The Brazilian Shale - By Luiz Felipe Coutinho

22/10/2021

Article by the CEO of OrigemEnergia published in Estadão newspaper analyzes the effects of Petrobras’ divestitures on the economy and the electric sector

“The development of shale gas was one of the greatest if not the greatest progress of the US economy after the great recession.” The phrase was said by Ben Bernanke, in a perspectiveanalysis of his period as Chairman of the USFederal Reserve (FED) from 2006 to 2014, most of it after the great crisis caused by the crash of the real estate market .

 

Unquestionably, the exploration of reserves of shale oil and gas were decisive for the economic recovery of the United States. Although we do not have, in Brazil, such traumatic event as the burst of the real estate bubble, it is a fact thatwe experienced another decade lost in economic terms, with low growth, periods of recession and high unemployment rates. Thence it is worth reflecting if the divestiture made by Petrobras could cause on the Brazilian economy an effect similar to the performance by the shale gas in the United States.

 

We will hardly see in the Brazilian economy and geopolitics such deep impact as that provoked by the shale gas revolution in the US. However, due to its long and diversified supply chain we may have, in Petrobras divestiture, an opportunity to unlock the economic growth for so long stopped amidst structural problems.

 

The first and most obvious impact is on the resumption of the sector investments. We realize that, directly correlated to the country’s low economic growth, we had the decrease of investments made by Petrobras: if, in 2009, the oil company answered for 11,1% of all the investments made in the Brazilian economy, in 2010 such percentage dropped to 3,8%.

 

Evidently there are many factors that contributed to such significant reduction: the company’s high indebtedness and the wide publicizing of corruption cases may be the key events. However, it is necessary to consider that the concentration of investments of a strategic and extremely capital-intensive area such as the energy sector, in one single company, is not an advisable risk to run, considering theeconomic development of a nation. Nevertheless, in the case of operations in onshore fields, such distortion is yet more serious due to, especially the unmatched profile of investments with high potential offshore assets prioritized by the company. The consequence was a reduction of more than 30% of the production of onshore oil and gas in the last decade, with direct impact on the job generation and city tax collection, in regions extremely dependent on such resources. The assignment of these assets to companies focused on onshore exploration and production will have a positive impact on such regions similar to the one recorded by independent producers of shale gas in concession areas dismissed by major oil companies in the US.

 

Another positive expectation about Petrobras’ divestitures is their potential impacts on the generation of electric energy and on the security of the national system. We know, as Brazilians, the country’s vocation for generation of renewable generation, increasingly prevalent in our matrix. However, the specifics of this type of generation such as wind and sun energy, demand interfaces to maximize the security needed by the national energy system with costs that should not have a negative impact on the Country’s competitiveness.

 

In its sales pipeline, Petrobras has not only production fields, but also a network of pipes, thermal plants and natural gas processing units which may provide a larger presence of electric generation by this fuel, by offering the security the Country needs for a transition towards a cleaner matrix capable to sustain the energy demand peaks in periods of high economic growth or water supply crises such as the one occurring now, by avoiding more polluting alternatives and of high cost to the society .

 

Following our parallel, the shale revolution provoked a change of profile in the US energy matrix, previously based 50% on coal, one of the most pollutant fuels, and 17% on natural gas, to another scenario with 24% of coal and 38% of natural gas, by assuring the growth in the last decade by means of a cleaner fuel.

 

At last, I would like to emphasize the potential of reductionof energy costs, impacting our industry competitiveness. In the last decades, despite the strength observed in the farm-cattle-raising industry, we have experienced a process of deindustrialization of our economy. One of the major causes of this phenomenon is the high cost of energy in the Country, with our industry paying three times the price of the natural gas molecule, as compared to other countries such as, for instance, Mexico, from where we today import large part of our vehicles.

 

If part of these costs are originated in the Country’s complex regulatory and tax framework, another part, more relevant, is due to the ineffectiveness provoked by the chain monopoly, before the changes provoked by the Petrobras’ divestiture policy and by the new legal framework of natural gas.

 

A competitive natural gas market provided by an independent supply chain could avoid here, like in the US, a major industrial evasion from the Country, through the reduction of energy cost. I don’t know if this is over-optimism to think that Petrobras’ divestiture and opening of the gas market can mirror, in Brazil, the phenomenon arising out of shale gas and its impacts on the US economy as highlighted by Ben Bernanke in his speech. But it seems to me a too obvious comparison to be ignored. That’s food for thought.

 

Source: blog Fausto Macedo / Estadão