In a series of posts leading up to the World Economic Forum’s Energy for Economic Growth report launched on Wednesday 7th March 2012, José Sergio Gabrielli de Azevedo, President and Chief Executive Officer, Petrobras, Brazil, expresses his hopes for Brazilian economic growth through the development of pre-salt oil reserves.

Since we discovered the pre-salt oil fields offshore Brazil in 2007, much has been said about the potential for the area to become one of the world’s major oil and gas provinces. Indeed, the IEA points out that the pre-salt fields could be a gamechanger for our company and even for world oil supply in the next 25 years. Petrobras has already discovered for itself and its partners between 13 and 16 billion recoverable barrels of oil equivalent (boe) in only 28% of the pre-salt area. Thus, from the current concessions in the pre-salt fields alone, we expect to be producing around 2 million barrels of oil per day by 2020. To put this in perspective, it took Petrobras 57 years to reach this level in all of Brazil (in traditional offshore and onshore fields). So far, the results of our efforts have surpassed our expectations. The company’s most productive well is located at the Lula field, which produces an amazing 36,000 boe per day.

But I would like to call attention to another potential benefit of the pre-salt fields, concerning the wealth that can be created onshore by the investments required to tap these offshore resources. Some facts and figures give a sense of the opportunities that lie ahead. Petrobras’ capital expenditures on the pre-salt fields will total US$ 53.4 billion in 2011-2015 (about 45% of our upstream investments in Brazil). Presently, our stake amounts to only 26% of the total pre-salt area. Even though it is far from straightforward to estimate the multiplier effect of our investments on the supply chain, some studies suggest that for each R$1 invested by Petrobras, another R$3 are invested in the supply chain. For example, in terms of work opportunities, during peak construction of a producing platform, 4,000 to 5,000 direct jobs are created. But we will need more than platforms to reach our pre-salt targets: our demand will translate into a number of drilling rigs for ultra-deep water, pipelines, supply vessels, turbines, engines, valves, pumps and more. Also, an aspect of our growth prospects that is often poorly appreciated is the need to invest in the refining business. Since we expect Brazil’s refined product consumption to grow by around 4% per year from now to 2020 (in stark contrast to the expected decrease in demand in OECD countries), we will build new refineries to strike a balance between domestic consumption and refining capacity, thereby securing our profit margins in the segment.

In light of that, suppliers of oil and gas production equipment worldwide are presented with a unique growth opportunity. Some of them will inevitably expand their facilities in order to meet our demand. We expect this expansion to occur in Brazil, not only because it is now a legal requirement, but because it makes economic and strategic sense to have additional capacity close to our operations. Think, for instance, about maintenance and troubleshooting, and it is easy to realize how useful a strong local industrial base can be.

We are very much aware of the challenges we face and are striving to anticipate and overcome all the possible difficulties. We have identified bottlenecks that may stall the industry’s development, and we are pursuing different courses of action to increase the competitiveness of the Brazilian industry. For example, we are incentivizing international companies to start operations in Brazil, either alone or through partnerships. The results have been more than encouraging: a number of wellknown, experienced companies are already building facilities in Brazil or are in the process of coming to our country. They are not only creating manufacturing facilities, but also building up R&D units for the development of new technologies. Suppliers to the industry can reduce their funding costs through a programme that offers interest rate reductions, relying on our contracts to reduce credit risk to the banks. We are also training people to work in the supply chain. So far, around 80,000 people have been trained and 265,000 are expected to be qualified by 2020. We give our suppliers full visibility on the equipment we will require in our 5-year business plan. Today, they can log into a website and check the details of our future procurements, so they can plan ahead and adapt their facilities, if need be.

Also noteworthy is the Brazilian Federal Government’s creation of a Social Fund, which will invest revenues from the pre-salt fields in trans-generational projects, devised for long-term sustainable development, with a focus on education, science and technology and poverty reduction.

The inescapable fact is that all these developments are producing a virtuous cycle that is fostering the creation of high-quality jobs, helping to generate income and reduce inequalities. The pre-salt fields are a striking example of how the oil and gas industry – in addition to providing the world with much-needed energy– can act as a catalyst to improve socioeconomic conditions.

Author: José Sergio Gabrielli de Azevedo is President and Chief Executive Officer, Petrobras, Brazil
Picture: An aerial view of the final stage of the construction of a new P-56 semi-submersible production platform for the oil company Petrobas at the Brasfels shipyard in Angra dos Reis, about 115 miles (185 km) west of Rio de Janeiro February 24, 2011. The P-56 will be positioned at depths of 1,700 meters (1.05 miles) and about 124 kilometers (77 miles) off the coast. It will have a processing capacity of 100,000 barrels of oil and 5.2 million m3 of natural gas per day, said the Petrobras company. REUTERS/Sergio Morae