The Future of USA-Brazil Energy Commodity Trade

 Brazil is expected to keep increasing its oil and natural gas production in 2024 as new offshore fields are developed. However, President Luiz Inacio Lula da Silva and his Workers' Party (PT) have changed the country's energy policy back to a state-led model, which has made it harder to predict future growth. Since December 2022, four new floating production, storage, and offloading vessels (FPSOs) have been put in service. These vessels have helped set a number of records for oil and natural gas output in 2023 and should continue to do so into 2024, according to officials from the government and the industry. According to the National Petroleum Agency (ANP), oil companies in Brazil pumped an average of 4.285 million b/d of oil equivalent in the first 10 months of 2023. This was 2.2% more than the previous record of 4.194 million boe/d pumped in 2022. Petrobras, an oil company owned by the government, also plans to pump oil from the FPSO Sepetiba for the first time in December. This will make it the fifth FPSO to start working in the last year. There will be a second production unit at the Mero field in the Libra production share area. It is called the FPSO Sepetiba. A $102 billion spending plan from Petrobras for 2024–2028 says that production will grow less quickly that year.

In 2024, Petrobras and its partners plan to build a single FPSO called the Marechal Duque de Caxias. This ship will be able to create 180,000 b/d. The company Petrobras, which is Brazil's biggest oil producer and the owner of the most land in the rich subsalt region, says it will make 2.8 million boe/d in 2024, the same amount as it did in 2023. The company had raised its production goal for 2023, though, after a number of the new FPSOs hit full output capacity in record time. But Brazil's optimistic outlook for production hides market and government uncertainties that could make it harder for the country to reach its full production capacity. Some of the changes made to the oil industry since 2016 were rolled back by the Lula administration. For example, Petrobras' top management and board of directors were reorganized, which is likely to put the company back in charge of Brazil's energy sector. There was a new policy for pricing fuel in the country, and two important antitrust deals signed in 2019 that ended Petrobras's monopoly in the natural gas and refining sectors were still being looked at. In May, not long after the management and board changes, Petrobras stopped using import-parity prices for gasoline and diesel. The move shut down arbitrage windows for third-party importers that have generally met about 25% of the country's diesel needs and 15% of its gasoline needs. This made people worry about possible supply shortages. Petrobras says that the new price strategy aimed to beat clients' best supply options, grow the market share, and increase domestic refinery output to levels not seen since 2015. In the third quarter of 2023, refineries were running at 95.8% of their full capacity.

Under the 2019 antitrust deal, Petrobras also dropped plans to sell four refineries. At Lula's request, the National Energy Policy Council (CNPE) took away permission for the sales. The CNPE is the main government body that makes decisions about energy issues. The decisions are expected to make Petrobras the biggest refiner in Brazil. This means that efforts to diversify supply to the world's fourth-largest market for transportation fuels will no longer be possible. The Lula government also put Petrobras in charge of the energy transition. Over the next five years, $11.5 billion will be spent on low-carbon and renewable energy projects. The company says that Petrobras will focus on solar and wind power off the coast.
Rules and regulations
On the other hand, Brazil still needs to work out rules for green hydrogen and offshore wind power projects. The country's Congress has talked about bills that have to do with these two areas. But the finer points of tax breaks won't be worked out until 2024, when related bills are passed. Industry leaders say that the tax reform bill could make it harder for Brazil to compete for investments in traditional energy. A selected tax of up to 1% on oil production was included in the bill. This tax could be applied to other goods and services that hurt "health and the environment." In order to help the country's oilfield services industry, the CNPE also raised the standards for local content in offshore exploration and production blocks that will be sold at future concession and production sharing auctions.

The previous Lula government and PT policies also had strict rules about local content, which critics say caused costs to rise and projects to be delayed. The move could make people even less interested in future Open Acreage sales, especially when production sharing is in place. In December, the CNPE added 15 more subsalt production sharing blocks to the Open Acreage portfolio. This was the first big growth for the portfolio since December 2021. Companies that work with oil have liked the Open Acreage concession sales. At an Open Acreage production sharing sale on December 13, Brazil only sold one of the six subsalt blocks that were up for bid. The poor production sharing sale led to more calls to get rid of the subsalt polygon that needs contracts for development. However, ANP Director General Rodolfo Saboia said that Congress would have to act in order to change the rules for regulations.


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