BMI View: Brazil's vast pre-salt reserves suggest substantial growth potential over the long term, underpinning our bullish upstream view that crude, natural gas, and other liquids output will rise throughout our forecast period. However, production growth will be limited by lower oil prices and decreased capex funds. As such, we maintain a relatively modest outlook, reflecting our view that the above-ground environment remains a considerable obstacle to the upstream and downstream segments due to weakening project economics, waning investor confidence, and a burdensome regulatory environment.
|e/f = BMI estimate/forecast. Source: EIA, BMI|
|Crude, NGPL & other liquids prod, 000b/d||2,114.1||2,346.3||2,437.4||2,508.7||2,570.0||2,620.4||2,646.6|
|Refined products production & ethanol, 000b/d||2,656.5||2,736.2||2,763.5||2,791.2||2,819.1||2,819.1||2,819.1|
|Refined products consumption & ethanol, 000b/d||3,383.8||3,438.6||3,425.9||3,471.6||3,525.8||3,585.4||3,649.3|
|Dry natural gas production, bcm||21.3||23.4||25.1||26.3||27.4||28.3||29.5|
|Dry natural gas consumption, bcm||37.6||41.4||43.6||46.3||48.1||49.8||53.3|
The key trends and developments in the Brazilian oil and gas sector are:
Significant financial burdens faced by state-owned Petrobras, the dominant player in the sector, will keep the country from achieving its full production potential as the company struggles to finance the development of pre-salt resources amid a weakening real, a rising 'Custo Brazil', and lower oil prices.
The 'Lava Jato' corruption scandal will place additional pressure on the NOC to shore up its finances and outperform. Given the size and scope of this scandal, the company could find itself the victim of prolonged investor uncertainty, as seen by its depressed share price despite nearly a year of consecutive output growth.
We maintain our bullish long-term outlook for Brazil's crude production. While pre-salt fields will boost production in the short term, we believe forthcoming upstream developments will support liquids output growth at an average rate of 2.3% y-o-y over the next 10 years.
Demand for refined fuels will continue to outpace production for the duration of our forecast period. This dynamic will be exacerbated by the continued delay and recent cancellations of planned downstream projects.
Brazil's sizeable natural gas resources present a tremendous growth opportunity for the country. While we foresee a rise in production at 4.4% y-o-y from 2015 to 2024, significant financial pressures on state-run Petrobras and less robust growth of associated presalt gas projects will expand the trade deficit throughout our ten-year forecast period to 2024.
With y-o-y consumption of natural gas projected to rise over the next decade, combined with less upstream development, we believe Brazil will remain highly dependent on imported gas supplies. Given Brazil's plans to expand natural gas-fired power generation by 2019 to reduce its dependence on less reliable hydropower, we believe net exports of gas will steadily decline through 2024, particularly in the form of LNG.