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• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97R00694R000600010001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: January 12, 2017
• Document Release Date: March 21, 2011
• Sequence Number: 1
• Publication Date: April 1, 1986
• Content Type: REPORT

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Directorate of Secret
Intelligence
Brazil:
Nearing Oil Self-Sufficiency
Secret
GI 86-10024
April 1986
Copy 2 a
/ 0
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Directorate of Secret
Intelligence
Brazil:
Nearing Oil Self-Sufficiency
of the Office of Global Issues, and
and
OGI,
Office of African and Latin America
lysis, with contributions from
OGI,
he
Comments and queries are welcome and may be
directed`to the Chief; StrategicResources Division,
Secret
GI 86-10024
April 1986
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Brazil:
Nearing Oil Self-Sufficiency
I
Key Judgments With adequate investment, Brazil is in a position to reduce substantially, if
Information available not eliminate, its dependence on imported oil. Recent discoveries of about
as of 7 March 1986 1.3 billion barrels in the offshore Campos Basin would technically allow
was used in this report. I
Brazil to boost domestic oil production to, more than 900,000 barrels per
day (b/d) by the early 1990s-an increase of over 60 percent, compared
with 1985 levels. Because of the high probability of additional offshore oil
finds, we believe that Brazilian production could increase to the 1.0-
million-b/d range by the late 1990s and that the reserve base should be
sufficient to support that level of output for at least a decade.
Given the high priority placed on energy independence and the large
investment Brazil has already made in the petroleum equipment and
services industry, we feel that Brasilia will make the new investments,
needed to exploit the new Campos finds. If world oil prices continue to fall,
a point may be reached where political pressures and economic factors
could force Brazilian planners to stretch out the development time of the
new offshore oilfields. Doing so, however, would prolong Brazil's depen-
dence on imported oil, and self-sufficiency would probably be out of reach
until the turn of the century. All things considered, we believe Brazil'iwill
proceed with a fairly rapid development of the fields.
The substantial progress we project Brazil will make in limiting imports
reflects sizable production increases and modest growth in domestic oil
demand. We see little likelihood of major backsliding in domestic oil
conservation efforts. Vigorous conservation measures in place since the
mid-1970s, coupled with hefty gains in domestic oil production, have
already helped Brazil cut its annual import bill from about $9.9 billion in
1981 to approximately $4.3 billion in 1985-an amount that is equal to 35
percent of Brazil's annual interest payments on its foreign debt.
To the extent that Brazil remains saddled with its huge foreign debt,
keeping the import bill as low as possible will remain a priority objective.
Development of the new offshore fields will be an important part of any
program to improve Brazil's international trade and payments picture and
will help protect the financial stake that US and other foreign banks have
in Brazil's future. At a world oil price of $20 per barrel, production from
the new Campos fields would result in cumulative savings of at least $7 bil-
lion in foreign exchange from 1989 through to the early 1990s. Lower oil
iii Secret
GI 86-10024
April 1986
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import expenditures will most likely ease Brazil's debt burden by facilitat-
ing payment of interest and lowering requirements for new money. Despite
these benefits, we believe it unlikely that Brasilia will significantly alter its
position on debt negotiations with international creditors.
Development of the new oil finds will also provide important opportunities
for the United States. Brazil might be willing to make trade concessions
given the further leeway lower oil expenditures would produce in the trade
account. The US oil service industry will benefit from engineering and
drilling opportunities provided by the deepwater finds. Development of the
new Campos fields will not lead to significant diversions of technology to
US competitors or the Soviet Bloc.
Brazilian firms, however, are among the world leaders in offshore develop-
ment and will benefit greatly from the impetus provided by the new
Campos discoveries. In fact, technology already transferred to Brazil
through licensing and other arrangements with foreign companies could
put Brazilian firms in a much stronger position to compete in the
worldwide offshore market in the next decade.
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Page;
3
3
Technology Requirements 4
Curbing Domestic Consumption
Outlook for Oil Self-Sufficiency 5
Supply Outlook
Implications for Brazil and the United States
5
6
7
For Brazil 7
Projecting Brazilian Oil Production: A Methodology 13
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Brazil:
Nearing Oil Self-Sufficiency
Brazil has discovered large new offshore oil deposits
that have the potential by the early 1990s to reduce, if
not eliminate, the country's dependence on imported
oil. Although down sharply from the 1981 peak,
Brazil's net oil import bill amounted to $4.3 billion in
1985, equivalent to about 35 percent of the interest
Brazil pays annually on its huge foreign debt.
