Brazil Eyes New Oil Frontiers

By Simon West

In a feature story from Issue 4 of Breakbulk Magazine, we look at Brazil’s plans to nearly double offshore oil production and open up untapped regions – including the Amazon Basin – for exploration.

Brazil’s massive pre-salt oil and gas boom is providing plenty of work for project logistics, from transporting flowlines and masterminding rig moves to dismantling decommissioned platforms and supporting the construction of new liquefied natural gas units.

The demand for floating production, storage and offloading, or FPSO, platforms has also called for significant breakbulk support. These colossal vessels measuring up to 330 meters long – three times the length of a football field – are deployed at offshore oilfields to produce and store crude until it can be offloaded onto tankers for distribution.

Although FPSOs stationed in the prolific Campos and Santos basins off Brazil’s southeast coast are often built in Asia where shipyards are more equipped to handle such large platforms, local content laws require at least some components and equipment to be sourced domestically. Logistics firms are tasked with shipping these parts to shipyards in Asia for assembly, and then transporting the completed vessels back to Brazil for pre-salt operations.

Petrobras is the dominant force in the development of Brazil’s pre-salt reserves – so-called because they are buried in the seabed beneath thick sheets of salt – and the world’s largest operator of FPSOs. The state-controlled energy company’s latest five-year strategic plan calls for the deployment of 18 new vessels by 2027.


Logistics Support

Sao Paulo-based freight forwarder FOX Brasil is currently providing logistics services to engineering company Toyo Setal, which is producing modules for Petrobras’s P-79 FPSO. The modules, which include units for the treatment and separation of crude oil, water and gas, are expected to be shipped to the Daewoo shipyard in South Korea later this year.

P-79, being built by a joint venture between Daewoo and Saipem, will have a capacity to produce 180,000 barrels per day, or b/d, of oil and 7.2 million cubic meters of gas. The vessel, which will also be equipped to store two million barrels, is expected to be deployed in the Buzios field – a large, ultra-deepwater oilfield in the Santos basin 200 kilometers off the coast of Rio de Janeiro – in 2025.

Decommissioning is another key area for breakbulk movers. Over the next five years, 26 platforms including eight FPSOs, 360 wells and 2,500 kilometers of risers and flowlines have been earmarked for decommissioning, with an additional 27 platforms slated to be dismantled between 2028 and 2030.

“If you look at the investments planned in the coming years, there will not only be possibilities for building these new FPSOs, but also decommissioning some of the old platforms. We’re now working on a decommissioning project that will end up being shipped abroad,” said Murilo Caldana, project director at FOX.

The Port of Açu, one of Brazil’s most important offshore oil and gas hubs, also eyes opportunities in decommissioning. Açu, located in the north of Rio de Janeiro looking out on the Campos and Santos Basins, is the largest port in the Americas, boasting more than 130 square kilometers of land – more than twice the size of Manhattan.

The port houses 10 private terminals including a multi-cargo terminal (T-MULT) capable of handling oversized oil and gas components such as risers, reels, condensers and turbines.

The terminal’s total bonded area for storage tops 360,000 square meters. Alongside a new 6,000-square-meter yard dedicated to breakbulk and project cargo, the terminal is also expanding its quay size from 340 meters to 500 meters, a project slated for completion by the end of 2024.

Such an expanse of land means Açu is well suited for offshore projects that require space for assembling components, carrying out rig and vessel maintenance and coldstacking platforms, as well as housing production facilities for flexible pipes and other infrastructure.

“There are some things we don’t do yet, but we see possibility, for example the decommissioning of older oil rigs. A third of these rigs are more than 25 years old, so at some point they will have to be dismantled,” Maartje Driessens, international business manager at Açu, told Breakbulk.

“We’re not doing that yet because we’re waiting for the regulatory framework from the government, but it’s an area that could create new business for us. We’ve already done a learning mission to the Port of Dundee in the UK to understand how they deal with this type of activity and learn from their best practices.”


Exploring New Frontiers

Brazil’s pre-salt buildout over the last two decades has been impressive, with average oil output at the Campos and Santos basins soaring from 41,000 b/d in 2010 to 2.2 million b/d in 2022 – about 73 percent of the country’s current nationwide production of some 3.0 million b/d.

A multi-billion-dollar cash-for-contracts scandal last decade – dubbed “Car Wash” – involving a handful of corrupt Petrobras executives and some of Brazil’s largest construction companies briefly threatened to derail the nation’s pre-salt drive, but a series of industry reforms, better oil prices and Petrobras’s focus on developing its core assets – particularly its offshore reserves – has re-energized the industry. By 2029, the government wants to increase crude output to 5.6 million b/d – a level that would transform the country into the world’s fourth-largest oil producer, up from ninth place today.

To lure the necessary investment and expand drilling, the energy ministry announced in March its Potencializa E&P Programme, which aims to channel resources into marginal commercial fields, mature basins with declining production rates and “new frontiers” that have yet to be fully explored, such as the equatorial margin, a more-than 560,000-squarekilometer deepwater area off Brazil’s north and northeastern coasts that includes the Foz do Amazonas, Para- Maranhao and Barreirinhas basins.

Mines and Energy Minister Alexandre Silveira described the equatorial margin as Brazil’s “new pre-salt,” a region with the potential to generate US$200 billion in state revenues if 10 billion barrels of oil were discovered and produced, he said.

