New 'boom' in oil and gas sector gives Brazil a prominent role
cycle of strong resurgence of activities in the oil and gas market around the world.
ESG biting the dust RIP
New 'boom' in oil and gas sector gives Brazil a prominent role
Bnamericas
Published: Wednesday, October 25, 2023
By Rogério Ibrahim, CEO of Foresea
We are experiencing a cycle of strong resurgence of activities in the oil and gas market around the world. In this context, South America is gaining more importance in offshore production with a wave of new projects, and Brazil has taken on a prominent position in this resurgence due to its potential production increase.
The oil industry that operates in our territory has announced investments of 102bn reais (US$20bn) by 2025, according to the Brazilian association of oil services companies (Abespetro).
As a consequence, according to estimates by Brazil’s petroleum institute IBP, in the next 10 years, the upstream segment alone will be responsible for more than 400,000 jobs as an annual average, as well as contributions of more than US$600bn to public revenues (considering royalties, income tax, special participations, profit oil payments and investment obligations in research & development).
If the pace of the energy transition was the main theme of the global debate before the war in Ukraine, then the issues of energy supply security and the impacts caused by the imbalance between supply and demand in the context of rising oil prices have now become hot topics as well.
Countries that sought an active reduction in oil and gas investments were forced to reflect anew. This new market outlook is bringing a cycle of investments, especially for Brazil, with significant opportunities for the growth of oil extraction and production areas in deep waters, the so-called upstream offshore.
The country can benefit from its significant operational safety indices and the award of exclusive and internationally recognized certifications, thus experiencing a strong resurgence in job creation in the offshore area and a new boom in the oil and gas market.
The scenario for offshore drilling and production companies shows a consistent recovery, as they have restructured their capital globally in recent years, following the crises of the past, resulting in increased business attractiveness driven by global demand for oil and, consequently, drilling rigs. The worldwide wave of mergers and corporate restructuring in the industry is currently being brought to a conclusion, bringing renewed financial strength to companies in the sector and shaping a more balanced future from 2024 with new projects, primarily in offshore drilling.
From January to July 2023, new contracts around the world have been agreed for longer periods and with higher daily rates. In the first half of 2022, the global average for contracts was 170-day cycles with an average daily rate of US$251,000. From January to July 2023, the average contract duration jumped to 272 days with an average daily rate of US$323,000. This same growth trend is being experienced in the Brazilian market.
Investments in upstream activities, an area in which Brazil has historical expertise, increased by around 20% in 2022 alone. With the imminent recovery of the offshore extraction and production sector, which provides services, operations, drilling rigs, platforms and large production vessels (Floating Production, Storage, and Offloading Units – FPSOs) to oil companies holding exploration licenses, the volume of tenders has increased and that has a direct impact on the growth in business and the ongoing recovery of the sector, which was heavily affected by the crises of recent years, especially during the most critical period of the COVID-19 pandemic.
Today, the oil and gas industry represents 15% of the country's industrial GDP and IBP predicts that the sector will continue to contribute to economic growth, moving around US$180bn between 2022 and 2031, solely in drilling and production investments.
Diversification is equally positive news in this process of recovery of the market. Even with Petrobras acting as the driving force of the oil industry in the country, we are still feeling the effects of a reduction of around 80% in the number of operating drilling rigs between 2012 to 2023. In contrast, the new upward cycle in the market is attracting interest from at least 83 economic groups, of which 45 are domestic and 38 are foreign, according to oil and gas regulator ANP. Certainly, planning a schedule for new rounds of tenders may be one of the solutions to ensure the evolution of oil production in the country, allowing companies to allocate funds.
Even companies committed to reducing the use of fossil fuels have made it clear that a future without hydrocarbons is unimaginable, given the post-pandemic increase in demand.
Regardless of the progress and issues supported by ESG best practices, it is a fact that the world still consumes about 100mn barrels of oil per day, and that volume is not expected to drastically decrease in the short term, even in the face of increased new energy sources. The energy transition is a gradual, long-term process of reconciling energy sources.
The oil market constitutes one of the most complex production chains in the world. Its strength in providing energy and operational security, as well as high technology, ensures the wellbeing of society in the pursuit of the energy that moves the world. In the case of Brazil, the strength of this industry is even more essential, particularly in the extraction and production sector, which provides quality jobs both onshore and offshore on drilling rigs and production platforms, which means that a new growth cycle is undoubtedly on the horizon.
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