The Brazilian State Oil Company-Petrobras-is
currently exploring a new oil-bearing region in the
offshore Campos Basin. Results, thus far, have been
exceptionally good. According to trade journals 0
exploration drilling to date has
resulted in the discovery of two large fields containing
over 1.3 billion barrels of recoverable oil0.
To put this figure into perspective, these discoveries
alone represent:
? A nominal six-year supply at Brazil's current rate of
production.
? A 65-percent increase in Brazil's proved oil reserves,
which stood about 2.0 billion barrels prior to the
new discoveries.
The smaller field (1-RJS-305) contains an estimated
300 million barrels of oil and is located in waters
shallow enough (300 to 400 meters) to permit com-
mercial development using existing offshore produc-
tion technology. The giant field (1-RJS-219) contains
at least 1 billion barrels but is at a water depth of 900
meters, and new techniques will be needed to exploit
this area.'
Both fields have excellent reservoir characteristics
and can produce oil at high rates. From a technical
perspective, this means that the production capacity
of the reservoirs is favorable because the porosity and
permeability of the source rocks are good. On the
basis of production tests, the production per well in
the new fields will be in the 5,000- to 15,000-barrels-
per-day (b/d) range. This high production rate will
The three factors necessary for the accumulation of
oil are source beds, traps, and seals. Source beds are
usually organically black, marine shales that will
generate oil when subjected to sufficiently high tem-
peratures caused from being buried at great depths
for a long time. As the oil is generated, it is ejected
from the source beds and travels into traps or i
reservoirs that are formed by a number of geological
mechanisms, such as folding and faulting. Reservoir
rocks with good production capacities have a large
number of interconnected cavities that allow rapid oil
flow. Reservoir seals are impervious barriers of sedi-
ments that cover the reservoirs thus preventingfur-
ther oil migration either upward or laterally.
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The Campos Basin is geologically analogous to off-
shore oil producing regions in Angola. During the 25X1
Cretaceous period some 120 million years ago and
prior to the separation of the continents, the present
Campos Basin and offshore Angolan fields were
geographically contiguous areas. Because the analo-
gous Angolan fields have been well explored and
productive for some time, we have good confidence in
our assessments of the geological characteristics of
the new Campos fields.
allow the fields to be produced with a small number of
wells, an important consideration in light of the depth
of the new fields. According to Brazilian press report-
ing both fields
will be in commercial production by the early 1990s.
Although it is technically possible that the fields could
be developed in this time frame, uncertain worldioil
prices could tempt Brazilian planners to take a slower
approach. F_
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Early Production Systems
An Early Production System (EPS) is aimed at
bringing a new oil discovery on stream in the fastest
possible time-for example, 12 months or less from
completion of the discovery well. Petrobras is a world
leader in EPS technology and has used this technique
for many years to exploit other fields in the Campos
Basin. The system consists of wellheads on the ocean
floor and processing facilities-oil and gas separa-
tors, ,flares, and other oil production equipment-
usually on a jack-up or semisubmersible drilling rig.
11 WRONRIMI
According to our analysis, the new Campos discover-
ies give Brazil the potential to approach oil self-
sufficiency in the latter half of the 1990s. We believe
there is a good possibility that, despite likely decline
trends in existing fields, Brazil will expand oil output
from 560,000 b/d in 1985 to the 1-million-b/d range
by the mid-to-late 1990s if, as we expect, additional
oil is found and developed in other areas of the
Campos Basin and in potentially promising areas of
the Sergipe-Alagoas Basin to the north (see appendix).
