Petrobras was founded in 1954 as Brazil’s state-owned oil company, enjoying a monopoly in all aspects of production (Bridgman). Ironically, the company retained monopoly status even during the years of the military dictatorship, a regime that was staunchly capitalist. It wasn’t until the Petroleum Law in 1997 that the company was exposed to competition in the region, where new companies could participate in auctions for new areas of exploration. In a region where the success rate of finding a productive well is 87% compared to the global average of between 20 and 25% (Filling up the Future), this liberalization of the sector inspired a lot of activity from large multinational corporations such as Shell to begin operations in the region. Despite competition, Petrobras remains to be economically and politically important for Brazil, as it’s revenues account for 6% of GDP (Bridgman).
Naturally, Petrobras has a keen interest in the degree to which the production of oil is exposed to competition. Nationalization would mean that all (or disproportionately more) of the pre-salt proceeds pass through the company, without being diluted by shares held by other companies. It would also mean that those who work for the company have a secure job, free from the threat of lay offs.
The United States is an energy sink. Only one of the US’s top five oil supplier countries are in the Middle East (Duddy), which attests to its aversion to importing oil from the region. If given the opportunity, the US will certainly redirect its demand from Saudi Arabia to Brazil where diplomatic relations is subjected to less caveats. At current production levels, where the pre-salt fields are pumping at well below capacity, Brazil is self-sufficient in energy thanks to the support of hydroelectric power and biofuel. The US already purchases 40% of Brazil’s total oil output and would be more than happy to secure the surplus once the pre-salt fields are operating at capacity (Duddy).
Big Oil also has an interest in more than just the prospects of liberating the US from hostile oil transactions. America’s capitalistic nature stands in contrast to Brazil’s center-left political stance, where the government takes on a much more active role in citizens’ lives. American oil companies (and all other multinational ones) are hungry for the potential profits to be made from the pre-salt. The conditions laid out by Brazilian law are argued to act as disincentives for such engagement since privatization would open a very lucrative door for American oil companies.. However, evidence does not suggest that private firms have turned away from the opportunity (America’s View on Pre-Salt).
The Ethanol Industry stands to lose a lot from the exponential growth of the oil industry. Although the two are inextricably linked by policies demanding that Petrobras purchase a set amount of ethanol per year (Hira), an increase in oil supply will lead to a decrease in price, making oil a much more attractive option for drivers at the gas station than ethanol. Even though the government subsidizes the cost of ethanol, there is only so much money it can pour into a system that ceases to be economically competitive. History shows that when world sugar prices increased relative to oil, the government allowed the price of ethanol to increase slightly, causing consumer demand of ethanol cars to plummet from 73% of total car sales in 1980 to 9% the following year (Hira). If privatization of the oil sector takes place, less revenue will be collected by the state, and thus less will be available to keep ethanol on its lifeline.
Environmental Groups are not in consensus about energy exploitation in Brazil. Because Brazil consumes different kinds of energy–hydroelectric, biofueled, and oil/gas combustion–different groups have different criticisms. Oil drilling has obvious implications associated with spillage and infrastructure; constructing river dams potentially dislocates human, animal, and plant communities from shorelines; and ethanol production may require many acres of land to produce at a commercial scale, which can impose itself on the Amazon. As far as nationalization and privatization of oil production goes, there isn’t evidence that state-owned oil companies are more likely to be more environmentally conscientious, but there is evidence that private companies do have an incentive to provide social programs as it increases favorability in the host country. However, Brazilians still have a bad taste in their mouths for private companies since the Chevron oil spill in November. (Environmentalist View on Pre-salt)
The International Community is also keeping a sharp eye on pre-salt development, because such a large increase in net supply would certainly mean a decrease in world prices, easing financial and political strains that have gripped much of the world for many years. At sometimes over $8 per gallon, Europeans are eager to see gas prices fall.
The Poor stand alongside the environmental groups in their opposition of privatizing oil production. At the time of discovery, then-president Lula da Silva promised that the profits from selling government oil would not go toward “silly things,” nor will the government spend money it hasn’t yet generated. He vowed instead that profits will go towards education, healthcare, and eradicating poverty (Arai). Figures from the 2010 census estimate that about 25% of the population lives in poverty, and 8.5 in extreme poverty (Brazil Launches Scheme to Lift Millions Out of Poverty). The administration of current president Dilma Rousseff also puts poverty alleviation at the top of its priorities by expanding the social welfare program “Bolsa Familia” that gives financial assistance to destitute families. Because this population is desperate for more government assistance, they would advocate for the state to take on a greater role in oil development.
“America’s View on Pre-salt Regulations.” Personal interview for Ambassador Patrick Duddy. 24 Apr. 2012.
Arai, Adriana. “Brazil Will Use Pre-Salt Oil to Eradicate Poverty, Lula Says.”Bloomberg. 7 Sept. 2008. Web. 30 Apr. 2012. <http://www.bloomberg.com/apps/news?pid=newsarchive>.
“Brazil Launches Scheme to Lift Millions out of Poverty.” BBC News. BBC, 06 Feb. 2011. Web. 30 Apr. 2012. <http://www.bbc.co.uk/news/world-latin-america-13626951>.
Bridgman, Benjamin, Victor Gomes, and Arilton Teixeira. “Threatening to Increase Productivity.” World Development 39.8 (2011): 1372-385. Print.
Duddy, Patrick. “Energy in the Americas.” An Evening with the Ambassador. North Carolina, Durham. 10 Apr. 2012. Lecture.
“Environmentalist View on Pre-salt Regulations.” Personal interview with Dr. Richard Newell. 23 Apr. 2012.
“Filling up the Future.” Editorial. The Economist [Sao Paulo] 5 Nov. 2011. The Economist. The Economist Newspaper, 05 Nov. 2011. Web. 15 Apr. 2012. <http://www.economist.com/node/21536570>.
Hira, Anil, and Luiz G. De Oliveira. “No Substitute for Oil? How Brazil Developed Its Ethanol Industry.” Energy Policy 37.6 (2012): 2450-456. Web. 15 Apr. 2012. <http://www.sciencedirect.com/science/article/pii/S0301421509001219>.