Jean Paul Prates, the head of Brazil’s state-controlled oil company, is undeterred by the global energy transition. He says Latin America’s largest producer should continue to increase fossil fuel production for decades to come.
“We will gain market share,” Prates, Petrobras’ chief executive, said in an interview in Rio de Janeiro. “They may be the last to produce oil in the world.”
His assertion of Brazil’s ambition echoes the policy of other oil exporters such as Saudi Arabia, which argue that investing in fossil fuel expansion is compatible with the global ambition to reach zero net carbon emissions. Many, including the International Energy Agency, disagree, arguing that there is no room for anyone to point to increased crude production if the world meets its climate goals.
The world has been in a tight spot as limited fossil fuel supplies amid a lack of investment led to a global energy crisis that pushed up consumer bills and worsened global inflation. Even leaders who position themselves as climate change fighters, such as US President Joe Biden, have called for increases in oil production to help control rising costs.
Over the past 20 years, Brazil has become a major oil producer, diverging from many of its Latin American peers. Drillers have tapped giant offshore oil fields, known as pre-salt, because the crude oil is trapped under a geological layer of salt. Petrobras operates most of these fields with international companies such as Shell Plc with minority stakes.
Appointed by President Luiz Inacio Lula da Silva at the start of his third term earlier this year, Prates said oil production will remain a top priority. Investment in wind power and other renewable technologies at Petroleo Brasileiro SA, as the company is formally known, will be modest by comparison.
Prates’ comments may ease concerns among some minority investors that the new administration is prioritizing non-core investment projects over the oil and gas business.
Gross production
While Lula has championed the fight against climate change, pledged to curb deforestation in the Amazon, he has also been a supporter of Brazil’s oil industry. The manufacturing boom provided growing tax revenues during Lula’s first two terms, helping to finance his ambitious social spending.
Brazil’s production is expected to reach a record 3.4 million barrels per day this year and will continue to grow until 2030. After that, the country will need new discoveries to maintain and grow production.
“We came very late to this game as a big producer, but we have to keep the ball rolling,” said Prates, 54, who was a senator from Lula’s Workers’ Party before his appointment.
He said the priority will be to exploit existing finds in salt dam areas and find fresh ones, while also looking to open new basins in other parts of Brazil, including the so-called equatorial margin in the far north of the country. This region has similar geology to areas near Guyana, where Exxon Mobil Corp. has found billions of barrels.
Petrobras is ready to start exploratory drilling in the region, but is awaiting approval from regulators. Its proximity to the mouth of the Amazon River has made it a controversial site for drilling and has raised concerns from Brazil’s Environment Minister Marina Silva.
“The state of Brazil will have to decide whether this continues or not,” Prates said. “All we’re trying to do is find oil.” If Petrobras gets the go-ahead, drilling of an exploratory well could begin in April, he said.
Petrobras will study investments in offshore wind because the company has experience running large projects in Brazil’s Atlantic Ocean. It is exploring partnerships with major European oil companies, including Norway’s Equinor, he said.
“This is an environment we already know, and we have in Brazil, without a doubt, the best environment for investment in offshore wind in the world because the climate is favorable,” he said. The rest of Petrobras’ push towards the energy transition will involve two areas where it already has expertise: carbon capture and biofuels.
Prates said Petrobras, which paid a record dividend last year, boosted by rising oil prices and a broad divestment program, should strike a better balance between channeling cash to shareholders, including the Brazilian state, and investment.
“We need to take a more balanced view of this, without leaving aside the great appeal of having big dividends,” he said.