The oil flows to the surface by natural pressure, is
processed on the rig, passed onto a storage tanker
moored nearby to a system of buoys, and taken ~
ashore by shuttle tanker when it is full. Early
Production Systems are economically attractive be-
cause they eliminate the higher initial cost of build-
ing and installing more permanent and involved
production structures, and because they deliver a
quick inflow of oil revenue. n
Guidelineless satellite
completion
the cost of
developing the new Campos fields will be roughly $20
billion; this suggests an average development cost of
up to $15 per barrel. By any yardstick, such average
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development costs are high. For example, in other
offshore oil-producing regions such as the Bay of
Campeche and the North Sea, average development
costs are in the $5- to $12-per-barrel range. The
extreme depth of the larger field in the Campos Basin
is the major factor pushing development costs up. Our
calculations suggest that, when operating and trans-
portation costs are added, total costs in the Campos
Basin could be as high as $20 per barrel (in terms of
current prices)-establishing this region as perhaps
the world's highest cost oil producer. F__1
There are several factors, however, that make such
expensive oil attractive despite the high cost per
barrel. Since most of the oil would be produced in the
1990s, it is possible that prevailing oil prices then
would justify development costs. The majority of the
development costs would involve domestic resources-
specialized labor and indigenous technology and ma-
terials-rather than hard currency outlays for import-
ed labor and material. These resources were devel-
oped by Brasilia specifically for petroleum exploration
and development and, at least in the short run, would
have little value if directed toward other industrial
projects. The hard currency costs of the Campos oil
would be only a small portion of the total. F_~
Petrobras appears to be gearing up for the large
investment program needed to expand production and
continue an aggressive exploration program in the
Campos Basin. According to press reporting, a state
company spending plan released in January allocates
$2.8 billion to Petrobras for investment in 1986-a
40-percent real increase compared with last year. In
early February, however, the administration disclosed
that President Sarney has decided to reduce funding
for oil exploration. The extent of the cut has yet to be
determined, but, in light of the importance energy
independence has on Brazil's national security, we
believe that the reduction will be moderate. Even a
less-than-hoped-for increase in investment would still
represent a dramatic turnaround in the government's
investment in the oil sector that has declined steadily
since 1983.
it is technically possible
to develop the deepwater offshore finds without major
difficulty. The Brazilians are already routinely oper-
ating at depths of more than 300 meters, and in 1985
Petrobras established a world record by producing oil
at 385 meters. Petrobras' past experience and techni-
cal expertise should allow it to develop its current
discoveries as deep as 700 meters without difficulty.
Production at a 900-meter depth, however, will re-
quire adaptation of existing technology and probably
assistance from US, Canadian, and West European
engineering and construction companies. Brazil is
already working with foreign companies to develop
deepwater production equipment to develop its deep
finds. Petrobras recently
began discussions with a US firm on development of
deep sea oil production technology.
Brazil wants the deep field in the Campos
Basin operating by 1990.
our own view,
is that world oil prices will continue to experience
downward pressure in the future. A slack oil market
represents a mixed blessing for Brazil. A drop in
world oil prices over the short-to-medium term would
free additional funds, part of which could be invested
in the oil sector. According to our analysis, at world
oil prices of $20 per barrel, Brazil's annual hard
currency savings would amount to about $1.7 billion.
At $15 per barrel, annual savings would increase to
about $3.0 billion. In either case, Brazil would have
the opportunity to earmark some of the savings for
offshore oil development to ensure continued progress
in its drive for energy independence.
On the other hand, if prices average well below
Brazil's cost of production for an extended period of
time, Petrobras will probably be forced to scale back
its pace of oil exploration and development
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1981
220
809
1,029
1982
268
750
1,018
1983
339
622
961
Curbing Domestic Consumption
In addition to hefty increases expected on the supply
side, we believe that the Brazilian Government will
continue policies aimed at curbing oil consumption.
During the 1970s, Brazil's domestic oil consumption
grew at an average annual rate of 9 percent, among
the fastest rates of growth registered in the LDCs.
Rapidly increasing consumption, stagnant domestic
production, and a sharp rise in world oil prices
combined to push Brazil's net oil import bill up from
about $325 million in 1970 to $9.9 billion in 1981-
almost a thirtyfold increase. F_~
Faced with these costs, in the late 1970s the Brazilian
Government launched a program to curb oil consump-
tion by encouraging oil substitution, developing nonoil
energy sources, and raising petroleum prices across
the board. The National Alcohol Program, in particu-
lar, has contributed substantially to reducing gasoline
demand. These policies, along with domestic econom-
ic recession, resulted in a drop in both consumption
and imports. Oil consumption in 1985 amounted to
960,000 b/d, down 12 percent compared with 1980.
