Petrobras: Brazil’s goose that lays the golden eggs turns 70

The petroleum company celebrates its seventh decade of existence with its sights set on the equatorial sea around the Amazon, as it tackles the energy transition and the shadow of corruption

Petrobras Brazil
Petrobras refinery in Duque de Caxias (Brazil).Dado Galdieri (BLOOMBERG)
Naiara Galarraga Gortázar

Brazilian Jessica Vieira, aged 26 with three children, has no idea how much a barrel of Brent Crude is trading at, yet she does not need to read a stock market report to be aware that oil companies are performing extremely well. She will certainly appreciate the tremendous changes brought by the black gold in recent years to Maricá, a municipality to the north of Rio de Janeiro that overlooks the Atlantic Ocean. Along with the free buses, the pristine waterfront, the bustling new businesses, the influx of new residents and the employment opportunities, Vieira receives a monthly basic municipal income as do 42,500 other poor residents. Both Maricá and Mrs. Vieira hit the jackpot when in 2007 Petrobras discovered crude oil directly in front of their short stretch of coastline sitting thousands of meters beneath a layer of salt.

The pre-salt layer represents the goose that lays the golden eggs for Petrobras, which turns 70 years old on October 3. The oil company, which made headlines a decade ago when it was at the center of one of the world’s biggest corruption scandals, has since moved on from that traumatizing episode. It has enjoyed record profits as a result of the war in Ukraine, as have other oil companies, while major challenges hang over the horizon.

This is due to the fact that crude oil production, which is currently so lucrative, will begin to decline towards the end of this decade, according to estimates, and also because its commitment to the ecological transition is less clear-cut than that of its competitors. By 2027, it will allocate 6% of its investments to clean energy, although the International Energy Agency (IEA) recommends 15-20%.

The Brazilian state, Petrobras’ majority shareholder, is at a crossroads because it holds virtually the entire Amazon — a crucial ecosystem for stemming global warming — in its territory, at the same time as a business as polluting as crude oil is one of the driving forces of its economy. João Victor Marques, an energy researcher at the Getulio Vargas Foundation, calls the company’s current situation “very challenging.” “It is searching for new frontiers, focusing on pre-salt and revitalizing mature wells. It has scaled back its participation in foreign projects and there is the challenge of making the transition from oil company to energy company, so it needs to diversify the business.”

One of Brazil’s largest companies, Petrobras lost its monopoly on oil a quarter of a century ago. However, it is now in its seventh decade of existence, boasting a daily production of 3.1 million barrels, a profit of $35 billion last year (the biggest in its history, almost double that from 2021), 56 platforms, reserves of 10 trillion barrels and 45,000 employees.

The last 15 years have certainly been something of a roller coaster ride. The euphoria over the discovery of huge reserves of oil 300 kilometers offshore, 10 kilometers deep under a two-kilometer layer of salt, was tremendous, perceived by many as a panacea. This lifeline promised to solve all the Brazilian people’s problems. The then (and now) president, Luiz Inácio Lula da Silva, stood smiling before history with his hands covered in crude oil — Brazil was on the verge of making a great leap forward.

However, it was not to be. The Lava Jato investigation exposed a colossal corrupt scheme in the oil company, with politicians and Petrobras bosses receiving bribes from corporations in exchange for the awarding of inflated contracts. This represented a devastating blow for Petrobras, as it began to incur losses and a soaring debt. It was not until 2018 that the company returned to profitability.

During the recent tenure of the far-right leader Jair Bolsonaro, refineries and gas pipelines were sold to refocus on extraction and reduce its debt. In keeping with his explosive character, the retired military officer dismissed three Petrobras presidents, unhappy with fuel prices. Yet, this is also a sensitive issue with Lula, who wishes to harmonize gas prices so that they are no longer subject to the fluctuations of the international market.

Lula placed 55-year-old Jean Paul Prates, a veteran of the sector who served as a senator of the Workers’ Party, at the head of Petrobras. The latter is highly critical of the Bolsonaro-era sell-off of assets and sees the company as “a frightened turtle, with its head and legs inside its shell,” he said in an interview with O Globo newspaper in May.

