Why Brazil Will Never Export Crude (2008)

by Josino Moraes
Latin America Economic Researcher
www.josino.net
email: josinomoraes@hotmail.com

"Brazil is an empty set that thinks it is the center of the universe" - Ricardo Bergamini

Brazil has an economic plague called Petrobras. It is a monopoly owned by the state, as in
Mexico, with Pemex, and in Venezuela, with PDVSA. Perhaps, the fallacy of Venezuela's oil-
rich state is the best known example. PDVSA is an indebted company with falling production.
In the peak of PDVSA's megalomaniacal dementia it tried to produce soybeans!

The companies named are inefficient, with too many employees at sky-high salaries and
innumerable other benefits and privileges. Employees retire very early, at about 45-50 years
of age, due to "bad working environments". Furthermore, these companies are often used as
instruments to hire "close friends" and sell the populist ideas of the governors in power. As a
logical corollary, they have no investment capacity.

At the beginning of these state-owned monopoly companies - more than 50 years ago for
most of them -  the privileges of employees cited above were not as plentiful, and so they
could have small advances. Mexico's and Venezuela's oil companies advanced more because
these companies were born as foreign private companies and the countries have turned into
crude exporters.  But, it was just a matter of time. Unions, retirement funds, and government
at all levels were eager for the new sources of easy income.

Could anyone imagine such a company exploiting crude 6 miles below the ocean surface in
deposits so hot they can melt the metal used to carry uranium to nuclear plants? Besides, it
requires equipment that can withstand 18,000 pounds per square inch of pressure,
temperatures above 500 degrees Fahrenheit, and drill bits that can penetrate layers of salt
more than one mile thick (technical data from Bloomberg.com, April 28, 2008).

Let's focus only on the Brazilian case. In the year of 2008 Brazil's governors have attempted
to sell the dream of a new source of a deep-water crude field, named Tupi - exactly as
described above.

They had already sold the ethanol dream. America's Ohio corn farmers have gotten happy,
although let's see for how long. Brazil has an official subsidy program to produce ethanol for
more than thirty years! The original reason given was to reach self-sufficiency, but it still
seems a distant dream. In other words, it was to help the incompetent Petrobras to produce
fuels. The main reason of Brazil's commercial balance worsening in 2008 is the import of crude!

The incredible is that they can sell this demented idea to nothing less than the
New York
Times
: A huge underwater oil field discovered late last year has the potential to transform the
South America's largest country into a sizable exporter and win it a seat at the table of the
world's oil cartel" (January 11, 2008).  President Lula has reached the best level of popularity
ever recorded.

Brazil has one of the most expensive and worst grade fuels in the world. Its gasoline has no
octane specification and you can only buy it mixed with ethanol in a specific proportion
determined by law -  it can vary from moment to moment. That's the main reason of ethanol's
success in Brazil.

Emissions of ozone are 43% more than if one used the Californian gasoline  -  as reported by
Universidade de S. Paulo ( Folha de S. Paulo, August 8, 2008, A26). In the case of diesel the
levels of sulfur in the capitals are about 500 ppm, i.e., ten times more than in the developed
countries and a hundred times more than the ideal (O Estado de S. Paulo, July 17, 2008, C2).

Let's take a look at local fuel prices. It is hard to say they are the most expensive all over the
world due to the dynamics of prices and difficulty of compiling information. But, no doubt,
they rank at the peak. In September 2005, when the barrel was about US$ 60, the American
gallon of gas was US$ 3.95 and diesel US$ 3.12. In March 2008, Petrobras arguing the
international barrel price, about US$ 125, raised the price of diesel to US$ 4.79. Price raised  
another 3% again in July due to "the new miracle of biodiesel". It is not easy to carry such a
parasitic burden when Brazil has a historical per capita average income of about one-tenth
that of developed countries'.

Notes about Why Brazil Will Never....(May, 2009)

This above short essay was written in an article shape – 700 words - to be eventually
published in a newspaper in the USA. Unfortunately, it was not the case. So I added here,
where I have more space, some important notes about the subject:

1.
Fueled by biodiesel in large letters is the motto that stands on the buses for public
transportation in the city of Campinas, Sao Paulo. Biodiesel means in this case the addiction
of barely 3% of vegetal oil to the original diesel.    However, it has deep implications to local
populism.

2.In a interview to O Estado de S. Paulo (2004-9-27) the President of Bunge said:” Brazil is
nowadays one of the most competitive countries in the agribusiness.” That’s true. However,
he added: “One point of permanent attention is the logistic costs. Brazil has a freight cost
from the country to the port of about US$ 35/soybeans ton, while in the USA it is US$ 15 and
in Argentina US$ 14.” The main factor behind this non-sense phenomenon is the existence of
Petrobras. Besides, Brazilian roads are ruined, as a natural consequence of the current
degradation of the Brazilian state

3. Between 2003 and 2007 the amount of employees of Petrobras increased from about
36,000 to 50,000 (O Estado de S. Paulo, 2008-12-2, A3). No data is available for the increase
in the third-party contractor's. No raise in production at all.

4.The cost of electrical power in Brazil is 65% more expensive than in the USA (Correio
Popular, 2007-7- 7, B16).

5. Poor people use more and more firewood to cook (Folha de S. Paulo, 2006-1-4,B8). A report
from Correio Popular (2007-8-12, A13) says the use of firewood is higher than that of stove
gas, produced and sold by Petrobras.

6. 80% of working fatality accidents has been occurring in the third-party contractor's (Radio
CBN, 2009-1-9, at 6:00 a.m.). Petrobras’ employees don’t like taking risks. They are “smart”.

Notes of July, 2009

One of the headlines of O Estado de S. Paulo (2009/7/7, B8) said: Production in Tupi will stop
for the next four months
.

The news has two hilarious points.

First, there is not such a thing as production in Tupi. In fact, the report meant an ordinary
well in shallow waters, Santos Basin, on the area where is located this new “miraculous
finding” of a pre-salt well.

Second, the production will stop for four months due to the breakdown of a unique screw!

The publishing of this news is also interesting to reveal the level of local media idiocy.