The drop in imports has been even more dramatic,
falling from about 1 million b/d in 1979 to about
400,000 b/d in 1985-the lowest level since the early
1970s (see table). This decline, coupled with lower
world oil prices, caused Brazil's net oil import bill to
fall to $4.3 billion in 1985. While the reduction in the
oil import bill represents a significant improvement in
Brazil's financial picture, annual outlays of $4.3
billion still represent about 35 percent of Brazil's
annual interest payments on its foreign debt, clearly
indicating that it is in Brazil's interest to continue
Demand Outlook
We believe that continued annual economic growth of
4 percent or more and weakness in world oil prices
will generate some growth in Brazilian domestic''oil
consumption. Government programs developing alter-
native energy fuels, however, will temper oil growth
and will keep it well below the rates posted in the
1970s. We estimate that hydroelectricity, natural gas,
and coal will continue to expand their market shares,
residential sectors.
we estimate that
Brazilian oil demand will increase to a range of .0-
1.2 million b/d by the early 1990s, implying an
average annual increase of at most 3 percent. It s
possible, although unlikely, that a sharp and lasting
fall in world oil prices with the resultant increase in
economic activity could boost consumption to perhaps
as high as 1.5 million b/d by the early 1990s.0
Most of the growth in consumption will occur ini the
industrial and transportation sectors. Although fuel
oil use in the industrial sector has dropped considera-
bly-due primarily to economic recession-energy
efficiency has not improved significantly, and the
conversion of oil-fired generators to coal has been
limited in scope. Demand for diesel fuel will probably
rise because of development of rural areas and rising
industrial activity, resulting in increased demand for
public transportation and freight transport. Although
alcohol fuel will continue to substitute for gasoline,
the rate of substitution is likely to slow and gasoline
consumption should increase to support an expanding
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The National Alcohol Program
The National Alcohol Program (PROALCOOL) has
been an important factor in Brazil's oil substitution
efforts. The first five years of the program were
devoted to constructing distilleries as annexes to
existing sugar mills, with the goal of producing
alcohol as a gasoline additive. Since 1980, emphasis
has been placed on developing car engines to run on
pure alcohol. As a result, 90 percent of new cars are
alcohol powered, and special orders must be placed
for gasoline powered cars.
Although government support for PROALCOOL has
been reduced since 1980, subsidies continue to repre-
sent a significant financial burden for Brasilia. Ac-
cording to press reporting, subsidies over the past
four years have amounted to a total of $5 billion, or
40 percent of annual interest payments to Brazil's
creditors. It is uncertain what effect the elimination
of government subsidies would have on the program.
Some analysts believe that the alcohol industry is
saddled with inefficient producers who, without gov-
ernment aid, would have folded long ago. Others
believe that subsidies are no longer needed because
the existing facilities are able to generate their own
resources for reinvestment in new projects. We be-
lieve, however, that, if subsidies are removed, Brasi-
lia will have to compensate alcohol producers by
raising alcohol and gasoline prices-which is politi-
cally unpalatable for Sarney in light of triple-digit
inflation.
As a short-term solution to this problem, President
Sarney has banned construction of new alcohol plants
until 1989 and has imposed a freeze on the current
percentage of alcohol powered cars that the automo-
bile industry is allowed to produce. In doing this,
President Sarney probably hopes to send a signal to
the alcohol industry that the government will no
longer subsidize inefficient production. Moreover,
efforts are currently under way to move the alcohol
program in the direction of technological improve-
ment toward obtaining greater productivity from crop
harvesting and production processes.
Although there have been few complaints about con-
servation programs registered to date, objections to
the government-subsidized alcohol program are sur-
facing as the oil market continues to weaken. As a
result, Brasilia is considering capping alcohol produc-
tion. Given the structural adjustments and substantial
capital investment made by both government and
industry in the last five years, we believe that there
would have\to be a sharp and sustained drop in prices
before any major backsliding on oil conservation or
the official intention to hold oil consumption in check.
