Brazil’s Energy WindfallFebruary 26, 2008
Venezuelan President Hugo Chavez, boisterous and riding high just one year ago in his quest to spread a “socialist revolution” throughout Latin America, has quieted as that effort has ground to a halt. In December, Chavez’s bid to change his country’s constitution was voted down. An ongoing oil nationalization dispute with ExxonMobil, which threatens to freeze billions of assets (AFP) in Venezuela’s state-owned oil company, has raised questions about the sustainability of the country’s oil output. Most recently, major oil and gas discoveries off the Brazilian coast promise to substantially shift the balance of power in Latin America, chipping away at Venezuela’s energy hegemony.
Initial euphoria over the magnitude of the oil discovery, located in the offshore Tupi field, led Brazilian President Luiz Inácio Lula da Silva to announce his intention to join OPEC, the Organization of the Petroleum Exporting Countries. Petrobras, the country’s state-run oil company, estimated the field had about 8 billion recoverable barrels of oil, and the broader area surrounding the field might hold as much as 100 billion barrels. The Tupi field probably won’t be productive for at least another five years, and it will be difficult and costly to develop, but the Economist Intelligence Unit says there are indications that the possible reserves might be even larger than the government estimates. In a region that is energy-starved—Argentina and Chile are both struggling with energy crises (Santiago Times)—Brazil’s finds will give it significant leverage. According to the U.S. Energy Information Administration, Brazil had the second-largest crude reserves in the region prior to the Tupi discovery.
Brazil is already a powerhouse in alternative energy; it produces a significant portion of the world’s ethanol and has worked to parlay its leadership in the industry into energy deals across the developing world. It hopes to create an international market for biofuels (PDF) that brings development to poor countries. As this podcast discusses, conditions are particularly good for developing biofuels in Central and South America. Last August, Lula and Chavez both made trips in the region, Lula touting alternative fuels, and Chavez offering energy pacts (CSMonitor). “There is this subtext of oil versus biofuels,” said Michael Shifter, vice president for policy at the Inter-American Dialogue.
Brazil also seeks a leadership role in global trade talks. For this reason, Parag Khanna, senior research fellow at the New America Foundation, argues in the New York Times Magazine that Brazil is “reappearing as South America’s natural leader.” Yet Amaury de Souza, a Brazilian consultant, says the country has not developed a coherent regional strategy. Instead of focusing on global outreach, de Souza says, it should concentrate on improving relations with its neighbors (PDF). Others say Brazil should turn its efforts to what is arguably its most valuable natural asset—the Amazon rainforest. In Forgotten Continent: The Battle for Latin America’s Soul, Michael Reid, the Americas editor of the Economist, writes that, “If China was becoming the world’s workshop and India its back office, Brazil is its farm—and potentially its center of environmental services.”