New borders could stretch Brazilian oil production despite climate warnings – 12/16/2023 – Market

The result of the auction of areas for oil exploration held by the government on Wednesday (13) reinforces that the country will still attract investments in the sector for a long time, despite pressure for the gradual elimination of fossil fuels at COP28.

It was the auction with the largest number of blocks granted since the ANP (National Petroleum, Gas and Biofuels Agency) inaugurated the current offering model in 2019, despite protests from environmental entities.

Competition has also reinforced the search by oil companies for new exploration fronts in the country beyond the equatorial margin, today seen as the main alternative to offset the decline of the pre-salt, which accounts for three quarters of national oil production.

“Oil will still be consumed for a few decades,” says consultant David Zylbersztajn, former director general of the ANP, summarizing the sector’s argument for committing to heavy investments even in the face of climate emergency warnings.

There will be at least R$2 billion in areas granted outside the pre-salt and another R$360 million in a pre-salt area. According to the contracts, these resources must be allocated to underground research and, in the event of discoveries, they can multiply.

In a report released on Thursday (14), consultancy Wood Mackenzie stated that the result of the auction brings optimism to the country’s oil industry after recent disappointments. Part of this optimism, he stated, is the hope of developing new exploratory frontiers.

There were two new exploration fronts opened, the Pelotas basin and exploration outside Brazilian territorial waters. The Paraná basin, still little explored, also received bids in the auction and will see increased activity.

In the Pelotas basin, in Rio Grande do Sul, interest was renewed after giant discoveries in Namibia, an area with similar geological characteristics. In total, 44 blocks in the region were sold at auction on Wednesday.

In a study on the remaining oil potential in the country, geologist Pedro Zalán bets that the Pelotas basin is “destined to change from an ugly duckling to a beautiful swan”. It has similarities, in addition to Namibia, with Guyana, where giant discoveries created a geopolitical conflict on the continent.

Zalán says he believes in the possibility of discovering a “supergiant gas field” at the top of Torres, on the north coast, and “a few billion” barrels on the south coast. There have been no discoveries so far, he says, because exploration has focused on shallow waters.

In the Santos basin, today the country’s main producer, the government managed to grant an area outside the 200-mile limit of Brazilian territorial waters, where it is estimated that there is a “mirror of the pre-salt”, based on indications of geological formations similar to those that currently contain the largest oil reserves in the country.

The region known as the pre-salt polygon already had the main prospects granted and today it no longer attracts as much exploratory interest — in Wednesday’s auction, only one out of five areas received an offer. The first exploration beyond Brazilian waters will be carried out by Norwegian Equinor.

In the Paraná basin, which also had a block sold at auction, the vocation is for gas fields, according to Zalán. It was one of the first basins explored in Brazil, but the last to have production — even so, a small production, of 20 thousand cubic meters of gas per day.

It currently has seven signed exploration contracts, concentrated in Mato Grosso do Sul, west of São Paulo and south of Goiás. The resumption of interest in the region is recent, following discoveries of natural gas in the Parnaíba basin, in Maranhão.

A discoverer in Maranhão, Eneva is preparing the start of a seismic research campaign, a type of subsoil ultrasound, in its blocks in Mato Grosso do Sul for 2024. The company is betting on the use of natural gas in cargo transportation, as in Argentina and in Europe.

The success of this venture would guarantee the first discovery of oil and gas in the Brazilian Center-West.

In an interview after Wednesday’s auction, the general director of the ANP, Rodolfo Saboia, said it was an “excellent result for Brazil”. “The auction demonstrated that companies are interested in new frontier areas.”

Held one day after the end of COP28 and amid protests from environmental organizations, the auction had 17 companies bidding, the largest number of this new model inaugurated in 2019. The number of areas auctioned was also a record.

Even disregarding the 122 areas that were granted to a newcomer that surprised the market by becoming the largest exploration concessionaire in the country in terms of number of blocks, it was still much higher than the previous record, of 59 areas granted in 2022.

“Regardless of the outcome of the auction in terms of contracting volume, the sign of offering a record volume of blocks shows a great disconnect between Brazil and the urgency of discontinuing the use of fossil fuels”, says Ricardo Baitelo, project manager at Iema and coordinator of Clean Energy Coalition.

“The Brazilian contribution to the negotiations to press for financing the transition of the Global South cannot be dissociated from the commitment to stop expanding the structure of exploration and use of fossil fuels, both for domestic and international use.”

The sector argues that the world will continue to need oil and that Brazilian production, which is less polluting, is ideal to guarantee this demand until the end.

“The possible stoppage of oil production in Brazil would not contribute to reducing emissions, it would only make us poorer and more dependent on producing countries with a larger carbon footprint,” said Saboia, before the auction.