Total’s plans to drill near Brazil’s newly discovered Amazon Reef have suffered a setback after the federal prosecutor of the state of Amapá has recommended the suspension of environmental licensing for their planned deepwater drilling project. But what are the economic and environmental elements in play in this multi-faceted drama as Total and its partners await the verdict?
The discovery in 2007 of massive oil reserves in the offshore area now known as the Subsalt Polygon has provoked considerable excitement about the growth potential of Brazil’s offshore oil and gas market. A particular focus for enthusiasm is the country’s deepwater and ultra-deepwater resources, which have been consistently boosting production (despite lowered expectations in the wake of depressed global oil prices) as a result of accessing pre-salt hydrocarbons at extreme depths.

Brazil and the US now account for more than 90% of global ultra-deepwater production, with Brazil leading the world in the development of these resources, increasing ultra-deepwater production from 1.3m b/d in 2005 to 2.2m b/d in 2015. According to a 2015 study by Rio de Janeiro State University’s National Institute of Oil and Gas, the Subsalt Polygon contains at least 176bn BOE of undiscovered, recoverable oil and natural gas, and this, the researchers said, is a conservative estimate.

The Subsalt Polygon has been such a success for the oil and gas industry that offshore Angola, one of the only other major deepwater markets, is being heavily targeted for exploration because of its geologic similarity with the Brazilian coast.

Foz do Amazonas: impressive hydrocarbon potential
Further north up the Brazilian coast from the Subsalt Polygon district, another offshore area has prompted high hopes from the oil and gas industry over the last few years. The Foz do Amazonas Basin, off the coast from the mouth of the mighty Amazon River in Brazil’s Amapá state, could contain up to 14bn barrels of oil, according to government estimates. Not quite the industry-changing bonanza that the Subsalt Polygon represents, but still more than the entire proven reserves of Mexico, and an attractive opportunity for companies – both Brazilian and foreign – to develop a new offshore frontier.

The basin was the hot-ticket item during Brazil’s 11th oil and gas bidding round back in 2013. Oil major Total, along with minority partners BP and Brazilian national oil company Petrobras, paid around $190m for the rights to five exploration blocks in the Foz do Amazonas region, with Total owning a 40% operating stake and BP and Petrobras each owning a 30% share of the blocks. Other companies to win blocks included BP (which snapped up one block for itself), BHP Billiton and Brazilian firms OGX and Queiroz Galvão Exploration and Production.

On top of the region’s promising estimated reserves, Foz do Amazonas has been made even more enticing by the significant successes of ExxonMobil off the coast of neighbouring French Guiana, exploring highly comparable geology. The company announced a major oil discovery in the Liza field in May 2015, and just over a year later stated that the discovery alone would likely yield up to 1.4bn barrels, valued at around $70bn last year and double the size of Exxon’s initial estimates.

A potential offshore frontier at a crossroads
However, even as Total and its partners ramped up to begin exploratory drilling in its Foz do Amazonas blocks, having identified nine potential sites for initial works and waiting only for environmental approval from Brazil’s Institute of Environment and Renewable Natural Resources (IBAMA), another fascinating discovery has thrown everything into doubt.

Last year, an international team of scientists announced a discovery that confirmed what some have suspected since the 1970s – a 1,000km-long coral reef system around the mouth of the Amazon, rich with marine life and flourishing despite long periods without sunlight due to extensive sediment coverage from the river. The scientists believe the coral has grown by using chemosynthesis – producing energy and organic matter using CO2, water and inorganic substances, with no light required – rather than photosynthesis.

“We found a reef where the textbooks said there shouldn’t be one,” Federal University of Rio de Janeiro researcher Fabiano Thompson told the National Geographic last year.

The reef system lies worryingly close to several offshore blocks awarded for oil exploration in the Foz do Amazonas Basin, including Total’s blocks, the closest of which is around 8km from the reef. This discovery has thrown a spanner in the works for Total and its partners, which are still waiting for environmental approval from IBAMA to begin exploration and now face growing opposition from environmental activists and other groups, setting up a contest between two competing discoveries – the basin’s hydrocarbon potential and its richer-than-expected natural eco-system – whose needs appear to run counter to one another.

Protecting the Amazon Reef
The proximity between sections of the reef and the offshore drilling blocks has prompted an outcry from environmentalists looking to ensure that this unique marine habitat remains undisturbed. The scientists responsible for the discovery have been forthright with their concerns about exploratory drilling in the area, arguing in the key study of the reef, published in the Science Advances journal, that more must be understood about this region before a proper judgement on the oil industry’s impact can be made.

“These blocks will soon be producing oil in close proximity to the reefs, but the environmental baseline compiled by the companies and the Brazilian government is still incipient and largely based on sparse museum specimens,” the study noted in its conclusion. “Such large-scale industrial activities present a major environmental challenge, and companies should catalyze a more complete social-ecological assessment of the system before impacts become extensive and conflicts among the stakeholders escalate. The feasibility of oil and gas operations may be assessed by considering environmental and social sensibilities, but even the extent of the overlap of exploratory blocks with sensitive areas remains unclear.”

Published in Economy

Halliburton announced the opening of its new Technology Center at the Federal University of Rio de Janeiro (UFRJ) Technology Park, located at Ilha do Fundão, Rio de Janeiro, Brazil. The center provides the setting for collaboration as the Company works with the country’s leading universities and customer research groups to establish a global center of expertise for deepwater and mature fields.

Published in Business
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