Pre-salt raises exports, but fails to reduce dependence on fuel imports – 06/11/2022 – Market

The growth in pre-salt production has placed Brazil among the world’s major oil exporters, has filled the coffers of states and municipalities, but has not ensured a reduction in dependence on imported fuels, which could hold prices in a crisis scenario such as the current one. .

Between 2010, when the first well came into operation, in Espírito Santo, and 2021, national oil and gas production jumped 53% and revenues from royalties and special participations almost doubled to a record of R$ 78.4 billion in 2021.

With large reserves still to come into operation, the trend should continue for years to come, according to industry experts. By 2026, highlights the consultancy Bip, pre-salt projects operated by Petrobras should receive eight more production platforms.

The country’s great challenge is how to reflect this bonanza in the refining sector, which currently has a deficit in the production of gasoline and diesel, which leads Petrobras to defend a pricing policy based on the concept of import parity, which simulates how much it would cost to bring the foreign fuels.

Without it, the state-owned company and the fuel sector allege, private companies are not willing to import, putting market supply at risk. In recent alerts to the government, Petrobras went so far as to say that Brazil may already experience problems in the supply of diesel at the beginning of the second half of the year.

While oil production soared after the start of operations in the pre-salt layer, national fuel production rose by only 5.4%. During this period, the country put only one new refinery into operation, which was still incomplete: the first phase of the Abreu e Lima Refinery, in Pernambuco.

Without new refining, Brazil needs to buy about 25% of the diesel and 7% of the gasoline it consumes abroad. For experts, a market with this potential has not attracted refining investments due to factors ranging from global excess capacity in recent decades to risks of intervention in fuel prices.

Former director general of the ANP (National Agency for Oil, Gas and Biofuels) and with a career at Petrobras, Décio Oddone recalls that Petrobras had to prioritize investments in view of the high indebtedness in the first half of the 2010s.

“Between putting money into oil production and refinery, it is better to have oil production”, he says. During the Lula government, the state-owned company planned four new refineries, with a strong focus on diesel production, but only part of one got off the ground.

The Abreu e Lima Refinery was the last to start operating in the country, with a capacity of 115,000 barrels per day. A second phase, with a capacity of 145,000 barrels per day, was suspended after Venezuela, which was a partner in the venture, withdrew. In 2021, the state-owned company announced that it will resume the works.

Another three refinery projects, in Rio de Janeiro, Ceará and Maranhão, were totally abandoned after the start of Operation Lava Jato, which investigated a corruption scheme in Petrobras orders.

Despite the global fuel supply crisis, which raised refining margins to record levels, the market does not expect large investments in expanding the production of oil derivatives in the country in the coming years.

The expectation is for marginal increases, both in the expansion of units that have already been or can still be sold by Petrobras and in small refineries to serve localized markets. That is, Brazil will continue to depend on fuel imports.

Oddone assesses that, even if it started to export, the impact on prices would be small. In a scenario of free prices, he explains, refineries would adopt the export parity, which differs from the import parity only in the logistical costs to bring the products.

Even with the high dependence on fuel supply, the accelerated growth of pre-salt production has brought benefits to the Brazilian trade balance. In 2021, the oil and fuel bill had a record surplus of US$ 19 billion, almost four times the amount seen five years earlier.

The president of the AEB (Association of Foreign Trade of Brazil), José Augusto de Castro, highlights that the sector was responsible for almost a third of the Brazilian trade surplus in 2021. Given the high volatility of international quotations, the entity does not make projections for the sector balance in 2022.

Oil revenue soars, but is concentrated in cities in Rio

In July 2021, the City Hall of Saquarema, 115 kilometers from Rio de Janeiro, announced “the largest package of works in the history” of the municipality, with investments in drainage, paving, urbanization and modernization of tourist attractions in the city.

The package, called “Saquarema não para”, transformed the city into a large construction site and is the most visible effect of the municipality’s entry into the list of the country’s oil nouveaux riches, now led by neighboring Maricá and Niterói.

Together, the three cities concentrated in 2021 about a third of the oil resources destined for Brazilian municipalities. Maricá alone received R$ 2.4 billion in royalties and special participations, according to Inforoyalties data. Niterói received R$ 1.9 billion, and the emerging Saquarema, with R$ 600 million.

The first two are opposite the Lula field, the country’s largest oil producer. Saquarema climbed the list after the start, in 2018, of production in Búzios, the largest deepwater oil field in the world and today the main pole of investment in production by Petrobras.

The amount received by the city in 2021 is almost ten times higher than five years earlier and the prospect is that growth will accentuate: a survey carried out by consultant Jean Penatti, from Bip, indicates that Búzios will receive four new platforms by 2026.

The priority in infrastructure follows the example of the leading municipalities in collection. With the coffers starting to fill, Maricá announced the paving of more than 400 kilometers of public roads. Niterói, in turn, completed major road works that had been promised for years.

The richest cities list other destinations for the money, such as the creation of sovereign funds to invest part of the resources, basic income programs and even social currencies, such as Mumbuca and Arariboia, from Maricá and Niterói, respectively.

During the most critical period of the pandemic, full coffers allowed the creation of programs to support the population and local entrepreneurs, with the distribution of basic food baskets and financial aid.

Study carried out by the Macroplan consultancy at the request of Sheet shows, however, that municipalities benefiting from oil money do not necessarily have better social indicators than other Brazilian cities.

“In general, they evolve in front of their own performance in the past, but they evolve less when compared to external references”, says the director of the consultancy Gláucio Neves.

The performance is usually worse in the area of ​​public security: six of the biggest beneficiaries of oil money in the country —Campos dos Goytacazes, Maricá, Macaé, Rio das Ostras and Niterói — have mortality rates above the national average.

The indicators vary greatly between municipalities, but the consultancy’s data also show difficulties in enrollment rates in day care centers and in meeting educational goals for elementary school.

“We are committed to the exercises of planning and building the future”, said, in a note, the mayor of the municipality, Fabiano Horta (PT), who recently celebrated the R$ 1 billion mark in the city’s sovereign wealth fund. “But oil will one day run out, in addition to not belonging to the clean energy matrix.”

Revenue from royalties and special participations from oil is divided between municipalities close to producing fields or with facilities linked to the industry, producing states and the Union. In 2021, the federal government got 41.6% of the total distributed, while states got 35.5%, and city halls, 22.9%.

Alone, the Union took R$ 29.6 billion, according to data from the ANP (National Agency of Petroleum, Gas and Biofuels). A survey by the IFI (Independent Fiscal Institution) shows, however, that the execution of this revenue has been below expectations.

In 2021, for example, the government transferred less than the budgeted amount to areas such as science and technology, environment, defense and health, for example.