Supply Outlook
Development of the two new fields in the Campos
Basin should allow Brazil to narrow, if not eliminate,
its present dependency on imported oil by the early
1990s. Much will depend on the speed at which the
new fields are developed and the investments that are
forthcoming. We believe that most factors point
toward fairly rapid development:
? Production from existing fields will probably drop
from its present level of 560,000 b/d to as low as
360,000 b/d by the early 1990s. Unless offset by
increased output from the new Campos Basin dis-
coveries, Brazil's import requirements could rise to
almost 750,000 b/d by the early 1990s, compared
with about 400,000 b/d in 1985. Assuming world oil
prices of $20 per barrel, this would represent a $2.5
billion increase in Brazil's import bill during that
time frame.
? Oil self-sufficiency for Brazil is a national security
imperative to reduce dependence on foreign supplies
and the impact of external factors on the economy.
? Offshore oil activity has spurred development and
enlargement of the oil services industry in Brazil,
creating thousands of jobs that would be lost if
Brazil curtailed its offshore efforts.
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? Development of offshore oil, particularly in deep
water, requires a long lead time, and full production
from the new fields will not occur until the next
decade, when many industry experts believe oil
prices will be strong. Indeed, a world oil price of $20
per barrel could well prove to be a conservative
estimate of the price likely to prevail in world
markets during the 1990s.
? The majority of the $20 billion needed to develop
the new fields will not be required until approxi-
mately 1990. Between now and then, a relatively
small hard currency investment (possibly in the
$50-100 million range) will be needed mainly for
assistance in designing the deepwater rigs.
? The cost of developing the new discoveries will be
insulated from world oil prices because more than
90 percent of the services and equipment needed to
develop the fields will be supplied domestically and
paid for in Brazilian currency.)
Development of the two new fields in the Campos
Basin would allow Brazil to increase output to more
than 900,000 b/d by the early 1990s, compared with
560,000 b/d in 1985. On the basis of typical develop-
ment trends in new fields, we would expect to see
production increasing gradually to perhaps 650,000
b/d by 1990 and then rising sharply in the next two to
three years. In such an event, Brazil would come close
to covering its oil needs by the early 1990s, at least at
the low end of our demand estimate (see figure 2).
Barring additional oil discoveries, however, this period
of near self-sufficiency could be short-lived. Without
additional discoveries and with the inevitable declines
that will occur as fields age, Brazilian output could
well be starting to decline by the mid-1990s.0
On the basis of our analysis of Brazil's offshore
geology, we believe the odds are good that Brazil will
make the oil discoveries necessary to maintain its
reserve base and increase production to 1 million b/d
by the year 2000. Drilling is planned on six additional
structures in the Campos Basin, which Petrobras
believes could each contain about 1 billion barrels.
Exploration in the geological trend connecting the
Campos and Sergipe-Alagoas Basins is also likely to
discover more oil. Exploration, to date, has concen-
trated on basins at either end of the trend, but the
sedimentary basins in the center of this region may
also contain oil. Given the paucity of reliable informa-
tion on this area, it is impossible to place an exact
number on the amount of oil that may be found. But,
on the basis of analogous oil-bearing trends, it is
possible that up to 4 billion barrels could be discov-
ered by the end of the century. How much additional
oil is ultimately found depends, of course, not only on
favorable geological conditions, but also on whether
the needed investment is forthcoming.
Given the current rate of exploration drilling, Brazil is
likely to discover sufficient reserves to support pro-
duction of an additional 580,000 b/d by the mid~to-
late 1990s. Providing these deposits are exploited
rapidly and allowing for declines as other areas age,
we expect that Brazil should be able to sustain
production in the 1.0- to 1.2-million-b/d range into
the next century without straining its reserve base.
Implications for Brazil and the United States
For Brazil
Increased domestic oil production and lower oil im-
ports will have important direct and indirect benefits
for the Brazilian economy. During the short-to-
medium term, the oil industry is likely to be an
important source of employment in the services, con-
struction, and transport sectors. The $7 billion invest-
ed in the Campos Basin since the early 1970s has
created approximately 25,000 new jobs. Domestic
firms currently produce 90 percent of the equipment
and services used in the oil sector, and almost all
future drilling and development work in the Campos
Basin will be handled by Brazilian firms. Domestic
firms already have been awarded $400 million for the
construction of four fixed steel production platforms.
