak is forecasted to occur in 2007.
Based on the number of work-units bid winners
committed themselves to, we can estimate the
minimum level of investments during the exploratory period on the blocks leased. For onshore
blocks, the average PEM was 21,250 work-units,
which, according to ANP estimates, should generate investments on the order of R$64.6 million.
For shallow water blocks, companies promised to
apply 7,694 work-units, representing R$138.5 million in investments. In deep waters, the PEM was
4,457 work-units, equivalent to investments of
R$160.45 million. With this, the minimum expected investment for the exploration phase will
be somewhere around R$365.5 million.
We conclude by emphasizing two positive factors: the size of the total area leased and the local
content guarantees. The rule changes for Round
Five were consistent with regard to these factors.
Given the need to replenish the exploration areas
controlled by the majors, we should see an increase in the total area leased in the next round;
if, that is, the majors maintain their interest in Brazil. With the tax reforms currently being introduced
in Brazil, along with the offering of the blue
blocks originally acquired by Petrobras in Round
Zero, this interest should in fact remain strong.
Infopetro Bulletin
(edmar@ie.ufrj.br)
August 2003
PETROLEUM
Market
Graph 1
50.000
1.000.000.000
40.000
800.000.000
30.000
600.000.000
20.000
400.000.000
10.000
200.000.000
rea
5
R
ou
nd
4
R
ou
nd
3
R
ou
nd
R
ou
nd
R
ou
nd
0
1
Signing Bonus
(R$)
Area (km)
60.000
Bnus
Graph 2
At Round 4
Infopetro Bulletin
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
At Round 5
August 2003
PETROLEUM
Market
Consequently, economic growth has stimulated rapid growth of energy demand. This
accelerated pace is explained by a combination of
several factors evolving in relatively short time.
Among these include: population growth and observed demographic transformations; a change in
living standards; the acceleration of urbanization
and industrialization processes. An additional factor has been a major increase in automotive
vehicle traffic.
In analyzing China, we cannot ignore the importance of the institutional transformations that
have thrust China onto the stage of world trade.
With the entrance of China into the World Trade
Organization in November 2001, the Chinese
government signed agreements liberalizing trade
and opening the country to foreign investment.
For the energy sector, this decision could lead to
an increase in foreign investment and the possibility of attracting foreign operators to upstream
projects.
As a result of this process, which should continue throughout the next several years, China
became in 2002 the second largest oil consumer
in the world, ahead of Japan and behind only the
United States. As in most of the industrialized
countries, consumption in Japan has stabilized
over the past few decades (see Graph 1). As is
well known, this stabilization of demand is a result
of conservation and energy substitution policies
implemented in the 70`s and 80`s, as well as of
the loss of economic dynamism reflected in the
low rates of GDP growth.
When we examine China`s demand for oil visa-vis the demand of other large industrial nations,
it becomes clear that the former has grown much
faster. In the 1990`s, annual oil consumption
growth in China was 7.2%. In most industrialized
nations, annual growth rates were below 1.5%.
Infopetro Bulletin
August 2003
PETROLEUM
Market
Graph 1
thousand
barrels/day
China
Japo
Itlia
Frana
Alemanha
Canad
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1000
Inglaterra
Graph 2
6.000
5.000
4.000
Imports
3.000
2.000
1.000
Consumo
Infopetro Bulletin
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
0
1965
1000 barrels/day
Produao
August 2003
their ideal of a competitive market,under the assumption that the further you go in this direction
the greater will be the benefits enjoyed.
The ideal and the real in the power sector
Visions of competition such as the one described above impoverish analysis by separating it
from reality and weakening its capacity to generate precise and useful studies of institutional
intervention and business behavior in the electricity market. The reductionism inherent in freemarket idealism, as it concerns the power industry, results in an overly ambitious, unrealistic
reform agenda.
Without a doubt, there are certain basic decisions that must be made in any reform of the
power sector, just as there are certain fundamental questions that must be answered by any model
intending to guide the reform. Distinguishing these
decisions and questions helps clarify the debate
over existing alternatives, permitting a better
evaluation of the costs, benefits, possibilities and
limitations of these alternatives. Given the strong
politico-institutional character of power industry reform, society should be aware of the decisions
being made. More importantly, it should know why
they are being made.
Infopetro Bulletin
August 2003
institutions, between conflict and cooperation, between autonomy and centralization. By analyzing
these trade-offs objectively, we can see that the
power market will always have, in varying doses,
characteristics of a free market, of conflict and
autonomy, and finally, of institutions, cooperation
and centralization. The quantity of each item in
this final recipe will depend on the industrial and
institutional conditions in each power market.
The trade-off, thus, is not between competition and coordination, but between the market and
Infopetro Bulletin
August 2003
nomic terms, demand stimulates the use of resources, be it utilization of installed capacity, be it
use of inputs and labor. In this sense, there is always a difference between demand contracted ex
ante and demand ex post. In a future contract involving an ordinary good or service, it is possible
to determine exactly how much of the product will
be delivered. This is not the case with electricity.