The dispute between Petrobras and the Brazilian Ministry of Environment and Climate Change over the future of the waters at the mouth of the Amazon River highlights Brazil’s dilemma. The oil company’s new promised land stretches along the Equator, in the northernmost part of the Brazilian coast. “The equatorial belt is the major exploratory frontier that will guarantee an increase in production in the coming decades,” explains Marques, at the FGV.

The oil company’s request to explore 175 kilometers of the coast of Amapá (Brazil) to determine whether there are reserves as lucrative as those already exploited by neighboring Guyana was rejected by the environmental agency in May on the grounds of a lack of guarantees in the event of possible spills. The environmental authorities demanded more detailed studies for the region, thought to potentially be holding 14 billion barrels.

However, the president of the oil company had previously expressed caution when interviewed: “No one is going to stop exploring new frontiers overnight. Focusing everything on the energy transition. This is a double challenge.” He then suggested paying out lower dividends to compensate for the transition to the new times.

Dispute in the Amazon

For Petrobras, the Amazon Delta project represents a major asset, as shown by the fact that it allocates almost half of the funds allocated to the search for new oilfields, according to Marques. He stresses that oil from this region “leaves a carbon footprint much lower than the world average” and that Petrobras already extracts oil in two other land areas in the Amazon.

In any event, this is a fierce battle being fought on both the technical and political fronts. It has led to friction within the government, and no one in Brazil can forget the resignation of the Minister of the Environment, Marina Silva, during the previous term in protest against the construction of the Belo Monte hydroelectric plant, also in the Amazon region.

Lula is refusing to forsake oil in the Amazon, as Colombian President Gustavo Petro publicly demanded during an environmental summit in Belen this August. Ecuador’s decision, approved in a recent referendum, not to drill for oil in the Yasuní National Park has bolstered Brazilian environmentalists.

Ana Guedes, from the NGO Mapinguari Institute, in Amapá, warns that Petrobras’ plans involve significant risks for the region in question, where fishing activity is essential and which also possesses vast areas of mangroves. There is no experience of how to clean up a spill in this ecosystem, she explains. The battle is now focused, she says over a video call from Macapá, on “informing the fishermen, those most vulnerable to the company’s demands, about the risks and potential advantages” as they study the conditions to be put in place if there is eventually approval to search for oil.

The activist points out that promises about the benefits of other projects never materialized. Referring to the 2020 blackout in Amapá, she says: “We spent 20 days without electricity even though we have four hydroelectric plants in the state!”

In contrast, in Maricá, 3,700 kilometers to the south, it is all praise for oil. This is not surprising because the city receives the most royalties from the extraction of crude oil and gas in the entire country. Last year these amounted to R$3.5 billion ($695 million) for a population of some 200,000 inhabitants, many of whom were enticed by the black gold rush. This wealth leads to a basic income of $40 per month, other assistance for informal workers, free buses and bicycle use, university scholarships for the poorest and research projects aimed at the future. They are aiming to become like Norway on a microscale, taking advantage of this jackpot to finance social policies in the long term.

Igor Sardinha, Maricá's councilman for Economic Development and Petroleum, explains in his office: “We have to work in the certainty that the end [of oil] will come. It is a finite commodity. Or maybe it will still exist, but it will no longer be so necessary or valuable. That is why we are working on several fronts and have created a sovereign wealth fund.” Between 10% and 15% of the royalties are automatically deposited in this area. While residents are fully aware that the local economy is overheated, they hope that clean energy will generate jobs. For this reason, they have invested in a project of the Federal University of Rio de Janeiro on the potential of hydrogen with the hope that it can supply public buses, be profitable and enable the creation of a production plant for environmentally friendly vehicles.

Councilman Sardinha is very conscious of the ups and downs of the sector because he himself grew up in Macaé, a nearby municipality that was showered with oil money in the nineties but failed to capitalize on the opportunity and is now struggling.

Jessica Vieira, whose priority is to find a job as an autopsy assistant, is enjoying the prosperity without thinking about tomorrow. She understands how hard life can be. She barely had a childhood, having to work from the age of eight and getting married at 14.

The municipal leader in charge of economic development certainly keeps a close eye on Brent Crude Oil prices and international news such as the war in Ukraine, because the budget hinges on it.

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