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HOW IT WORKS
Heavy Oil Contributes to Brazil's Energy Self-Sufficiency
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Brazil is set to achieve energy self-sufficiency this year, thanks in large part to its production of heavy oil. Most of its crude oil production is offshore in the Campos, Espírito Santo, and Santos basins in deep and ultra-deep waters, and the majority of oil in these basins is heavy. In fact, heavy oil constitutes nearly one-half of Brazil's proved oil reserves of 13 billion barrels, as the chart below illustrates.

Note that the proved reserves estimate of 13 billion barrels of oil equivalent reflects the Society of Petroleum Engineers' definition for evaluating reserves. Another commonly cited figure for Brazil's reserves is 10.6 billion barrels, which stems from the U.S. Securities and Exchange Commission reserves assessment criteria.

Production history
Although oil was first discovered in Brazil in 1939, the country's oil industry experienced much of its growth after Petrobras' formation in the early 1950s. In fact, the company did not launch its offshore exploration and production activities until 1968. Also, the country's daily production rates began to rise dramatically only within the past decade as deepwater and ultra-deepwater offshore projects have gone onstream.

As the graph below shows, Brazil has made great strides in increasing its oil production to meet the country's consistent demand growth during the past decade. As the graph also suggests, the country has traditionally relied on imports to augment its inadequate domestic supply. The gap between domestic production and consumption has shrunk markedly, though - particularly after Brazil privatized its oil sector in 1997. Though no longer a monopoly, Petrobras is still by far the major player in the Brazilian oil industry - the company controls more than 95 percent of the country's production. Still partially owned by the government, the company has asserted its right to exploit most of the promising fields in the first licensing round.

A long-standing goal of Petrobras has been to help Brazil achieve petroleum self-sufficiency. That goal was finally achieved in April of 2006, when Petrobras started production from the Albacora Leste field in the Campos Basin. At full capacity, the P-50 floating production storage and offloading (FPSO) vessel will produce 180,000 barrels per day (b/d) of 19° API heavy crude oil, bringing the country's production to an average 1.9 million b/d. By 2010, Petrobras expects to produce 2.3 million barrels of oil per day. The country's oil consumption, meanwhile, is expected to grow at an average rate of 2.6 percent per year through 2010 - when consumption should reach slightly more than 2 million barrels per day.

Recovery, development, and refining
Brazil is encouraging the use of modified FPSOs to develop its heavy oil. For instance, the dynamically positioned Seillean FPSO was upgraded to handle heavy crude in very deep water for the Jubarte field in 2002 and was later used to test and produce an extended well. Another FPSO, the P-34, was used as an early production system for this field and has now been modified to separate and treat 60,0000 b/d.

The country is also pursuing technologies to improve heavy oil recovery. According to the Society of Petroleum Engineers (SPE), costs for using a horizontal well may exceed two or three times that of a vertical well, but actual recovery can be 15 or 20 times greater. Brazil is working on a long horizontal well with sand production management technology for wells in easily pulverized rocks. The multilateral well is expected to save time and money, but it remains a risky alternative.

Because heavy oil development poses several challenges from discovery to refinement, Petrobras' Cenpes research and development center launched the PROPES program to improve heavy oil production. The PROPES team will upgrade current FPSOs, heat management and separation systems, multilateral wells, horizontal wells, and artificial lift systems. In addition, the researchers plan to develop compact separation systems for existing production facilities because the weight and limited space on offshore production units complicate heavy oil production offshore.

The PROPES team is looking to upgrade existing artificial lift technologies for viscous oils in high-flow wells . This method is used to increase reservoir pressure during oil production when the pressure begins to drop. It can be in the form of a pump or a gas injected through gas-lift valves.

On the refining front, Brazil's 13 oil refineries can process approximately 1.9 million b/d, but they have traditionally focused on lighter crudes. To compensate for their limited capacity to handle the heavier crudes that have become more prominent in the past decade, Brazilian refiners have had to swap heavy crude for lighter imported crudes. Petrobras, which owns 11 of the country's refineries, is working to keep more Brazilian heavy crude processed domestically. The company has embarked on an $11.4-billion program to double its heavy oil refining capacity, improve oil product quality, and make related safety and environmental upgrades. A significant feature of this program is a $4.5-billion heavy oil refinery that Petrobras is building in northeastern Brazil with Petróleos de Venezuela. When completed, the facility will be able to process from 150,000 to 250,000 b/d.

A rewarding strategy for Brazil?
In 2006 and 2007, Petrobras and several foreign companies together spent roughly $15 billion either on exploration and production activities or to fulfill contractual obligations. Petrobras expects to add 2.1 million b/d of installed oil production capacity in the Campos and Espírito Santo basins through 2008 alone. The company's plans are not limited to existing discoveries, however. Out of the $34.1 billion it intends to spend on worldwide exploration and production from 2006 through 2010, $28 billion is earmarked for projects in Brazil. As the graph below shows, 59 percent of the 317 domestic exploratory wells set to be drilled during this time frame will be located in the heavy oil-rich Campos, Espírito Santo, and Santos basins.

With its eagerness to find and extract heavy oil in what are largely frontier areas, along with its willingness to enhance its domestic heavy oil refining capacity, Petrobras is clearly bullish about the non-conventional resource. Whether this aggressive approach will help Brazil sustain its much-heralded petroleum self-sufficiency remains to be seen, but the ongoing changes in the country's oil industry will be interesting to watch.

Veronica Murillo is a New Jersey-based freelance journalist with more than 5 years' experience writing for the oil and gas industry. She has contributed articles, forecasts, and analyses for Offshore, Ocean Oil Weekly Report, World Oil, and Research Reports International. Matthew V. Veazey is the editor of Rigzone.com.

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