(S&P Global Platts, 24.Jan.2020) — Brazil will discuss potential cooperation with OPEC on the sidelines of a Group of 20 event scheduled to be held in Saudi Arabia later this year, the country’s Mines and Energy Ministry said in a statement this week.
Mines and Energy Minister Bento Albuquerque will meet with G-20 energy ministers in July as well as discuss bilateral energy cooperation with Saudi Arabian officials, the ministry said Thursday. The talks with Saudi Arabia could include “discussions about eventual cooperation between Brazil and OPEC,” the ministry said.
Albuquerque first made revealed the planned talks during a state visit with President Jair Bolsonaro to India.
Brazil’s potential participation in OPEC was first unveiled by Bolsonaro during a visit to Saudi Arabia in October 2019, when the president expressed an interest in joining the cartel. Latin America’s largest oil and natural gas producer, which is expected to become one of the world’s top five producers and exporters over the next decade, was invited by an unnamed country in the Mideast during Bolsonaro visit, the president said at the time.
Bolsonaro declaration caught government and industry officials in Brazil by surprise. Brazil’s regulatory regime prohibits production caps by the government, although the government retains shareholder control of state-led oil company Petrobras. Petrobras still dominates Brazil’s domestic production, accounting for more than 90% of output at an expected 2.7 million b/d in 2020.
International oil companies such as Shell, Chevron, Equinor, ExxonMobil and Total, however, will garner a bigger share of output in coming years as several major subsalt discoveries come onstream through 2025. Many of the companies also purchased exploration and production concessions and subsalt production-sharing blocks at recent licensing sales, which are expected to push Brazil’s output to 7 million b/d by 2030, according to the country’s National Petroleum Agency, or ANP.
OPEC MEMBERSHIP PUSH UNCERTAIN
Brazil would need to change contracts in order to impose any production quotas, which would be unprecedented in a country that prides itself on maintaining the sanctity of contracts.
Government officials, especially Economy Minister Paulo Guedes, quietly downplayed the possibility of Brazil joining OPEC last year despite Bolsonaro’s declaration, with Guedes saying that the country would never support groups that used oil to corner democracies dependent on the resource. Petrobras Chief Executive Roberto Castello Branco also said he wouldn’t favor such a move.
But Bolsonaro isn’t afraid to take controversial positions, with his repeated comments about OPEC indicating that he would prefer the prestige an affiliation with the group could bring to Brazil.
Brazil will need to resolve any pending uncertainties generated by the July discussion quickly or face another lackluster round of licensing sales in the second half of 2020. The talks with OPEC could have a chilling effect on future licensing sales, which already suffered from a lack of interest and calls for more-favorable terms after international oil companies mostly sat out Brazil’s 6th subsalt and first transfer-of-rights production-sharing auctions held in November. Brazil intends to hold three acreage sales in 2020, including the 17th bid round, 7th subsalt production-sharing auction and 2nd transfer-of-rights sale.
The lack of interest by international oil companies at last year’s production-sharing sales, however, have many officials calling for an end to the regime. While that’s unlikely, several bills are passing through Congress that would end Petrobras’ option to take a 30% operating stake in areas that it considers strategic as well as dismantle the subsalt polygon that requires production-sharing contracts for development. Government officials expect a vote on one of the bills this year, although the changes won’t likely be implemented until 2021 or later.
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