Lower oil imports will provide some relief from the
debt service pressures facing Brasilia, although we
believe Brazil will still require some rescheduling or
new borrowing. At a world market price of $20 per
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Figure 2
Brazil's Oil Picture: Likely Scenario
Oil balance
Million barrels per day
Production ? Consumption a M Imports
Sources of oil
production
Future
discoveries
New
? Campos Existing
Basin fields
1985 1990 1993 1996
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barrel, production from the new Campos fields would
result in cumulative savings of at least $7 billion in
foreign exchange from initial production through the
early 1990s. While some of these savings most likely
will be applied to debt servicing, or postponement of
new money requests, competing demands probably
will force Brazil to spread the benefits of lower oil
imports to other sectors of the economy. As a result,
we deem it unlikely that Brasilia will alter its position
on debt negotiations and will insist on rescheduling of
principal. An improved trade balance, however, would
bolster Brazil's creditworthiness and may reduce the
reluctance of US and other foreign banks to provide
new loans to Brazil. The improved international pay-
ments situation, in turn, would allow Brasilia some
flexibility in domestic policies, perhaps permitting a
more growth-oriented approach. ii
The stimulus of Campos development will also im-
prove the export competitiveness of Brazil's petroleum
equipment and services industry. Last year, Petrobras,
through its subsidiaries, sold abroad more than $1
billion in offshore oil services and equipment. Greater
exports are likely as Brazil gains worldwide leadership
in offshore oil production, particularly deepwater
drilling and early production systems. Petrobras re-
cently signed a joint venture agreement with a British
engineering firm to market its offshore oil develop-
ment expertise in Early Production Systems to the
world market. Further deals such as this could result
in substantial foreign exchange earnings.
For the United States
Full development of the Campos Basin also presents
some important trade opportunities for the United
States:
? Exploitation of deepwater finds will require signifi-
cant foreign engineering assistance from US, Japan,
and West European companies. Petrobras has al-
ready begun working with several US firms.
? Additional offshore exploration will provide oppor-
tunities for US companies to win drilling contracts.
? Brazil will probably be more willing to make trade
concessions given the further leeway that lower oil
expenditures will produce in the trade account. An
easing of restrictions for nonoil imports would' in-
crease chances for US exports to enter Brazil.
While the Campos effort may create new trade
opportunities for hard-pressed US petroleum services
and equipment firms, these firms will face stiff chal-
lenges. In the past, Petrobras has preferred US
technology. Now, however, with the huge investment
requirement ahead, a major consideration in the
choice of technology will be cost. Petrobras is examin-
ing Japanese and West European technology, which
may be less costly for the new Campos fields. UPS
firms can also expect competition for drilling con-
tracts.
Technology transfer through development of the new
Campos fields will probably not lead to significant
diversions either to US competitors or to the Soviet
Bloc. The potential worldwide demand for specialized
deepwater production equipment is not large enough
to justify development of a wholly independent Brazil-
ian manufacturing base for this type of equipment.
Nor will the technical demands of this development be
enough to spur Brazil's efforts in sophisticated com-
puter-based robotic technology, which is most prized
by the Soviet Union. Nevertheless, US firms will face
additional Brazilian competition in the world oil
services market and in low-technology sectors of the
deepwater oil equipment market where Brazil already
has the manufacturing capacity. The Brazilian off-
shore industry will gain unique deepwater experience
during development of the Campos Basin that will
enhance its current position as one of the leaders in
offshore oil development. ii
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Figure 3,
Brazil's Oil Picture: Delayed Scenario
Development
I
Sources of oil
production
New
? Campos
Basin
1985 1990 1993 1996' 2000 1985
Existing
fields
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Slower Development Scenario:
Possible Fallout From
Falling World Oil Prices
There is currently debate among Brazilian officials
regarding the size of future funding for Petrobras.
Although energy security remains a priority, falling
world oil prices lessen the urgency for investment in
oil exploration and development. Moreover, other
state-owned companies involved in the railroad, pow-
er, and mining and minerals industries are competing
with Petrobras for financial assistance. As a result,
civilian leaders may elect to reduce investment in the
oil sector until market conditions tighten and to
channel available funds to other sectors of the econo-
my. Petrobras also may be increasingly asked to pay
royalties to the state and municipalities in which oil
is found; this could further constrain available funds
for exploration and development.
