Oil-Rich Brazil Keeps Gas Prices High

By Bruno De Nicola, Contributing Reporter

RIO DE JANEIRO – Petrobras is set to launch the first part of a new project in the biggest oil basin ever discovered by mankind. The whole plan for oil extraction in the “Pré-sal” (Pre-salt) area will cost US$174 billion, leading the state company to profit from at least another two billion barrels. Despite these and other fruitful oil extraction measures, gas prices remain high at the consumer level.

The “Pré-sal” covers a very extensive area of 112,000 square kilometers just off the eastern coast of Brazil. It stretches 800 kilometers, from the state of Santa Catarina up to the state of Espirito Santo. Scientists believe that the basin probably extends further north to the state of Ceará. A thick layer of salt (200 to 2,000 meters) favored the transformation of primordial micro-organisms into the richest source of energy in the world.

In 2006, while inaugurating Petrobras’s largest platform, President Lula officially announced that Brazil had become self sufficient in terms of oil. In fact, by the end of the year, exportation exceeded importation by US$3 million.

However, the cost of gas for Brazilian consumers has not dropped and is still much higher than in neighboring, non self-sufficient South American countries. For example, the average price for a liter of gas in Brazil is R$2.53; in Paraguay, where there are no wells, it costs R$1.45. In Argentina, Chile and Uruguay, which together extract about a fifth of the amount of Brazil’s oil, the price is R$1.70.

Brazilians are paying a dear price for gas because of incredibly heavy tax pressures. If taxes were eliminated, per liter prices drop to an unexpected R$1.39.

On May 25 of this year, Brazilians celebrated the protest day titled “Dia de Liberdade de Impostos” (Freedom from Taxes Day). This specific date was chosen because the national press published a research article earlier in the year that counted 145 days of work just to pay taxes, or until May 25, based on a five-day work week. Gas stations participated in four cities for a one-day tax relief from taxes, lowering prices an average of 40 to 55%.

Strategic economic measure aiming to limit the annual quantity of oil extraction are a likely cause behind non-decreasing gas prices. The Brazilian government is afraid that a strong variation in the global oil market could cause a US Dollar drop, which would eventually damage all other exportation.

Low regulation over quality and service make fueling up in the Rio de Janeiro area a variable if not dubious deal. That is why Brazilians, as opposed to Gringoes, often speak about gas quality. Some gas stations are brand-less, while others are known to add water to their fuel.  Recent research shows an impressive difference in price from one part of the city to another, and slight but significant differences between gas stations in the same neighborhood. The highest variation in price marked a whopping 12.4%.

Alivio Vaz, Vice President of the Union of Fuel Distributors, advises consumers to be careful when they see prices far below average: “Small differences of around R$0.05, either in a big area or the same neighborhood are part of normal competition, but a R$0.10 variation is a little fishy.”