Economy & Energy
NEW PETROLEUM ERA
About two years ago I wrote an article with a title similar to this one, whose inspiration came from Eric Hobsbawn's "The Age of Extremes", where the author analyzed the "brief" XX century. In that article I argued that recent history is deeply concerned with petroleum. Technological advancements, wars, wealth, coup d'etat and many other misfortunes, namely, good and evil, have originated in the "black gold" business. Petroleum has indelibly marked the century that is just ending.
At that time I dared to disagree with the famous author who considered the petroleum shock as a mere scheme devised by OPEP and the Arabs instead of an instrument of the dominant countries to exercise power. It is usual to analyze the petroleum world from the point of view of market forces, providing data about reserves, offer and demand and price evolution without a strategic view that, therefore, would render possible to manipulate it politically in the context of world power.
On that occasion I made my comments, trying to participate in the debate about the change in the legal and institutional petroleum industry situation in Brazil. Now, with the decisions already taken, I return to the subject aiming at the interests of Espirito Santo state, in view of its potential in this sector and the transition moment for the new national model, open and favoring privatization.
Petroleum, which started to be used in large scale as an energy source and raw material at the end of last century, will still reign in the next thirty or forty years. At the end of this period it will be substituted by another energy source not discovered yet or not economically viable yet. The end of its reign will not be caused by exhaustion of reserves. The environmental limitations will impose more restriction on its use.
Incidentally, the great disease of the petroleum age is the environmental deterioration caused by the intensive use of its products in the developed countries, in their industrial parks and their transport networks. It is a very serious issue to be equated and for which these countries are in large debt to humankind.
Nevertheless, the petroleum industry itself has an alternative, namely, natural gas. Gas is also a hydrocarbon, which is not so harmful to the environment because it has a more complete combustion. It is found free or associated with oil. Presently, the world reserves of natural gas exceed that of petroleum in equivalence terms. It can substitute petroleum in large scale, depending on technological development and economical viability in what concerns transport of large volumes and large distances. Actually, this has already been overcome.
Up to the point where this situation will be modified, petroleum and gas will compete in the large international business, among them the sordid trade of drugs and armaments.
The Jewish/Palestinian/Arab question has much to do with the fact that most of the hydrocarbon fields of the planet are located in the Middle East, where those people and their nations are situated. The several quarrels in this region, including the wars between Arabs and Jews, Iran - Iraq, the invasion of Kuwait by Iraq and the recent fights between Iraq and the United States (and allies) rest on the petroleum issue.
The largest world consumer of petroleum products is the United States. To retain power over those reserves is vital for the American economy since their own reserves will not support the voracity of its market. Its consumption is more than 18 million bbl per day (more than ten times the Brazilian market), of which half is imported. To influence the fluctuation of prices is another important mechanism for administering the American conjuncture.
On the other hand, due to its accumulated commercial deficits and as the provider of the most well accepted currency, due to the vigor of its economy, the United States have a gigantic external debt. The roll-over of this debt has been made by the emission of green dollar bills and by the accumulated balances on current account of this currency in bookkeeping form, in this case.
President De Gaulle one day dared to demand from the United States the payment in gold of its commercial surpluses without success. The United States has no gold, tangible assets, goods and services available to pay that debt. The balance is maintained because it is valid the rule " don't sink the boat in which we are all sailing".
Can the American deficit situation be maintained? Can the dollarization of the Americas, the creation of the European currency, the future of the yen, briefly, the advent of global currencies deter the avalanche of a possible accounting for?
Petroleum is one of the tangible resources in this scenario, without a viable economical substitute in the first half of the XXI century, which could constitute a guaranty for the roll-over of the American debt. Therefore, the domain over reserves, transport routes and trade of this product is indispensable in this context. If we compute the military expenses for maintaining the status quo, the American consumer pays the highest price in the world for the petroleum he/she consumes, in spite of the fact that its quotations are low.
With the end of the Soviet Union, there was a certain relief in the industrialized countries. The USSR, besides being the largest world producer, was casting covetous eyes on the Middle East, attested by its intervention in Afghanistan. Now that it has collapsed and communism is defeated, it became easier to control the situation.
As usually, the bomb will be set off in the Middle East. This is the theater of the next wars, having petroleum as background. Incidentally, as has happened in this century that is about to end. There is no news in the front.
One should not associate names to the situation. If Enrico .Mattei died "accidentally" when he wanted to have a better role in this plot; if Mossadegh, the nationalist Iranian Prime Minister was sent to jail; if Ayatolah Khomeini is gone; here are Kadaffi and Saddam Hussein withstanding the dominant interests. The fight for reserve dominance and petroleum routes will persist, on one hand by nationalist efforts or, on the other hand by industrialized countries avid for its energy.
This conflicting scenario is not a prediction but a simple prospective speculation in order to go on with the arguments.
