PrintDecember 12, 2007
Brazil's offshore oil bonanza may be even bigger
We have covered with great interest the discovery of a huge offshore oil field by Petrobras, the Brazilian oil company. The Tupi oil field was reckoned to contain as much as 8 billion barrels of oil, an as-yet unknown fraction of which will be recoverable, but almost certainly a few billion barrels if past experience is any guide.
As was hinted at the time, a neighboring offshore tract shows promise of being far larger in terms of its oil potential. Recognizing this, the government of Brazil has postponed the auction of drilling rights in an area geologically similar to Tupi, in order to gather and analyze further information on its potential. Bloomberg reports:
A geological formation beneath a 2-mile (3.2-kilometer) layer of salt in Brazil's Santos offshore basin, is larger than Tupi and, if oil bearing, may contain "significantly more'" oil than Tupi, Gustavo Gattass, an analyst with UBS Pactual in Rio de Janeiro, said in a note to clients.Petrobras, as Brazil's state-controlled oil company is known, Exxon Mobil Corp., Royal Dutch Shell Plc, Repsol YPF SA, BG Group Plc, Hess Corp. and Galp Energia SGPS all have concessions in the neighboring area, Gattass said, referring to the formation as "Sugar Loaf.""Through crude measuring it appears that Sugar Loaf's area is about five times larger than that of Tupi," Gattass said, citing former Petrobras geologists and studies of Tupi and Sugar Loaf. "We expect the first announcements of a find over the next two months and test results between four and seven months."
An informed industry observer tells me that a figure of 21 billion barrels is being mentioned as a rough estimate of the potential of Sugar Loaf. Of course, at this stage it is all guesswork. For comparison, Saudi Arabia's petroleum reserves are officially reckoned at 260 billion barrels.
Even better news: there are other similar geological formations in the Santos Basin area. The ultimate potential of the area is unknown, but potentially gigantic: a multiple of the figures being mentioned today.
Brazil emphasizes the production of ethanol for domestic consumption, a solution that makes far more sense in a tropical country which produces energy-rich sugar cane than it does in the more temperate American corn belt. Because of this, much of Brazil's oil may be offered for export on the world market. Hugo Chavez will not like this.
The fact is that the potential for deep oil in offshore Brazil is but one example of the as-yet unexplored potential of other territories, such as ANWR, federal lands in the American West, and offshore in the Gulf of Mexico, where oil development is officially banned. When oil production is banned, there is no incentive to conduct the expensive tests which could give us better data on the development potential.
Scare-mongers would have us believe that "peak oil" production has been realized, and that we face a future of increasing scarcity and economic chaos. But when governmental restrictions are loosened, and the human mind is unleashed and driven by the potential for profit, experience suggests that previously ignored, missed, or misunderstood potential will be realized. Doom-sayers have been with us throughout recorded history. Sometimes they have been vindicated, but mostly they have been wrong.
Hat tip: Ed Lasky
