The São Paulo State Oil Industry

By Anna Fitzpatrick, Contributing Reporter

SÃO PAULO, BRAZIL – With an oil leak off the Brazilian coast and tense negotiations over state oil royalties, the deep sea “pre-salt” oil discoveries have shown that it is not just the state of Rio de Janeiro that will have rewards and consequences. Although the spotlight has been on Rio, the states of São Paulo and Espírito Santo are important oil producing areas as well – indeed, SP’s five large refineries account for 43 percent of Brazil’s oil refining capacity.

SP is also a large oil producing state. In 2008 and then later in 2010 larger oil fields were discovered in the Santos Basin around 250km off the coast of SP, which means the state will now be producing oil in addition to refining it.

The Comissão Especial de Petróleo e Gás Natural (CESPEG) was created by the state of São Paulo to oversee the production of oil in the area. The state has since been investing in this area to try and ensure SP becomes a major international player and attracts industry to the region.

The hope is also that, as the country consolidates its expertise in deep sea drilling, it may open up possibilities in sharing this knowledge with other nations with their own deep sea reserves of oil. It is expected that the port of Santos (already the largest and busiest port in Latin America) will become an important support base for the industry – generating more income, jobs and structural investment.

As a large oil producing and refining state, São Paulo, along with Rio de Janeiro and Espírito Santo, stand to lose out from new arrangements proposed in October over the distribution of oil royalties. Revenues from oil production are expected to reach more than R$80 billion (US$45 billion) annually by 2020, and it is not just the oil producing states that are against the changes.

According to Carlos Henrique de Brito Cruz, director of the Foundation for Research Support of the State of São Paulo (FAPESP),  changes could be “a major blow to science and technology funding in Brazil. It starts the dismantling of a funding system that was created in 1998 that has been bringing excellent results in science and technology in Brazil.”

Before the discovery of the pre-salt oil fields it was estimated that the total amount of oil in Brazil was around the twenty billion barrel mark. At the moment the country is the 11th largest oil producer, and by 2020 it hopes to be in the top three.

In September 2011 the country was producing 2.099 million barrels per day, an increase of 5.1 percent for the same period the previous year.

A recent challenge – the oil leak in the Frade oil field in the Campos Basin, off the coast of Rio – has resulted in a R$100 million fine for the American oil company Chevron. According to the head of Chevron’s Africa and Latin America unit, Ali Moshiri, the spill is now under control.

However, the Chevron leak has raised new questions about the best ways to drill for oil, which companies should be controlling it and the safety and feasibility of drilling in deep oil fields.