Plenary Session: “Regional Economic and Energy Outlook”

After the first talk of the plenary session, where Martín Redrado painted a regional macroeconomic picture and summarized the necessary conditions that must be given in Argentina for the development of Vaca Muerta, the second speaker, Décio Oddone, director general of the National Petroleum Agency of Brazil (ANP), explained the rapid changes that the Brazilian energy industry is experiencing: changes he described as "the greatest transformation of its history."

What is happening in Brazil is the transformation into a true industry of what had been a monopoly for decades, said Oddone, who recalled that Petrobras began operating in 1954, when Brazilian society was mostly rural. For more than six decades, Petrobras was “the synonym of the oil and natural gas industry in Brazil.” Formally, Oddone said, the Petrobras monopoly ended in 1997 and there were some advances, however the discovery of pre-salt led to the creation of a new oil contract and the return of Petrobras as the entity responsible for the oil sector of the country.

“The result of all this was disaster, as Petrobras began to borrow to build refineries, explore pre-salt and make investments in the natural gas market. In the end, in 2014 with the debt crisis, the sharp fall in the price of oil and the problem of corruption in the Lava Jato case, Petrobras hit rock bottom and the Brazilian oil and gas sector entered its deepest crisis,” recalled Oddone, adding: "Activity decreased dramatically."

According to Oddone, who has been in charge of the ANP since January 2017, in the last three years a “never before seen” institutionalization has been achieved. "Petrobras had always acted as an arm of the State, but from that moment on, Petrobras began to behave as a listed company, in which the State did not intervene," he said, noting that, for the first time in decades, Petrobras can now define its prices, choose its product portfolio and decide where to invest.

Towards a Production Boom

To illustrate the rapid transformation of the energy industry, Oddone referred to the pre-salt auction in November 2019. “Recently, Petrobras was the operator of more than 90% of the oil and gas industry in Brazil. Now, we have dozens of companies operating in pre-salt fields. All the big operators are there, and this diversity will guarantee us the competitiveness that we never had in the Brazilian market.”

According to Oddone, the country is going to witness a “brutal increase” in oil and gas production, from the current 4 million barrels of oil equivalent per day (including 3 million barrels of crude oil per day) to almost 10 million of barrels of oil equivalent per day in 2029 (including 7 million barrels of crude oil per day).

He also mentioned that the opening of the gas and downstream markets should have a very important impact on the development of the country's petrochemical industry. “Today, gas production is mostly re-injected into the pre-salt offshore wells, because you need the markets to sell this gas as well as infrastructure to be able to take these volumes of gas to the markets,” Oddone commented, further adding that, as in the case of crude, natural gas production should also double in the next decade.

The result of this process will be a greater availability of raw material, although less so in the case of naphtha, which would require new, expensive investments in refining, but rather a greater availability of gas that will facilitate new developments in the petrochemical sector. "The additional opportunities in ethane, natural gas and propane will allow expansions in existing facilities, and, perhaps in the areas of Rio and Sao Paulo, a new cracker can be built to add to the existing capacity."

A Liberal Government

According to Oddone, who began his term as head of the ANP under the presidency of Michel Temer, Jair Bolsonaro's government has a liberal vision and thus treats all sectors equally, implying a change in Petrobras' relationship with regulatory bodies; Oddone pointed to the process initiated by the ANP to investigate Petrobras' dominant position in the natural gas and refining markets as an example.

According to Oddone, if YPF has 60% of the Argentine refining market, in Brazil Petrobras controlled 98%. The State, through the National Energy Policy Council, gave recommendations on how to carry out the sale of several Petrobras refineries, and, based on these guidelines, an agreement was reached between Petrobras and CADE – the Brazilian anti-trust body – for the sale of eight refineries that account for 50% of the company's refining installed capacity.

This transformation goes far beyond the arrival of new players to the refining market. Oddone explained that Petrobras was also given a deadline to sell up to 250 mature oil fields, both land and marine, if it was not going to invest in them. “The result is that Petrobras is selling 200 mature fields to smaller companies. This will generate an additional supply of oil and gas in these regions,” he stated.

Likewise, an agreement has been reached with Petrobras for the sale of pipelines, and the country has implemented further initiatives regarding the opening of the gas market as well as others that seek to achieve greater competitiveness in the fuel distribution segment. “For the first time in decades, the prices of petroleum products (gasoline, diesel and more) are published transparently. We also publish Petrobras’ contracts with the gas distributors and its contracts with gas suppliers.” This action, concluded Oddone, encourages competition and will greatly help future negotiations that the chemical and petrochemical industry may have with the different feedstock suppliers.