According to Oil and Gas Journal (OGJ), Brazil had 11.7 billion barrels of proven oil reserves in 2007, second-largest in South America after Venezuela. The offshore Campos and Santos Basins, located on the country’s southeast coast, contain the vast majority of Brazil’s proven reserves. In 2006, Brazil produced 2.2 million barrels per day (bbl/d) of oil, of which 77 percent was crude oil. Brazil’s oil production has risen steadily in recent years, with the country’s oil production in 2006 about 6 percent (or 130,000 bbl/d) higher than 2005. EIA estimates that Brazil’s oil consumption in 2006 averaged 2.3 million bbl/d. Based on its August 2007 Short Term Energy Outlook, EIA forecasts Brazilian oil production to reach 2.32 million bbl/d in 2007 and 2.64 million bbl/d in 2008. As a result of this rising oil production, EIA estimates that Brazil will become a net oil exporter by the end of 2007.

State-controlled Petrobras is the dominant player in Brazil’s oil sector, holding majority positions in up-, mid-, and downstream activities. The company held a monopoly on oil-related activities in the country until 1997, when the government opened the sector to competition and freed oil prices from state control. The principal government agency charged with monitoring the oil sector is the National Petroleum Agency (ANP), which is responsible for issuing exploration and production licenses and ensuring compliance with relevant regulations.

Despite the opening of the sector to private actors in the late 1990s, foreign-operated oil projects are rare in Brazil. Royal Dutch Shell was the first foreign operator of crude oil production in the country, operating a single, relatively small field in the Campos Basin. In mid-2007, Devon brought its Polvo field on-stream, representing the first oil project without any Petrobras participation.

Petrobras controls over 95 percent of the crude oil production in Brazil. The largest oil-production region of the country is Rio de Janeiro state, which contains about 80 percent of Brazil’s total production. Most of Brazil’s crude oil production is offshore in very deep water and consists of mostly-heavy grades. One of Brazil’s marketed crude streams is Marlim, which has an API of 19.6º and a sulfur content of 0.67 percent.

Petrobras has expanded production in recent years. In early 2006, it brought the Albacore Leste field online, which will eventually produce 180,000 bbl/d. Other 2006 production additions included expansion of the Golfinho (100,000 bbl/d increase) and Jubarte (60,000 bbl/d increase) fields. In the first half of 2007, Petrobras brought new production online at the Piranema field (20,000 bbl/d) and Espadarte (100,000 bbl/d) fields, while the company plans to bring the second phase of its Golfinho expansion (100,000 bbl/d) online by the end of 2007. Petrobras plans to spend at least $39 billion on exploration and production projects in Brazil through 2011.

Shell’s Bijupira-Salema project in the Campos Basin was the first field in Brazil not operated by Petrobras. The project came on-stream in 2003 and produces about 50,000 bbl/d. Shell also hopes to begin production at its BC-10 project (100,000 bbl/d) by the end of 2009. Devon brought its Polvo project (50,000 bbl/d) online in August 2007, representing the only upstream oil project without any Petrobras participation. Chevron is developing the Frade project (100,000 bbl/d), with first production expected in early 2009. Norsk Hydro plans to begin production at its Peregrine (formerly Chinook) field (100,000 bbl/d) in 2010. However, despite these potential new projects, Petrobras will remain the dominant oil producer in Brazil for the foreseeable future.

Recent and Planned New Crude Oil Projects in Brazil
Name	Operator	(Scheduled) Start Date	Peak Production (bbl/d)
Albacora Leste	Petrobras	April 2006	180,000
Golfinho Mod 1	Petrobras	May 2006	100,000
Jubarte I	Petrobras	December 2006	60,000
Espadarte RJS-409	Petrobras	January 2007	100,000
Piranema	Petrobras	July 2007	20,000
Polvo	Devon Energy	August 2007	50,000
Golfinho Mod II	Petrobras	October 2007	100,000
Roncador P-52	Petrobras	1Q2008	180,000
Roncador P-54	Petrobras	1Q2008	180,000
Marlim Sul Mod 2 P-51	Petrobras	3Q2008	180,000
Frade	Chevron	1Q2009	100,000
BC-10	Royal Dutch Shell	2Q2009	100,000
Golfinho Mod III	Petrobras	4Q2009	100,000
Peregrino	Norsk Hydro	1Q2010	60,000
Jubarte II P-57	Petrobras	3Q2010	120,000
Roncador III P-57	Petrobras	3Q2001	180,000
Source: EIA

Transpetro, a wholly owned subsidiary of Petrobras, operates Brazil’s crude oil transport network. The system consists of 4,000 miles of crude oil pipelines, coastal import terminals, and inland storage facilities. The overall structure of the network enables the movement of crude oil from coastal production facilities and import terminals to inland refineries and consumption centers.

According to OGJ, Brazil has 1.9 million bbl/d of crude oil refining capacity spread amongst 13 refineries. Petrobras operates 11 facilities, the largest being the 360,000-bbl/d Paulinia refinery in Sao Paulo. Petrobras also controls a dominant stake in the retail products market. According to the International Energy Agency (IEA), regular unleaded gasoline prices averaged $3.65 per gallon (including taxes) in 2005, versus $2.30 per gallon in the United States.

In February 2005, Petrobras signed an agreement with Venezuela’s state-owned Petroleos de Venezuela S.A. (PdVSA) to build a new, 200,000-bbl/d refinery in the northeastern Brazil at a cost of $5 billion. The companies expect to complete the facility by 2010, with each country providing half of the crude oil processed there. The facility has reportedly suffered delays due to disagreements between the two countries, but media accounts indicate that Petrobras plans to proceed with the facility alone if necessary.

Brazil is one of the largest producers of ethanol in the world and is the largest exporter of the fuel. In 2006, Brazil produced 308,000 bbl/d of ethanol. Based on the August 2007 Short Term Energy Outlook, EIA forecasts that Brazil’s ethanol production will reach 329,000 bbl/d in 2007 and 365,000 bbl/d in 2008. Over half of all cars in the country are of the flex-fuel variety, meaning that they can run on 100 percent ethanol or an ethanol-gasoline mixture. Eight in ten new cars sold in Brazil are flex-fuel vehicles. All gasoline in Brazil contains ethanol, with blending levels varying from 20-25 percent. Ethanol in Brazil comes from sugar cane, which prospers in the country’s tropical climate. Coimex Trading, a subsidiary of Brazilian conglomerate Grupo Coimex, is the largest producer of ethanol in Brazil.

In recent years, Brazil has sought to increase ethanol exports, especially to the United States. In 2006, Brazil exported 29,600 bbl/d of ethanol to the United States, quadruple the amount exported to the U.S. in 2005. The increase in exports to the U.S. was driven by the phase-out of methyl tertiary butyl ether (MTBE) in the U.S., which effectively replaced MTBE with ethanol as an additive to gasoline. To help facilitate additional exports, Petrobras announced a plan in early 2006 to build an ethanol pipeline from Goias, an interior area at the center of Brazil’s sugarcane production, to Sao Paulo. However, surging domestic demand and high domestic prices may limit export growth. In addition, Brazil’s ethanol exports face high tariffs in some markets, such as the 54 cent per gallon tariff in the United States.