'Brazil can't miss window of opportunity to monetise pre-salt oil and gas riches' - Shell exec

Brazil should accelerate two key reforms governing oil and gas investments to avoid missing a “window of opportunity” presented by the ultra-productive pre-salt fields, according to a top executive at Anglo-Dutch supermajor Shell.

“As we go into 2021, Brazil has to use the time to accelerate regulatory changes in order to attract more investments to the country,” said Shell’s director for pre-salt assets Cristiano Pinto da Costa, addressing a discussion forum on the fringes of the Rio Oil & Gas 2020 digital event this week.

'Brazil cannot miss the window of opportunity'

This year, Brazil’s prolific pre-salt fields have demonstrated “enormous resistance” to the sharp fall in oil prices due to their own high productivity and increasingly low production costs, Costa noted.

“Looking to the future, Brazil cannot miss the window of opportunity for monetising these riches from the pre-salt oil and gas,” he stated.

In Costa’s view, the big signature bonuses and high production sharing offers put forward in Brazil’s 2018 and 2019 licensing rounds demonstrated how attractive the country is to foreign investors when it offers regulatory stability and competitive terms.

Look to accelerate reforms

“With growing competition for investments, Brazil should consider accelerating reforms such as the gas bill now in the Senate and also wrapping up the debate over whether to use the concession or production sharing models. These are very important matters to discuss as we go into 2021,” the Shell director said.

Speaking through the Brazilian Petroleum Institute (IBP), oil and gas companies have expressed a clear preference for Brazil to use the concession system, which was replaced for newer pre-salt offerings by a 2010 oil law.

The result has been more complex system with proliferating unitisation demands.

“The concession model is more competitive and will attract more investments to the sector,” Costa said.

Brazil's market-opening gas bill was approved by Brazil's Chamber of Deputies in September and is now in the Senate but Shell, acting as part of a consortium, anticipated these reforms somewhat with the construction of Marlim Azul thermoelectric station near Macae, north of Rio de Janeiro.

A 25-year power-purchasing agreement was signed for Marlim Azul in 2018 and construction of this 460 megawatt gas-fired power plant has moved forward this year, despite the coronavirus pandemic.

The project received a major boost in September with the signing of an infrastructure sharing agreement between state-controlled Petobras and key partners in the pre-salt concession, including Shell.

“This is the first project where you see the private sector connecting pre-salt gas, from offshore pipelines to a processing base and taken from there to a thermoelectric station. This shows Shell diversifying our investments in Brazil,” Costa said.