A very happy Friday to you. For many, the weekend starts tonight and I hope you have a fun filled one. Thanks very much indeed for dropping in on the Blog before you dash off and dive head long into whatever frivolities you have planned.
First, a follow up to our examination of apparent profiteering in the setting of prices for various goods and services over the World Cup period. You may recall that we examined the reported huge price hike in the cost of flights with TAM Airlines over the soccer championship period and other studies have found hotels that are carried by the FIFA travel site have inflated prices by as much as 500%. I closed one piece, in an earlier post, by saying we would have to look to the Government and others to control the situation and, low and behold, the President has announced that a new Government Committee has been set up to do just that! I am sure it was down to the Blog and your support for it.
Moving on. Monday will see the auction of the Libra pre-sal oil field. In astrology, Libra is the first of the six signs that focus on an individual's contact/relationship with others. Various astrologers call Libra the sign of partnership and of balance, hence the scales....but some industry commentators appear to be suggesting that the Libra oil field may push the Brazilian oil industry and the national oil company Petrobras out of balance and force Petrobras into a legally required partnership to exploit Libra that the company cannot afford. (I recommend an article by Jeb Blount for Reuters on the subject).
Libra was intended to be more a Taurus for Brazil, with the Taureans' life pursuit of financial security and of seeking to safeguard tomorrow today. With an estimated recoverable yield of 8-12 billion barrels the Government was looking to the field to earn it around $400billion over a 30 year lifespan. The income stream was to lay the foundation for Brazil's economic re-launch and future stability and the national oil company Petrobras will spearhead the advance, irrespective of who wins the auction, as legislation requires that the company will lead development of the field and must fund 30% of costs.
Since such plans were hatched, however, various factors have emerged that question the ability of Libra to meet the lofty expectations. In the mid term, with countries like the USA either engaged in or pondering large scale exploitation of shale gas deposits by hydraulic fracturing (fracking) the revenue numbers that Libra returns may be significantly reduced. Added to that, various requirements about the involvement of Brazilian domestic industries, government levies and considerable concern for the cost of exploitation of this deep pre-sal (sub-salt) field have scared away many of the expected leading bidders. Only eleven out of the expected forty companies registered for the auction and many key players from the political west will be absent. While appearing to be bad news to the ill-informed, like myself, some have opined that the absence of the usual suspects, the USA and European giants, may actually bring some benefit in freeing Brazil from the conventional oil industry links and potentially allowing closer ties with Asian oil interests.
On top of all that, some oil industry workers have gone on strike in protest against the auction and there are concerns for attempts to disrupt it, in what some are calling an act of resource nationalism. Some anti-globalisation and eco groups have made similar murmurings. As a result, the Government felt it necessary to announce that Army elements will be responsible for the security of the auction on Monday.
Pile all the above together and you have something of a mountain for the winner's of Monday's auction to climb....but, even having done so, it may prove that the Libra mountain was still presenting a false summit as arguably the greatest problems are found with the part Petrobras is required to play, by law. The company is currently cash poor, but will be required to pay 30% of what are expected to be huge development costs; tens of billions of dollars, with $7Bn required up front. The Brazilian national oil concern is currently selling off assets in its international interests but still may not accrue the necessary liquidity. Its next step is expected to be to postpone or abandon other projects in Brazil. The example many flag up is the Farfan1 field off our coast, here in Aracaju. Farfan 1 is about 104Km (about 64.5 miles) off shore at a depth of 2,476m (8,123ft) and is reportedly much more accessible than Libra, with development costs being significantly less. Some say Farfan 1 could be pumping within four years. The suggestion that such projects may have to be abandoned in order to divert funds to Libra would be a huge blow to Sergipe State and the NE, a very poor Region that was looking to the exploitation of offshore oil as something of a saviour....maybe not!
The exploitation of natural resources was meant to be the launch pad for Brazil's economic second wind. The ability to deliver much that was promised in response to the nation wide protests of June was predicated on expectations of huge future oil income and the jewel in that crown was to be Libra. Librans are meant to be in love with love and to fall in love easily....so let's hope we may yet be able to fall in love with the Libra oil field.
Well, that has rather depressed me, so I shall stop. The next post will be Monday. I hope you have a great weekend and would love to think that I would see you back on the Blog next week.
Until then, stay safe.
Dave
2 comments:
It sounds like fanfan should be the short to mid term and libra mid to long term. The challenge for a country like brazil is to use both the oil and revenue over time in a way that promotes balanced development. In a sense these fields make brazil like the UK with North Sea oil - it was a boon but not the final solution. For Norway with a smaller population the equation was very different.
Pretty sure they would love to make Farfan short to mid and Libra long term, trouble is that Libra will be auctioned on Monday and then Development begun directly and Petrobras HAS to, by law, lead on development and pay 30% of cost with $7Bn up front and they are cash poor now....hence the need to sell assets and suspend other activities as they have to seek the liquidity now. Commentators are suggesting that Petrobras simply doesn't have the option to progress development of both field in the immediate future (which is the time frame for beginning the LONG process of Libra development).
Brazil has actually drawn up what appeared to be a very decent plan for use of the oil to improve quality of life across the spectrum in the country....but with fears that the revenue stream may be narrowed by alternative energy sources such as fracking and with having to delay or cancel other fields that were intended to be major earners in order to find the money for Libra, the plan is seriously threatened.
Thanks.
Dave
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