When an agent promises to deliver power in the
future, what he actually does is promise to make
available, in the future, a portion of his installed
capacity and a certain quantity of input. In essence, what is being negotiated is productive
capacity, and not a product.
A power market cannot exist as a set of independent bilateral relations. In the power market,
institutions counta lot. From the moment agents
intermediate between the present and the future,
institutions become crucial elements in the design
and performance of markets. As institutions have
a very local character, the specific characteristics
of each socioeconomic space will determine the
configuration of each electricity market.
The power market is an institutional construction. It has to be this way since the most crucial
Infopetro Bulletin
10
August 2003
For this reason, introducing individual management of risk, for both the system and the
consumer, ends up increasing risk for both sides.
The consumer, furthermore, was forced to find solutions for a problem that he, individually, is
incapable of resolving.
Infopetro Bulletin
11
August 2003
Infopetro Bulletin
12
August 2003
News Briefs
Petrobras Contemplates Gas-Fired Thermal
Power Plant in Manaus
According to the Jos Juhas, managing director of planning and development at Petrobras, the
company should invest between US$450-US$500
million in a thermal power plant running on natural
gas in Manaus, the capital of the state of Amazonas. The plant will have a capcity of 1,000 MW.
The project is part of the companys plans to take
advantage of gas reserves in Amazonas, which
produces roughly 20% of total national gas production. Due to the lack of pipelines in the region,
almost all gas produced in Amazonas is reinjected
into the Urucu fields. Therefore, the thermal plants
operating in the region use either more expensive
fuels, such as diesel, or lower-quality fuels like
fuel oil.
Petrobras directors informed investors on August 30 that the natural gas reserve discovered in
April in the Santos Basin contains more than 400
billion cubic meters (bcm), surpassing by almost
seven times the original estimate of 70 bcm. Although the discovery still cannot be defined as a
proven reserve (the gas has not yet been declared marketable), it increases total known
reserves in Brazil from 231 bcm to approximately
650 bcm. Bolivia and Argentina, holders of the
largest gas reserves in the Southern Cone, possess 775 and 764 bcm, respectively.
The reserve was discovered in shallow water
(485 meters) 137 km off the Sao Paulo coast. The
well in which the gas was found has a depth of
4,956 meters. The new reservoir has a capacity to
produce 55 mcm per day (mcm/d) for a period of
20 years. This is greater than Petrobrass total
current production of 46.2 mcm/d in Brazil and
abroad. The discovery presents new questions
and challenges for Petrobras, the most important
of which is the strategy for exploiting the reserve.
The governments thermal power program
planned to install more than 40 gas-fired thermal
plants by 2010, consuming between 25-35
mcm/d. However, due to competition with hydroelectric generation in the country, few of these
plants are in operation.
The supply of natural gas to the new plant depends on the construction of the Coari-Manaus
gas pipeline, which, according to Petrobras, could
begin in the first quarter of 2004 and completed in
2 years. Until the pipeline is completed, the dualfuel plant in Manaus will run on fuel oil.
Location of New Refinery Remains a Mystery
Contradicting the affirmation of Gilberto Prado,
head of the Northeast Refinery project, Petrobras
stated that the company still doesnt know where it
will build the installation. Prado, president of the
company in charge of the project, claimed in early
September that President Luiz Incio Lula da
Silva had already chosen his native state of Pernambuco as the location for Brazils new oil
refinery. The alleged decision was made at the
expense of 12 other states competing for the refinery, including Cear and Rio Grande do Norte.
Another obstacle to the growth of the gas market in the country is the price of Bolivian gas,
which is as much as 40% more expensive than
domestic gas. The high price, a consequence of
the elevated transport cost, has scared away
large industries in Sao Paulo and southern Brazil,
who prefer to consume heavy fuel oil or biomass.
In this sense, the news of the discovery in the
nearby Santos Basin could stimulate industrial
consumption of natural gas in southern and
southeastern Brazil.
Infopetro Bulletin
13
August 2003
Beyond the requirement that countries interested be signatories to the free trade accord,
PEMEX could require companies to spend 40% of
their project investments on Mexican goods and
services. For leases requiring more advanced
technology, the state company could eliminate
completely the domestic goods and services requirement.
The MMEs harsh criticism of the ANP convinced Sebastio Rego Barros, secretary-general
of the regulatory agency, to make a surprise appearance at a congressional hearing on fuels.
According to lawmakers, Golfo Brasil Petrleo
Infopetro Bulletin
14
August 2003
STATISTICAL ANNEX
Graph 1
Source: EIA
Graph 2
Source: ANP
Infopetro Bulletin
15
August 2003
STATISTICAL ANNEX
Graph 3
Source: ANP
Graph 4
Infopetro Bulletin
16
August 2003