From a point on the horizon where sea and sky merge, a pilot light is the first thing passengers see in a helicopter flying toward one of the newest offshore oil platforms that is transforming Brazil into a global energy power.
Anchored 200 kilometers from Rio de Janeiro, the P-71 floating production unit is among more than 30 managed by the national oil company Petrobras in a hydrocarbon-rich stretch off the country’s southeastern Atlantic coast.
This expanse is known as the “pre-salt” region because its crude oil deposits (11.5 billion proven barrels at last count) lie beneath a thick crust of sodium chloride, deep beneath the ocean floor. It was home to an oil discovery considered the most important in the Western Hemisphere in the last 30 years of the first decade of this century.
“There were doubts about whether we would be able to develop it,” said José Ferreira Junior, manager aboard the P-71 vessel at the Itapu field. “The expectation was fulfilled and this turned the page for Brazil, placing it on the world stage as an oil producer.”
The South American country’s total production of the commodity grew 4 percent in 2022 to 3 million barrels per day, with three-quarters coming from pre-salt areas, ranking it as the ninth-largest oil-producing nation on the planet.
Increasing production from these vast deepwater reserves supports the Brasilia government’s ambitious goal of reaching fourth place by the end of the decade at 5.4 million b/d, ahead of countries such as Iran, Canada and Kuwait. .
At the forefront of this initiative is Petrobras, valued at 99 billion dollars. Latin America’s largest oil and gas business is controlled by the state, but has external shareholders and is listed on the stock exchange.
Although the Rio group has priority over pre-salt resources and dominates activities, it operates numerous fields in consortia with international groups such as Shell, TotalEnergies, QatarEnergy, Malaysia’s Petronas and China’s Cnooc, among others.
“This year we will exceed our goals [and] exceed what we predicted,” said Joelson Falcão Mendes, director of exploration and production at Petrobras. “We have important and growing production for the coming years.”
The pre-salt deposits, first discovered in 2006 and located primarily in the Santos Basin, presented technical challenges. At depths of up to 7 kilometers below the water surface, including layers of rock and 2,000 meters of salt to drill through, the development required colossal amounts of capital.
The resource is now a source of cash, both for national coffers and for external investors of Petrobras, founded 70 years ago as Petróleo Brasileiro.
Pre-salt production increased from 41,000 b/d in 2010 to 2.3 million last year, generating record annual profits of 188 billion reais ($39 billion) and dividends of 216 billion reais for the company.
“For shareholders – controlling and minority – the pre-salt [operations] They mean really good returns combined with production growth,” said Gabriel Barra, an analyst at Citi. “It’s finally paying off.”
While net revenue fell by two-fifths to $5.5 billion in the third quarter (hit by lower oil prices and a weaker dollar), Petrobras increased total crude volumes by almost 10 percent year over year.
To further boost extraction, it plans to launch another 11 platforms in the pre-salt region by 2027.
However, with production from the fields expected to peak in 2029 and then begin to decline, there are questions about future strategic steps for both the company and Brazil.
The rush to secure reserves of hydrocarbons (the main components of oil and natural gas) has been underlined by successful takeover deals made by US oil industry majors ExxonMobil and Chevron in recent weeks.
However, as the world seeks to avoid catastrophic climate change, the very soundness of Brazil’s continued commitment to oil and gas has come into question.
Critics say it exposes a contradiction within the green agenda of President Luiz Inácio Lula da Silva, who has promised greater ecological protection and sustainable development.
The pre-salt riches were discovered during the leftist president’s first term and his Workers’ Party (PT) considers them one of his legacies.
Although the Lula administration and Petrobras have committed to supporting cleaner alternatives, fossil fuels remain a pillar of national politics.
“We don’t see any kind of contradiction,” Mendes said. “As an integrated energy company, we can use what we have [generate] in oil and gas production to invest in renewable energy.”
And he added: “Oil will continue to occupy an important place in the energy matrix.” [alongside] renewable. “We want to do this together.”
Petrobras has committed more of its capital expenditure budget to low-carbon projects since Lula returned to power. But with global demand for crude oil expected to decline in the next decade, activists argue it should move away from polluting activities more quickly.
Enrico Marone of Greenpeace criticizes the idea that “Brazil will be the last country to produce and export oil in the midst of the now obsolete oil era.”
“It makes no sense to continue betting on fossil fuel sources when the world seeks urgent reductions in greenhouse gas emissions.”
Petrobras responds that pre-salt oil is cheap and relatively clean compared to other sources and therefore an ideal supply as societies continue to rely on hydrocarbons during the energy transition.
Pre-salt wells offer huge economies of scale that reduce unit costs, analysts say. The size of the operations is demonstrated by the P-71: a floating production, storage and offloading (FPSO) unit that looks like a huge ship.
A 316-meter-long industrial complex made up of gantries, pipelines and heavy equipment with about 160 workers on board, it began production in December 2022 and can process 150,000 barrels per day.
Pre-salt oil production costs about $35 a barrel, according to Schreiner Parker of consulting firm Rystad Energy, well below current international benchmark prices of around $90. The CO₂ emitted during production is also half the global average for an 18 kg/b barrel of oil, he added.
“That combination of low breakeven cost and low emissions intensity means that those pre-salt barrels are what we call privileged,” said Parker, whose firm forecasts Brazil will be the fifth-largest oil producer by the end of the decade.
“By 2050, even in the most conservative scenario, we will still need about half the oil we consume today. There will be significant Brazilian production during the 2030s and 2040s, but the question is: what next?”
The answer may be a new marine frontier located in a 2,200-kilometer stretch of deep water along Brazil’s northern coast, called the Equatorial Margin.
Proponents believe it could be Brazil’s next oil frontier and draw comparisons with neighboring Guyana, where Exxon is exploiting vast marine reserves.
Petrobras, estimated to contain 10 billion recoverable barrels, has allocated half of its $6 billion exploration budget to the Equatorial Margin over the next five years.
The company recently received permission to drill exploratory wells in one of the five basins in the region, but faces obstacles in the section considered the main prize, located in front of the mouth of the Amazon River.
Activists say the block is close to an ecologically sensitive area, posing risks to wildlife and nearby indigenous populations. After rejecting a drilling application, Brazil’s environmental agency is considering an appeal filed by Petrobras.
Beyond oil, the company believes its offshore experience prepares it to become Brazil’s leading offshore wind developer. Mendes said such projects could potentially supply electricity to oil platforms.
“In theory, offshore wind is simpler than deepwater oil production. Historically requires less technology. The big question is whether we can do this at competitive costs.”
In line with Lula’s campaign promise, Petrobras is also pursuing a diversification strategy outside of its oil and gas core, with increased investments in areas such as refining, biofuels and petrochemicals. Analysts, however, warn that this could result in lower financial returns.
Another concern for minority shareholders is the specter of political interference in the business, a hallmark of past PT administrations, under which Petrobras was embroiled in a sprawling corruption scandal, losing tens of billions of dollars subsidizing fuel and accumulated massive debts.
Citi’s Barra said it was difficult to assess the long-term scenario for Petrobras because of frequent changes at the top, with CEOs chosen by the government in power: “We’ve had a new CEO every year and a half.” years on average.”
For Ferreira, the pre-salt riches can unlock the company’s future.
“My opinion is that we invest in the pre-salt [operations] change the energy matrix,” said the manager of platform P-71, looking towards the Atlantic. “If we look back, Petrobras went from inland [oil] to the high seas and then to deep waters. Now you can switch to renewable energies.”