By September 2020 Brazil had soared to be the third-largest supplier of crude oil to China, the world’s second-largest economy. The scale of Brazil’s deep-water offshore oil boom is underscored by the pre-salt Tupi oilfield which for the third quarter of 2020 reached the impressive milestone of having pumped two billion barrels of accumulated oil production in the decade since commercial oil production began. A key reason for this is the rapidly growing popularity of the sweet medium crude oil grades produced from Brazil’s pre-salt oil fields, notably Tupi the world’s largest deep-water oilfield, and the Buzios field. Petrobras, which is spearheading the development of Brazil’s vast offshore pre-salt oil fields reported record crude oil exports for September 2020 of which around 87% were bound for China. There are signs that Brazil’s offshore oil boom will continue unimpeded despite China’s oil imports slowing.
China has the capacity to absorb all the crude oil produced for export by Brazil, even with that output growing at a steady clip. The growing popularity of Brazil’s sweet medium grade Lula and Buzios crude oils pumped from the Tupi and Buzios fields sees them selling at a premium to Brent in China. Soaring demand for those crude oil blends is causing their price differentials to widen further, sparking speculation that they could become the world’s most expensive crude oil varieties. Petrobras is actively seeking new export markets in Asia where the demand for light sweet grades of crude oil is growing because of the push for higher quality low sulfur content gasoline, diesel, and maritime fuels. India has become a key target market. The world’s fifth-largest economy, prior to the COVID-19 pandemic, was expanding at a solid clip boasting GDP growth of up to 8% in recent years, making it the fastest-growing major economy globally. While the IMF predicts that India’s economy will contract by over 10% during 2020 it is expected to return to growth in 2021 with the IMF anticipating an impressive 8.8% annual year over year GDP growth rate.
Brazil is fast shaping up to the world’s premier offshore oil boom. A combination of vast oil potential, extremely low sulfur light and medium crude oil blends, and growing demand from refiners for sweet lighter crude oil coupled with low breakeven costs makes it a highly appealing jurisdiction for investment from global energy majors. For these reasons, investment will keep flowing into Brazil’s pre-salt oil basins bolstering the Latin American country’s proven oil reserves and production despite the headwinds posed by the COVID-19 pandemic, sharply weaker oil prices, and the emergence of peak oil demand.