Yes, we know that Australia has a rich suite of natural resources, especially coal, iron ore, gold, copper and a host of other commodities, and billions of dollars are being spent, and will be spent in the next couple of years, to bring them into production.
And we know we are going to have a great boost to national income and our terms of trade over the next year or so.
But take a reality check and look at what’s happening in Brazil.
It’s one of the so-called BRICS (Brazil, Russia, China and India) and it is rapidly moving up the emerging economy scale: it has just received an investment grade rating from the credit rating groups, and quite frankly, it is the most interesting resources-based economy in the world.
Just run through its major assets: tens of millions of people, huge space, lots of coffee, soybeans, beef and sugar cane (it is, or will be by around 2010, the biggest producer in all of these). Its iron ore industry is larger than ours and a bigger exporter through a company now called Vale, but also called CVRD. Vale is also a top three nickel producer, with growing base metal and coal investments.
Brazil is the largest producer of ethanol from sugar cane in the world and the biggest exporter: its efficiency is why the US protects its high cost and draining corn based ethanol industry (subsidised) against imports.
But the big story from Brazil is oil and gas.
It’s already around 50% oil sufficient. In around 15 years time it could very well be the largest exporter in the Americas: something that would not only change its economy (and bring all sorts of joy, and concern) but also change the strategic dynamics of South America as it replaces the likes of Venezuela and Bolivia, which are major exporters and producers of oil and gas.
Put simply, Brazil has announced in the past four months a series of oil and gas finds said to be the largest discovered anywhere for the past 10 to 20 years.
Solid estimates are not available, but a senior government official let slip six weeks ago there could be 33 billion barrels in two deposits.
They will be high cost: they are in deep water off the coast and then lie deep in the earth, under a huge plateau of salt that is a kilometre thick in places. But they are enormous.
Petrobras of Brazil, Reposol of Spain and BG Group London are the partners in the discoveries so far announced. Other companies, such as Exxon plan to start drilling on their acreage later this year, but already there are reports of huge development plans and equipment orders running into the hundreds of billions of dollars over a decade to 15 years.
For example, Bloomberg reported yesterday that one of the fields known as Tupi and deposits nearby offshore, may cost $US240 billion to exploit.
That will exceed the $US136 billion cost estimate for Kazakhstan’s Kashagan field, led by Italian oil major, ENI.
Petrobras has started ordering and leasing offshore drilling and production equipment for the projects: some will be built in Brazil (which is a top three global ship builder) and others will have to be made in the US, Korea, China and other major producing countries.
Tupi and other fields are under 10 kilometers of sea water and rock. Tupi could hold 8 billion barrels of oil. It has associated gas reserves.
Petrobras CEO, Jose Sergio Gabielli was reported a month ago as saying Tupi would start producing in April 2009, but many in the oil industry doubt that, given what they know of the depths and the geology of the area.
Bloomberg said that the well respected Cambridge Energy Research Associates, based in Massachusetts and headed by well known figure Daniel Yergin, says the Tupi-area fields will cost $US200 billion to $US240 billion.
Development costs are rising as producers compete for labor and equipment around the world and with oil prices above $UDS120 a barrel. Deepwater drilling rigs are renting for more than $US600,000 a day, according to industry sources.
Some unofficial industry estimates claim the Brazil fields may hold as much as 50 billion barrels of crude.
Reports in the past fortnight say that Petrobras has leased about 80% of the world’s deepest-drilling offshore rigs and plans to hire 14,000 engineers, geologists and drillers within the next three years.
The company announced plans last month to place orders with shipbuilders for 40 new drilling rigs and production platforms that will cost about $US30 billion.
BG Group, which has called off a $13 billion bid for Origin Energy in Australia, and has nearly 10% interest in Queensland Gas and plans a big stake in a QGC LNG plant at Gladstone, owns 25% of Tupi and an offshore field known as Parati, plus 30% of Carioca, which is said to be even bigger and may hold 33 billion barrels of crude.
Much of the Brazilian oil has a high wax content, as well as associated carbon dioxide, but the sheer volume said to be in the reservoirs and the rising world price for oil (and its projected rise over the next few years to $US200 a barrel), make the exploitation of the oil and gas too good a chance to not have a go.
Brazil already has 12 billion barrels of proved reserves of oil.
Because Brazil is a large and rapidly growing economy, much of the oil and gas will find a use domestically: the issue to watch is if it’s used to replace ethanol in motor vehicles.
Ethanol already meets around 50% of the country’s motor vehicle energy needs and is cheap and efficient to make. More hydrocarbon based petrol will mean less ethanol, and more sugar.
That in turn would see world sugar prices slump as Brazil switched unwanted sugar from the ethanol sector to the human consumption markets.
And Australia’s smaller sugar industry would be battered. Bad luc
