Sunday, October 4, 2009

Brazil's New Energy from Offshore Oil and Hosting the Olympic Games

Brazil has a lot of energy from its recent win to host the 2016 Olympics and its 50 Billion barrel offshore oil find. Both of these events are good news for Brazil’s economy, industrial capability, and recognition on the world stage.

The economic benefits will come from giving Brazil’s own oil firm, Petrobas, exploration and production rights of the crude. The government’s share of the oil revenue will be placed in a fund to invest in future development projects. Brazil will also gain economic leverage in the regulating oil prices and production volumes through its firm.

Brazil’s industrial benefits will be from acquiring and using the new technology needed for offshore drilling. Brazil may also see increased industrial activity from better infrastructure and cheaper transportation costs in the future, which will be helpful in preparing for and hosting the games in 2016.

The economic and industrial gains will help Brazil improve its position on the world stage. Their ability to join in the regulation of oil production and prices will allow them to be more influential in world markets. Brazil being acknowledged for the games will help them become recognized as “first world” or global cultural players, and economic players.

But before Brazil can get these benefits, they must make substantial investments and take substantial risks. The economic costs for Brazil will be from much greater debt, the high initial cost of oil production and building facilities and infrastructure for hosting the games. Brazil cant make any money from its oil if commodity prices stay high enough to cover the high initial and on-going costs of production. Brazil is going to have to pay for the technology to drill offshore and maybe give into lucrative deals in order to get to the oil. This means the first barrels of oil will be very expensive to produce. Regarding the games, Brazil will gain recognition for the games if they can successfully overcome the severe crime and infrastructure problems in its leading city, Rio de Janeiro. While there is great prestige, the difficulty for cities and countries hosting the games is that no city has ever come out ahead economically. This means that in the short run Brazil will be in debt for both the games and from drilling.

Nevertheless, the benefits from oil drilling and hosting of the Olympic games could help Brazil in the long run. If Brazil is able to get past the first barrels of oil being very expensive, the costs will begin to plummet after the first very expensive barrels. The greater availability and lower relative cost of oil in Brazil should help improve their infrastructure and industry creating more jobs and cheaper transportation. Hopefully helping improve the slums in Rio and helping expand the growing middle class in Brazil.

Brazil’s new energy should be good for most of us. The new oil and hosting of the games will rightfully put Brazil on the map as a world economic power and petroleum power. And given their sports history, we can imagine how good a soccer or “futebol” team they will put on the field when they host the games!


Orbi Dayrit said...

I believe that not only will Brazil benefit greatly from this drilling, but also the US once production of Brazil's oil is underway. I think that the US will have great interest and may even invest money into the drilling company to assist them and push for the advancement of this find, even if it interferes with President Obama's opposition to any expansion in oil drilling off of American shores.

However, I do not expect the money gained (if any) for Brazil from this project to aid much in the attempt to make Rio a better home for the 2016 games because I predict this project still being in its early stages in the years before the games when improvements to the city start.

This is a great investment opportunity, as drilling will not only stimulate Brazil's economy by offering jobs and such, but by allowing the US better ties socially to a possible source of energy if we decide to invest.

Xochitl said...

Brazil will benefit from this drilling of course, but we will not see results right away. "Rome was not build in a day." The country getting richer could mean less poverty in the country, which is one of the things many countries have, poverty.

This is a big project and I don't think that Brazil will have the necessary power to take advantage of this great discovery. Who will help Brazil, is up to them to decide. This is a chance for Brazil to make it into the "major leagues of oil-producing nations," Brazil will make sure that their decisions are the best.