To reduce Petrobras' annual investment outlays,
Brasilia could choose to develop the new Campos
Basin fields at a slower rate and reduce the pace of
exploration drilling. Given Brazil's oil requirements,
however, we do not believe Brazilian planners would
delay reaching full production from these fields
beyond the mid-1990s, compared with the early
1990s in the likely scenario. If this approach is taken,
Brazilian oil production could begin to decline slight-
ly around 1990, as a result of the aging of currently
producing fields. A drop in output to approximately
470,000 b/d by 1990 is possible, with an accompany-
ing rise of 200,000 b/d in imports likely. But produc-
tion would begin to rebound and imports decline
slowly in the early 1990s as the new fields come into
production. Output could rise to about 530,000 b/d
by the early 1990s and to about 800,000 b/d several
years later. By that time, allowing for further in-
creases in consumption, Brazil would be about
400,000 b/d short of covering its annual oil needs at
the midpoint of our demand estimate (see figure 3). If
in addition, Brazil delayed further exploration in the
Campos-Sergipe-Alagoas trend by about three years,
we would expect that Brazilian oil production would
not reach the 1.0- to 1.2-million-b/d plateau until the
year 2000 or later. F____]
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Appendix
Projecting Brazilian Oil
Production: A Methodology
The projected oil production for Brazil was obtained
by dividing future oil production into three categories:
existing production, future production from the new
Campos Basin discoveries, and future production
from oilfields yet to be discovered.
The projected oil production from currently producing
fields was calculated by performing decline rate anal-
ysis on 27 fields that account for 100 percent of
Brazil's offshore production and 66 percent of Brazil's
onshore production. This type of analysis is based on
the fact that oil production from a field declines at a
constant rate once maximum oil production is
reached. The decline rate was obtained from field
production records and was then applied to the cur-
rent production rate to obtain the field's future oil
production.
Future oil production from the onshore fields not
included in the individual field analysis was obtained
by grouping this production together and thinking of
it as coming from one field. The decline rate for this
theoretical onshore field was assumed to be the
average of the individual decline rates calculated for
the other onshore fields. This average onshore decline
rate was then applied to the combined current produc-
tion rate to obtain the future oil production from these
fields.
The projected oil production from the new Campos
Basin discoveries was obtained by calculating the
maximum production rate for each discovery. The
maximum production rate was obtained by taking into
account the size of the field and the engineering
parameters of the reservoir rock containing the oil.
Our analysis assumed that the new discoveries would
reach peak production five years after coming on line
and that peak production would last for three years.
The engineering parameters of the reservoir were then
used to calculate a decline rate for each discovery.
The calculated decline rate was then applied to the
projected maximum oil production rate to obtain the
field's production after peak production was reached.
Future oil production from fields yet to be discovered
was obtained by projecting the amount of oil that will
be discovered in Brazil during the next 10 yearsa the
likely field size of future discoveries, and the maxi-
mum production rates and decline rates of the new
This analysis assumed that approximately 2.5 billion
barrels of oil will be discovered in Brazilian offshore
basins during the next 10 years, and that onshore
discoveries will cushion onshore production declines
resulting in a net future onshore production decline of
5 percent. We believe these assumptions are realistic
because of the existence of six undrilled structures in
the Campos Basin, which could contain up to 1 billion
barrels of oil each, and the lack of exploration in the
Campos-Sergipe-Alagoas offshore trend that could
contain up to 4 billion barrels of oil. The future
discovery of large onshore oilfields was considered
unlikely in view of Brazil's onshore geology, but, any
such discoveries would add to the potential established
Future offshore discoveries will probably be large.
Our analysis assumed that future discoveries are
likely to be in the 300-million- to 1-billion-barrel
range. For the purposes of this analysis, we assumed
that a single billion-barrel field and three 500-million-
barrel fields will be discovered offshore during the
next 10 years. This analysis is based on the fact that
seismic work indicates that untested structures in the
Campos Basin are large, and the likelihood that' in a
period of rapidly falling oil prices Petrobras will!i only
explore structures that have the potential to contain
large amounts of oil.l
The maximum production rates and decline rates of
future discoveries were assumed to be the same as
those of similiar currently producing fields in the
Campos Basin. This assumption is justified because
future oil discoveries will be in the Campos Basin or in
geologically similiar basins to the north, and is made
because, unlike the new Campos Basin discoveries,
engineering parameters of the reservoir rock are not
25X1
25X1
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