In deep waters

THE coast of Rio de Janeiro is 290km and 70 minutes away as the helicopter flies. High overhead, gas is flaring; underfoot, enough oil to fill 330,000 barrels is waiting to be offloaded. The ocean floor is 2,150 metres beneath. Drill past 3,000 metres of rock and you will hit a layer of salt 2,140m thick. Only after boring through that fossilised ocean will you strike oil—6.5 billion barrels’ worth in the “Lula” field alone. (Supposedly, it is named for the Portuguese word for squid, not the former president called Lula for his curly hair.)

This is the Cidade de Angra dos Reis, a tanker refitted for oil production and storage, moored by 24 piles torpedoed into the ocean bed. It now pumps 14,000 barrels of oil a day (b/d), but once its gas pipeline is connected in March, it will rev up towards 100,000 b/d. The “sub-salt” fields that Brazil is developing are thought to hold over 13 billion barrels of oil. By 2020 Petrobras, the country’s government-controlled oil firm, will be pumping 4m b/d in Brazil, double today’s amount—if all continues to go well.

That is a big “if”. These ultra-deep deposits must be drilled at up to three times the normal pressure for offshore oil. The salt often shifts and closes up after drilling. Some of the chemicals in the oil are highly corrosive. And the distant fields are hard to reach, for both people and pipelines.

The political obstacles to developing the fields are almost as daunting as the geological ones. The government’s insistence that Petrobras be the sole sub-salt operator, make up at least 30% of any consortium, and source most goods and services within Brazil has led to predictions of inflated costs and needless delays. And an overly complicated recapitalisation last year, involving an oil-for-shares swap with the government, diluted minority shareholders’ stakes and raised the spectre of state interference with management.

But now that the oil is flowing José Sergio Gabrielli, the company’s president, is ebullient. “We have all the technology we need,” he says, “from the surface right down to the oil.” What is still unknown, he says, is how full production will affect the deposits, and what mixture of gases and water must be injected to maintain their output. But that is true of all new fields.

He also brushes off criticism of the requirement to source locally. The finds are so large, and Petrobras is such a big part of the world’s deep-sea oil production (22%), he argues, that suppliers from around the globe will set up shop in Brazil in order to sell to the company. For example, Petrobras wants to buy 45 new floating platforms like Angra dos Reis, which each cost $4 billion-$5 billion. Only around 75 such platforms presently exist anywhere.

Even if Petrobras passes the test posed by sub-salt oil, Brazil as a whole may not. The government plans to put its share of revenues in a sovereign-wealth fund, to prevent unwanted currency appreciation. Eventually the money will be spent for the good of future generations. But many local politicians are already referring to the oil as a pot of gold at the bottom of the ocean—vast riches, capable of solving all Brazil’s ills, and theirs for the spending. Since the money they already take in taxes is plentiful and often wasted, there is no reason to think they would spend oil revenues any more effectively. The fund could well become a target for politicians used to scavenging for the wherewithal to buy votes. Brazil ranks 69th out of 178 countries in Transparency International’s annual ranking of perceived corruption.

More hopeful is the prospect that technological progress, led by Petrobras, can diversify Brazil’s economy. The company employs more than 1,600 people in research and development, says Carlos Fraga, who leads these efforts. It also works with 85 Brazilian universities and research institutes, and for every one of its own researchers, another ten outside the company are working on its projects full-time. A technology cluster is springing up around Petrobras’s research labs in Rio, with university facilities alongside new $50m laboratories built by the likes of General Electric and Schlumberger.

From this perspective, the technical obstacles of sub-salt drilling look like an opportunity. Exploiting offshore oil, says Mr Fraga, could spur Brazilian innovation just as the space race did in the United States. “Just extracting the oil is not enough to move Brazil on in technological development,” says Segen Estefan of the Federal University of Rio de Janeiro. “These are finite resources. Brazil must seize the moment to lead in technology, not just in extracting and exporting raw materials.”