Brazil’s rising oil production

Brazil produced an average of 2.94 million barrels of oil per day in 2020. The South American country is now the seventh-largest crude oil producer in the world, and the largest in Latin America, with current trends indicating further growth for Brazil's oil industry.


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Despite being one of the countries most affected by the raging COVID-19 pandemic, Brazil still managed to produce an average of 2.94 million barrels of oil per day (Mb/d) in 2020. This was 5.5 percent higher than the country’s 2019 output of 2.785 Mb/d, surpassing the rate of the Organization of the Petroleum Exporting Countries’ (OPEC) third-largest oil producer, the United Arab Emirates, which finished the year at 2.77 Mb/d. Brazil is now the seventh-largest crude oil producer in the world, and the largest in Latin America, having superseded both Venezuela and Mexico.

There are many reasons for Brazil’s oil boom. One leading cause, however, is the discovery of new offshore oil deposits, inducing multinational oil companies—including the state-owned enterprise Petrobras—to actively set up new refineries. While international investment is currently being encouraged, Petrobras continues to divest and sell some of its refining assets. 

Petrobras and multinationals find new reserves

After the Second World War, the international economic recovery and expansion of industrialization contributed to a significant rise in the global demand for oil. Although several Latin American countries had already established their own state oil companies, Brazil’s incipient oil industry was not nationalized until 1953, when then-President Getúlio Vargas founded Petróleo Brasileiro, S.A. (commonly abbreviated to Petrobras). The state firm maintained a monopoly for the next 40 years, as the Brazilian constitution forbade foreign oil companies from investing in oil exploration or production in Brazilian territory.

This monopoly ended in 1997, when former President Fernando Henrique Cardoso convinced Brazil’s National Congress that, due to the country’s continued need to import oil, opening up to foreign investment would enable Brazil to attain petroleum self-sufficiency. Since then, multinational companies have brought in large amounts of foreign capital and advanced technology to locate and extract new oil reserves.

In 2006, Petrobras announced the discovery of a giant oil deposit off the coast of Brazil, deep beneath a layer of salt—also known as a ‘pre-salt field’—in the Atlantic Ocean. It is estimated to hold about 50 to 100 billion barrels of recoverable crude oil, valued at over USD $2.5 trillion. These oil deposits include the pre-salt fields of Tupi, Búzios, and Sapinhoá, all located in the Santos Basin, in addition to other deposits in the Campos Basin, located south of Rio de Janeiro in the South Atlantic (see map). Petrobras, as well as multinational oil companies such as Royal Dutch Shell, British Petroleum, Chevron, and ExxonMobil, are spending hundreds of millions of dollars to develop these reserves and extract oil.

Map showing onshore and offshore Brazilian natural gas and oil reserves in the Santos and Campos Basins. (Source: ResearchGate)

Petrobras divests to attract new investors

Petrobras has implemented a large-scale divestment plan that should enable other international oil companies (IOCs) to expand their operations in the Brazilian pre-salt regions. In an attempt to further open the Brazilian economy to foreign competition, in 2016, Brazil granted private oil companies permission to participate in license biddings, although Petrobras maintains the right of first refusal and guaranteed access to a share of at least 30 percent. Brazil has also reduced requirements to use locally produced goods and services that had previously contributed to delays, and reinstated a regular schedule of annual licensing sales. However, some IOCs have nevertheless declined to participate in such biddings, due to the high initial payments and overly complicated contracts required.

Petrobras is looking to sell eight out of its 15 refineries by the first half of 2022, and is aiming to shed more than 100 onshore and offshore fields, according to S&P Global Platts. These downsizing processes should create an increase in the market share for small- and medium-sized companies, as well as for large foreign multinationals.

Alessandro Bacci, Oil and Gas Analyst at GlobalData, believes that “increasing the number of operators will create a more economically resilient pre-salt oil and gas sector because it wouldn’t be linked to the financial performance of just one company, which in case of financial difficulties could be forced to postpone projects. The financial position of Petrobras has opened up additional opportunities, and there is an interesting alignment between the Agência Nacional do Petróleo’s (ANP) and the IOCs’ goals.”

Brazil needs to rapidly permit more companies to invest in oil production, especially now that Brazil faces new competition from other Latin American countries, such as Uruguay and Guyana (the latter of which has been drawing intense interest recently since ExxonMobil made 18 discoveries in its Stabroek block). Both countries are also planning to offer licensing sales in 2021. Additionally, as the global economy transitions toward renewable energy and decarbonization, competition for investments in oil exploration and production will only increase exponentially.

Nonetheless, the current forecast for Brazilian oil production remains promising. GlobalData projects (see graphic below) that Brazil will reach 4 Mb/d by 2025, while Brazil’s energy research agency EPE expects crude output to hit 5.2 Mb/d in 2026. If these projections are accurate, within the next decade Brazil will become the fourth-largest oil producer in the world, behind the United States, Saudi Arabia, and Russia.

Suzanne Driscoll is a freelance writer for Sharemoney from St. Petersburg, Florida. She has written for national publications on issues involving business, healthcare, education, and immigration.

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