Some major projects in the northeast are expected to be up and running soon, such as Petrobras’ Sergipe Deepwater Project, or SEAP, located in the Sergipe-Alagoas basin some 100 kilometers off the Brazilian coast. The energy giant earlier this year said it had begun the process for chartering two FPSOs for SEAP with production capacities of 120,000 b/d by 2026.

In many areas along the equatorial margin, such as in the Amazonas basin, activity has been limited to preliminary drilling carried out by Petrobras. Felipe Feres, a Rio de Janeiro-based partner in Brazilian law firm Mattos Filho and an expert in the country’s energy sector, said the government’s targets were achievable given that many of the big pre-salt fields in the Santos basin had yet to reach their peak production curve.

“Just with the current Santos basin pre-salt fields, we’re probably going to add at least a million or so barrels, without new frontiers,” he said. “But in the Campos and other mature basins, production has been declining. So, the problem that we’ll have in the midterm is actually replacing declining reserves and production. It’s not so much reaching the 5 million-plus barrels – I think we can do it. But what happens next decade, from 2029 onwards, when pre-salt production will reach its peak and start declining, and we need to replace it? That’s where investments in these new frontiers will come in.”


Attracting Foreign Spend

Brazil has ramped up its efforts in recent years to draw foreign investment and expertise.

A stable political and regulatory context, good infrastructure, strong local expertise in deepwater development and robust domestic markets for oil products and natural gas have been decisive in enabling the development of pre-salt reserves. Energy majors such as Shell, ExxonMobil and Chevron have been lured to the region by a raft of industry-friendly reforms, including a new rule in 2018 scrapping Petrobras’ mandatory role as sole operator of pre-salt projects.

Feres said Brazil has always been a “safe haven” for investors but warned that the current administration’s new taxes on crude exports that applied until the end of June to existing contracts and an instruction to Petrobras to halt the sale of assets including smaller onshore and offshore oilfields could dampen confidence.

Measures to revamp the country’s tax system – currently being debated in Congress – that could lead to the scrapping of a tax break on imported E&P offshore equipment and machinery – dubbed “Repetro” – is also spooking investors.

“That benefit is absolutely key to attracting investments because it makes the import of E&P components and equipment that we don’t produce efficiently in Brazil cheaper,” Feres said. “Killing Repetro will obviously make exploration and production in Brazil more costly, meaning that some future projects might not be economically viable. Hopefully, the Potencializa E&P program will put the current administration back on track in attracting investments.”

Another major challenge for developers is complying with Brazil’s strict environmental laws.

In May, Brazil’s environmental regulator Ibama blocked Petrobras’ request to drill a deepwater well in the Amazon Basin, citing ecological concerns. Reuters quoted Petrobras as saying in a securities filing that it had fulfilled “every technical requirement from Ibama” for the project to be approved and was ready to refile its request.

“It’s a huge problem – the operators need these licenses to be able to drill and confirm what seismic studies say. Without that, it’s simply money spent for no good reason,” Feres said.

“People in the market think the equatorial basin has the same type of geological plays that have been discovered in Guyana and Suriname. But we can only confirm once those drilling licenses are granted by Ibama, and up to now they’ve been denied. That’s the main hurdle that we face.”


"The Potential is Massive"

Logistics professionals speaking to Breakbulk were bullish about Brazil’s oil & gas prospects.

Marcelo Franceschetti, chief commercial officer at CET Logistics, a Rio de Janeiro-headquartered firm that focusses on oil and gas, said the country’s Potencializa E&P Programme was a “great development” that would generate employment in one of the country’s more impoverished regions.

Ana Josephina, commercial director at Salvador-based logistics firm Logtrade, added that breakbulk-handling ports in the northeast such as Suape in Pernambuco state and Mucuripe in Ceara state were well-equipped to support the buildout of offshore hydrocarbons.

Marcelo Urbano, Houston-based chartering director at UAL America, part of global shipping line Universal Africa Lines, said Brazil was “top of the company’s list” in Latin America. Urbano, who has three decades of experience working in shipping and logistics in Brazil, is heading UAL’s expansion into South America.

UAL already regularly operates vessels to Guyana, carrying breakbulk and container cargo mainly for the oil and gas industry. The carrier, which owns 10 vessels, operates another eight or nine and is planning to build another five, is in talks to set up regular contracts with clients in Brazil.

“Brazil, Guyana and Suriname followed by Mexico are our main destinations,” he said, pointing to Brazil’s oil and gas recovery after the Car Wash scandal that nearly brought Petrobras to its knees. “For us in shipping, there was a lot of business as companies pulled out of the country. Two or three years of demobilizing rigs and all the equipment they normally use. But it was negative for the country. I see now demand for equipment to be repositioned back to Brazil, and we’re receiving already an increase for drilling rigs – that tells me that (the oil and gas sector) is back.”

The challenges are still there, Urbano said, citing the high taxation rates that Brazil would do well to address, as well as soaring logistical costs of operating in the Amazon basin, where prices for pilots, tugs, port services and other shipping services were “way above inflation.” But, he said, if Brazil can overcome those obstacles, “then the potential is massive.”


PHOTO MAIN: FPSO Anna Nery. CREDIT: Petrobras
PHOTO 2: Loading breakbulk at the Port of Açu. CREDIT: Port of Açu
PHOTO 3: UAL 'Houston', Angra Dos Reis, Brazil CREDIT: UAL