Brazil is the only country in the hemisphere that has significantly reduced not only its dependence on foreign sources of fossil fuels, but also its dependence on fossil fuels themselves. At this point in time the biggest energy policy challenge that Brazil will face is the temptation to follow other mass producers of oil and gas on the road to energy nationalism. It would be very risky for the development for the industry if the government tries to increase its stake or have a heavier hand in Petrobras affairs.
If Venezuela is at this time the regional leader of the nationalist movement and globalization skeptics (a group that President Hugo Chavez has brought to life in the creation of “ALBA“). Brazil for its part has represented cautious pragmatism. In recent years, the Brazilian oil company Petrobras has made numerous large-scale discoveries amounting to an estimated 80 billion barrels in addition Royal Dutch Shell recently discovered more oil in the Campos and basin well. In this discovery spree the Lula government so far has maintained a pragmatic economic model based on a mix of free market ideals and a moderate government orientation (the state currently owns (40 percent) of Petrobras) of the national energy industry.
The discoveries in Santos and Campos have led certain sectors to demand a significant change in the national hydrocarbon law. In addition the upcoming elections might influence the short term decisions in regards to energy policy and other issues. It’s important for the government to find a way to adjust the fiscal conditions in the industry, without hampering the ability of foreign and private investors.
The Lula government so far has overcome the temptation to have a heavy hand the energy sector; any attempt to do so would alienate much needed private and foreign investment for the development wells.
The continuation of a stable energy policy would increase Brazil’s potential to become a major net exporter of oil and would reinforce the investment grade status given by S&P in late April 2010. Furthermore, the move would denote maturity within the government and would lay the foundations for the diversification of foreign investments in the country.
Published Date: July 22, 2010