Is Brazil Part of OPEC+ and What Does It Mean for Global Oil?

In 2010, IEA thought Brazil’s output would hit 4.4 million bpd by 2020, but it was just over 3 million.

Brazil is a Schrödinger’s Cat within OPEC+. It exists both as a member and non-member at the same time. The South American giant announced that it had joined the group just last week. However, how exactly it is a member remains to be seen.

Brazil is the largest oil producer to have ‘joined’ the expanded group of exporters. It extracted 3.5 million barrels per day (bpd) last year, surpassing the output of the US, Canada, China, Russia, and four OPEC countries.

A strong sense of resource nationalism, a history of pushing back colonial exploitation, and its membership in the BRICS may have led Brasília, the capital of Brazil, to favour OPEC+. It’s costly offshore oil production and limited reserves could motivate joint action to limit production and support prices.

During the announcement of OPEC+ memberships, the mines and energy minister, Alexandre Silveira, informed reporters that Brazil would not follow production cuts. Jean Prates, the former CEO of state-run Petrobras, which controls the national oil output, affirmed that they are a publicly traded company and would not join the organization that imposes production quotas on Brazil.

Brazil has joined the Charter of Cooperation, which allows market dialogue, but not the Declaration of Cooperation, which manages production levels.

Consultancy Rystad thinks Brazil will produce 5 million bpd by the end of the decade and peak at 5.5 million bpd by 2023, placing it in the top five globally. However, limited reserves will lead to a production decrease unless they make new explorations.

Petrobras now look towards the north-eastern coast, where they find Amazonas Basin, the site of remarkable oil finds in recent years. However, activities are restricted here due to environmental opposition. The Amazon River has some of the world’s richest biodiversity, and Brazil hosts the UN climate conference, Cop30, in the Amazon rainforest this year.

The less explored Pelotas Basin, south of Santos, is the geological twin of Namibia in southwest Africa. Shell, present in Namibia, is also looking into the Pelotas Basin along with Petrobras, Chevron, and China National Offshore Oil Corporation, a significant player in Guyana.

Pelotas faces fewer environmental challenges than the northwest basin, and Brazilian geologists estimate it could have between 10 to 15 billion barrels, double the country’s reserves.

It is understandable that Brazil takes a cautious approach regarding its OPEC+ membership. It can benefit by taking a seat but should prevent committing to production limits until it has a clearer understanding of its future production prospects.

Brazil has lost its face before. In 2010, the International Energy Agency (IEA) thought its output would hit 4.4 million bpd by 2020, but it was just over 3 million.

That year, Petrobras thought its production alone would reach 5.4 million bpd of oil and gas within a decade, as it raised a $70 billion share offering. But this year, its estimated output would be around 2.8 million barrels of oil.

The oil fields in Brazil are becoming mature and need growing efforts to maintain production levels. Petrobras plans to invest $76 billion over the next five years to explore it and to achieve a gross production increase of 2.6 million bpd, mainly from its Búzios (municipality in Brazil) field. However, the net output increase will be 0.4 million bpd due to the decline in older fields.

The estimated production last year was 200-300,000 bpd, but they could not produce that level due to maintenance shut-downs in Búzios, the decline in mature field production, and a strike by environmental agencies that delayed drilling approvals.

The IEA expects Brazil’s output to increase by 190,000 bpd this year, and national petroleum regulatory expected 380,000 bpd, while others predicted that production will be stable.

For Brazil to fully tap its oil potential, it has to involve more players than Petrobras, which currently manages 90% of its output. Norway’s state oil producer Equinor is the leading development of the Bacalhau field, and Brazilian independent firms like Brava Energia and Prio are also growing their activities.

Brazil needs to address its regulatory challenges as its bureaucracy is poorly staffed and unable to handle demands. The government is considering imposing new environmental taxes and limiting the re-injecting of unwanted gas at offshore sites, which would discourage investments.

Being part of OPEC+ introduces another layer of uncertainty. They would not restrict Brazil’s production, but private companies may be concerned about potential future cuts.

However, if Brazil thinks its output will stagnate, complying with the OPEC+ Declaration of Cooperation could be beneficial. It could secure a generous production target that does not affect it in the short term, and it can help others to maintain their production cuts, keeping the prices higher and allowing Brazil to gain market share.

South American country in and out status is advantageous. Should it find another significant oil reserve like the pre-salt, it would not want OPEC+ to restrict its growth. Ultimately, it will need to address its ongoing OPEC+ dilemma.