Posted by: Dark Defender | October 9, 2008

Is Brazil’s blessing a curse for Chavez?

Brazil has some massive oil reserves it is moving ahead with development on.  To give you a taste of the opportunity and challenges ahead of them, consider this:

Putting Brazils find in perspective.

Putting Brazil's find in perspective.

The nine fields discovered in the last year are thought to hold 50 billion to 80 billion barrels of light crude — more than four times Brazil’s current provenreserves. Withthe find, Brazil could supply all of its own needs for nearly a century or become one of the world’s top oil exporters.

If oil hovers around $100 a barrel, the pre-salt fields would yield at least $5 trillion, doubling the oil sector’s share of Brazil’s economy to 20 percent, according to Garman. It would also triple currency reserves to $600 billion, the president of Brazil’s central bank said.

But there are logistical problems beyond engineering.

The recent record prices for oil have led to global shortages of drilling equipment just when Brazil needs it most. The country will have to rent 138 drilling platforms — or build them for as much as $1.7 billion each — and find at least 200 ships to transport oil andgas over the next 30 years, a mid-September study by Brazil’s national development bank found.

The financial spillover could begin with Brazil’s dormant shipping industry and create tens of thousands of jobs, Silva has said.

The oil fields will be the most complicated and costly it has ever developed. Analysts say the project will require at least a $600 billion investment over 30 years.

The deep-water reservoirs lie some 185 miles offshore in the Atlantic, more than a mile below the ocean’s surface and under another 2.5 miles of earth and corrosive salt. The salt beds can break loose and shear off piping, making it one of the toughest substances to drill.

Given those conditions, rough ocean currents and floating rigs, the technology required to tap Brazil’s so-called “pre-salt” oil is on par with that needed to landa man on the moon, said Eric Smith a drilling expert at the Entergy-Tulane Energy Institute at Tulane University in New Orleans.

“If you were doing this with a drill from atop the Empire State building, about 1,000 feet up, you’d be trying to hit a target on 34thStreet the size of a quarter,” said Smith.

“Then you’ve got to go down an equivalent distance to reach the oil, and it might not be on 34th Street, it might be on 42nd Street,” he said.


Despite oil’s recent retreat I expect its price will remain relativelyhigh for the foreseeable future. Afterall it is a limited resource and the hunger for it in the developing world is going to continue increasing over time.

Therefore I do believe Brazil will overcome the engineering challenges and develop the fields. 

It will however be expensive and require massive investments from overseas.  Investment so large Russia, or even China couldn’t afford to “go it alone” on.  The project is large enough I think it will necessitate Brazil being well “plugged into” the world economy (and yes there still is one) in order to attract enough capital, they will therefore have to play by the rules and be what Bush encouraged China to be back in the early 2000s a “responsible stakeholder” in the world system. 

This will insulate Brazil from the rising tide of Chavezism in Latin America and even provide an incentive to be a counter force to the destabilizing Chavez. 

Now don’t get me wrong Brazil is certainly on its way to being at least a regional if not a “great” power, they will definitely not be a US client.  They are going to be a real power with their own interests, however I see them being a responsible, stabilizing force because it will very much be in their interest.

As American influence recedes (or at least lessens), I think Latin America is going to become a very interesting place.  While I doubt in the long run Venezuela is really a match for Brazil for regional leadership, some factors will act to make Chavez competitive at least for a time.  Namely 1) Brazil being Portuguese it doesn’t quite fit with the rest of Spanish influenced Latin America 2) Venezuela in acting as a proxy for Russia and a lesser extent China has more outside support 3) Venezuela has a head start in many areas from the massive profits they have made off oil recently.


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