Brazil Dances With OPEC

Wearing my former oil company in-house counsel hat, I blogged last year about the huge oil discovery off shore from Brazil and the production potential which would allow Brazil to become a major player in the world economy. Obviously, there will be a significant development period before Brazil will be able to ramp up production from the new discoveries, but whether or not Brazil joins OPEC is significant because it will decide whether or not Brazilian production will exist as a counter weight to OPEC and Middle Eastern oil. Regardless of Brazil decides to do via-a-vis OPEC, the USA needs to finally get serious about finding ways to decrease its dependence on imported oil. The chatter has been going on since the early 1970’s and very little has actually been done. The one time trend to smaller fuel efficient cars died years ago as soccer moms [yes I disdain them for many reasons, not the least of which is their political idiocy as they worry about insignificant matters in the grand scheme of things] drive about in gas guzzling four wheel drive behemoths like Suburbans, Tahoes, and Hummers to name a few. Brazil’s increased economic clout also shows why the USA needs to start developing a responsible policy towards South America. Here some highlights from a new CNN story (http://money.cnn.com/2008/02/22/news/international/brazil_opec/index.htm):

NEW YORK (CNNMoney.com) -- OPEC, the 13-nation cartel that has a huge influence over oil prices, may be expanding farther into South America. News that the largest economy in Latin America (see correction below) was considering joining OPEC began to swirl late last year shortly after Brazil announced the discovery of huge offshore oil and gas deposits that could turn the country into a major oil exporter. Politicians, including President Luiz Inacio Lula de Silva, said the country would consider membership in the Organization of Petroleum Exporting Countries as soon as the export potential from the new fields is evaluated. Analysts say Brazil is serious about joining, and its membership could push crude prices higher as more oil would be under OPEC control, but that membership and significant crude exports from the country won't happen anytime soon. Brazil's interest in joining OPEC is the political clout that membership brings.

"To the extent they are able to present themselves as an international powerhouse, that plays favorably at home," said Christopher Garman, head of the Latin American division at Eurasia Group, a political risk consultancy. OPEC membership would also give Brazil a tremendous boost in clout on the world scene, with a seat at the table of an organization that controls some 40% of global oil production. If oil prices fall, Brazil could help prop them up by voting to cut production in all OPEC countries, a far more powerful lever than simply cutting production on their own.

Brazilian membership would also bring more oil to OPEC, at a time when oil resources from non-OPEC sources - such as Mexico and the North Sea - run dry. The new discoveries could turn the country into an export powerhouse. The Tupi oil field off the country's central coast is thought to contain 5 to 8 billion barrels of oil and gas, and would boost the country's total reserves by about 50%. And Brazilian officials have said other offshore fields could ultimately leave the country with 80 to 100 billion barrels of proven reserves, one of the largest in the world.