Brazil still has work to do on domestic oil front, study says

Brazil
still has work to do on domestic oil front, study says

BY B.J. ALMOND
Rice News staff

Although Brazil’s
energy reforms during the 1990s transformed the major oil
importer into a nation with the potential to become a net
exporter, a study by the James A. Baker III Institute for
Public Policy warns that Brazil requires further restructuring
of its energy sector to meet the nation’s domestic
need for oil.

Brazil’s
demand for oil could rise between 1 and 4 percent a year
between now and 2015, according to the Baker Institute analysis.
Consequently, much of the country’s 1 million-barrel-a-day
increase in production will simply offset domestic needs.

“Without
more restructuring of its energy sector, Brazil might have
difficulty ensuring that sufficient investment can be made
to continue to meet the rising requirement for fuel and
electricity,” said Amy Jaffe, the Wallace Wilson Fellow
for Energy Studies at the Baker Institute and associate
director of the Rice Energy Program. “Our study notes
that how Brazil meets its growing energy requirements will
have direct bearing on the development of energy trade flows
in the Western Hemisphere.”

Brazil, the largest
country in Latin America, is the 10th largest energy consumer
worldwide. In South America, Brazil is the largest energy
consumer; in the Western Hemisphere, it is the third largest,
ranking behind the United States and Canada.

The Baker Institute
study, available online at <http://bakerinstitute.org>,
comprises five academic research papers and two economic
analysis presentations, including a comparison of best international
privatization practices in the oil industry and peer comparisons
of the performance of Petrobras, the company created by
the Brazilian government in 1953 to run the oil industry.

“Brazil
can afford to privatize Petrobras and liberalize the energy
sector to guarantee the low-cost provision of fuels in future
energy crises,” Jaffe said. “But to implement
these reforms successfully, Brazil needs to create a decentralized
fiscal system that does not require a state oil and gas
company as a macro-economic policy tool, and it needs to
strengthen the independent regulatory authority of the state
to protect the interests of Brazilian consumers.”

The study concluded
that Brazil should:

• address
the future status of Petrobras, a “giant state oil
concern”

• improve
the climate for competitive markets in natural gas and power
by limiting Petrobras’ role in those markets

• work toward
a fully competitive regional gas market with broad participation
and ample liquidity, with gas prices determined by the fundamental
economic principles of supply and
demand

• link power
and natural gas prices more explicitly by contract and eliminate
price indexes that hold power and gas prices in different
currencies

• enhance
the budget of regulatory agencies to ensure they are adequately
staffed and not subject to interference from other bodies
of government

• improve
third-party access to natural gas transmission infrastructure
and information

The BP Foundation
was a sponsor of the study.