"Brazil Oil & Gas Report Q3 2012"

BMI View: The discovery of billions of barrels of oil in the so-called subsalt oil province offshore Brazil has been one of the most significant developments in the global oil industry for many years. Regulatory reforms under former president Luiz Inacio Lula da Silva place much of the onus for developing those reserves on state-run Petrobras, although foreign companies will also play an important role. Crude production should grow rapidly over the coming years, with the country forecast to be producing 3.91mn b/d in 2016 and 5.89mn b/d in 2021

The key trends and developments in the Brazilian oil & gas sector are:

- Repsol Sinopec Brasil, the operator of Block BM-C-33 in the Campos Basin, has revised its resource estimate. The deepwater subsalt block, which is located 195km off the coast of the Rio de Janeiro state, could potentially hold 700mn barrels (bbl) of recoverable crude oil - 200mn bbl more than originally estimated. The block could also hold 84bn cubic metres (bcm) of gas.
- Oil production growth in 2012 will be modest, with Brazil relying on the Guara and Baleia Azul projects to boost liquids output to 2.87mn barrels per day (b/d), including ethanol production. In 2016, we forecast crude production hitting 2.90mn b/d, with total output including ethanol at just under 3.91mn b/d. A period of strong and sustained growth is forecast for the latter part of the 10-year forecast period as subsalt projects enter production. Brazil is set to produce 5.89mn b/d by 2021, although a requirement for massive investment and various technical challenges could mean delays to the build-up of supply.
- Rapid economic growth will continue to push domestic oil consumption higher, though the country's unique ability to alternate between ethanol and gasoline consumption in the transport sector - based on short-term price movements - makes forecasting difficult. Given that economic growth will be supported by surging oil production, oil demand is also expected to rise rapidly in the second half of the 10-year forecast period. Total oil consumption is to rise from 2.82mn b/d in 2012 to 3.53mn b/d by 2016 and 4.61mn b/d by 2021.
- While much of the focus and investment in the country's hydrocarbons sector will be targeted at the development of its oil resources, natural gas production is also expected to grow. Gas production of 19.1bcm in 2012 is to jump to 23.6bcm by 2016, rising further to 37.0bcm by 2021.
- Relatively modest gas production and increased gas consumption in the industrial, residential and power sectors will mean that Brazil remains a net gas importer. Gas imports will hover at around 12-16bcm per year over our 10-year forecast period to 2021. Brazil will continue to rely on pipeline imports from neighbouring Bolivia.