Brazil is the ninth-largest oil producer in the world and the second largest in Latin America, behind Mexico. The country's annual oil production reached 2.4 million barrels a day in 2008, a 7 percent increase from the previous year. Oil production has grown at an average rate of 6.9 percent since 2005.
Proven oil reserves were 2.85 million barrels a day in 2010, according to the U.S. Energy Information Agency (EIA), but this could increase significantly as exploration activities continue. Though Brazil achieved energy self-sufficiency in 2006, discoveries in 2007 and 2008 at the El Tupi (now "Lula"), Sugar Loaf and Júpiter deposits could help to turn the nation into an oil giant. All these deposits are located offshore, between the states of Espíritu Santo and Santa Catalina, in a stratum under the salt layer, at 7,000 meters deep.
These Pre-sal finds are estimated to hold 30 to 50 billion barrels of oil. As estimated, the reserves would place Brazil ahead of Russia but still behind Venezuela. Initial indications suggest that exploration of the Pre-sal deposits will require an enormous investment not only of money but also of time, which only increases the attendant risks.
New legislation expanding government control of the oil sector and changing production-sharing and revenue distribution made progress in Brazil's congress during 2010. While proposals for regional distribution continue to spur debate over the appropriate share to be received by producing states, the proposals for production sharing were expected to meet with less resistance. The changes as proposed in the original bills are as follows:
- For all the oil blocks in the Pre-sal area not yet granted in concessions (70 percent), the system will change to Production Sharing Agreements (PSA) with Petrobras as the operator, holding at least a 30 percent equity ownership in each block.
- A new 100 percent state-owned company that will be in charge of representing the state's interests in the PSAs for such blocks, providing information to the public, and monitoring the costs of the projects that are developed.
- Five billion barrels of oil are to be transferred to Petrobras to raise the capital stock of the company and enable it to issue new shares for sale to the state in order to increase its ownership stake.
- Creation of a social fund using a percentage of revenues generated by Pre-sal oil, with investments focused on poverty reduction, education, culture, science and technology, and environmental sustainability.
These bills would give the state more control over the exploitation of this strategic area. The senate approved the bills in mid-2010, with some amendments. The most important change was related to revenue-sharing, calling for equal distribution among all Brazilian states, instead of the original scheme that favored producer states Rio de Janeiro and Espíritu Santo. Once passed, the production-sharing rules will enable Brazil to step up development in the Pre-sal region.
Besides oil, Brazil also produces 438 billion cubic feet of natural gas per day and imports around 20 million cubic feet per day from Bolivia. Natural gas reserves total 13 trillion cubic feet, according to 2010 figures.
Consumption of both oil and natural gas have increased rapidly due to high economic growth, but oil remains the most important energy source for the country, representing 49 percent of total energy consumption, compared to only 7 percent for natural gas. Indeed, Brazil was the seventh largest oil consumer in the world in 2008 according to the EIA.
Despite the importance of oil production, Brazil's hydrocarbon sector represents only 3.3 percent of GDP. Oil exports are also small, only accounting for eight percent of total exports, but production is enough to maintain Brazil's oil self-sufficiency. Mineral exports account for 6.9 percent of the country's total exports.
The most important company in the hydrocarbon sector is national oil company Petrobras. This NOC is actually a publicly traded private company in which the government has the majority stake and management responsibility. Shares are traded on the New York and Sao Paolo stock exchanges.
Mining activity is concentrated in a few states: Minas Gerais, Pará and Goiás. These three states account for 84 percent of the country's mineral output. The main minerals produced in Brazil are niobium, manganese, tantalite, aluminum, chrysotile, gold and silver. The latter two are transported to Sao Paulo to be processed and exported, mainly to Canada, Europe and Australia.
As with oil, mining production has grown steadily since 2005. The average growth rate from 2005 to 2008 was 24.2 percent, with production values increasing from $9.8 billion in 2004 to $23.3 billion in 2008.
In the mining sector, the Brazilian company Vale do Rio Doce is the most important player, with ownership of the principal mines as well as participation in joint ventures with foreign companies, such as the partnership with BHP Billiton in the Samarco Iron Ore Mine located in the state of Minas Gerais.