The four large petroleum provinces discovered in the second half of this century were: Alaska, North Sea, Majnoon (in Iraq) and Campos Basin (Brazil). Petrobrás was responsible for the last two. In Iraq, at the eve of war with Iran, Brazil have opted for an agreement that permitted it to do well in the commitment to develop that field, in an investment of doubtful return that would go up to US$ 5 billion at that time. As to the Campos Basin, it is known to all of us.
The chess game concerning petroleum and natural gas dominance in the next years is under way, with hard blows (belligerent actions) or diplomatic subtlety, where financial strategies are masterfully used.
Based on fallacious financial arguments that hold that we do not have sufficient resources for the exploration and production of our petroleum potential, the sector in Brazil was opened to the external capital. The next and already announced step will be the privatization (explicit or disguised) of Petrobrás, as a tentative way of overcoming the crisis caused by maintaining monetary stability, with high interest rates, valued exchange rate, recession and unemployment.
In 1995, in order to get out of its financial crisis, Mexico mortgaged its petroleum reserves to draw a loan from the American government. Now it is under consideration the offer of a new Brazilian bond in the international market, guaranteed by our petroleum reserves, to get something around US$ 10 billion.
The Brazilian potential of petroleum and gas is very large in deep waters. The discovery of the Campos Basin by Petrobrás, its world leadership of exploration and production technology in large in deep waters, its exploration of new limits of the same basin, is an unparalleled attraction for large capitals of the world petroleum industry. This was the cause for rendering flexible the petroleum state monopoly and of the possible and probable privatization of Petrobrás.
The continuation of the exploratory work at the coast of Rio de Janeiro state shows that new discoveries are northbound. The new gigantic field of Roncador northeasterly of the Marlin and Albacora large fields is the new frontier of Campos basin. This basin, still with the same denomination, extends to Espirito Santos waters and extends further north already with the name of Espirito Santo basin. Here, at the south of the state, in our very deep waters and near to the coast, new petroleum provinces will probably be discovered and will be added to the reserves and potential of the north part. Seismic tests indicate this possibility.
In national terms, the rules of the petroleum game have already been defined and the die is cast. In the division of the Brazilian sedimentary areas, most of Espirito Santo basin blocks still remained with Petrobrás, which has associated itself with private partners to explore them.
In the new legal and institutional context, Espirito Santo should organize its action in order to benefit from this situation. For this purpose it is indispensable to know accurately the ground we are stepping into. The aim of this article is to serve this purpose.
Petroleum and natural gas exploration and production in Espirito Santo waters, if the proper measures are taken, may have here good results for the state, as was the case in Rio de Janeiro. In the North Sea, the beneficiaries were Great Britain and Norway. In the decades from 2000 to 2020 that activity may accelerate the industrial development of Espirito Santo.
Because it is unaware of the strategic grounds that supported the establishment of petroleum state monopoly and of Petrobrás in 1953 as well as the further development of petroleum business, the Brazilian government, by complying with the large international interests, is adopting positions that abdicate the national sovereignty over these assets (petroleum and natural gas reserves) that will play a very important role at the start of next century.
Our reserves may even grow but they will not belong to us anymore. Following the bad example of Argentina, we may even become petroleum exporters, a non-renewable good. On the other hand, we may become importers of petroleum products, what will turn our refineries idle. It will be a backtrack, since we export a primary good and import an industrialized product. Foreign countries keep the aggregate value incorporated by industry.
Therefore, it is doubtful that national supply will be better done and with better prices than it has happened up to now. Certainly, we will lose the world leadership concerning advanced technology of exploration and production in deep waters that was so hard to acquire. The platforms will be built elsewhere. In times of conflict, the national market will be neglected.
Having lost our rings but having kept our fingers, what could be done in Espirito Santo, the new petroleum frontier of the Brazilian southeast, called very appropriately as " rich coast" by the local media?
With the adequate knowledge of this situation, we should place ourselves in a good strategic position in order to get the advantages that this activity could offer and that is our by right.
Mere financial rationale - increase of taxes revenue, royalties, revenue from concessions and selling assets - should be complemented by strategic considerations, its implications to the industrial development of the state, the spatial decentralization of this development, the environmental consequences, the creation of new jobs and the cultural growth of its population.
The global goals to be pursued are:
The local large enterprises are an important part in this context, by "anchoring" these new projects they will make them viable. Nevertheless, they should not be the only conductors of the process and their great beneficiaries. The way this will be done is as important as, or more than, the results. The strategic vision in the long term must prevail over the circumstantial, conjuncture and even the strictly entrepreneurial aspects.
Equating the piped gas distribution activity in the state in order to permit the establishment of a large market, besides the implantation of a regulating and controlling agency, complete the set of actions to be taken.
Finally, we should hope for our subsoil to meet our expectations. If nature is prodigal with us, we should also be equally prodigal in good sense regarding our decisions now and in the future.