New market study, "Brazil Oil & Gas Report Q2 2016", has been published

New Energy research report from Business Monitor International is now available from Fast Market Research

[USPRwire, Wed Mar 23 2016] Brazil's vast pre-salt reserves suggest substantial growth potential over the long term, underpinning our bullish upstream view that crude, natural gas, and other liquids output will rise over the next decade. However, production growth will be limited by declining investment funds and continued fallout from the corruption scandal. As such, we maintain a relatively modest outlook, reflecting our view that the above-ground environment remains a considerable obstacle to the upstream and downstream segments due to weakening project economics, waning investor confidence, and a burdensome regulatory environment.

The key trends and developments in the Brazilian oil and gas sector are:

On January 12, Brazilian national oil company (NOC) Petrobras announced it had approved further reductions to its 2015-2019 Business and Management Plan (BMP), supporting our previously held view. This revision, revealing the third iteration of the five-year plan, represents a 17.5% decline from the version released in October of 2015 and a 24.5% reduction from the original version released in June 2015. These adjustments underscore the extent to which sustained market weakness has undercut the company's ability to execute its long-term plans.

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The start up of Petrobras's Cidade de Marica floating, production, storage and offloading unit on February 16 is the first of three large-scale developments anticipated to begin in 2016. Located within the Lula Field in the presalt later of the deepwater Santos Basin, the project is expected to generate up to 150,000 bbl of oil along with 6mn cubic metres (mcm) of associated natural gas per day.

Production growth of natural gas in Brazil will experience an uptick in 2016 but will be unable to maintain this trend through 2020. With NOC Petrobras under severe pressure to cut costs and operate within its existing cashflow, we believe projects included its five-year BMP will be subject to continued delays, limiting upside in the latter half of the decade.

A January 18 decree issued by President Dilma Rousseff to ease Brazil's prohibitively high local content requirements is a welcome change within the industry. However, we believe these efforts will ultimately be unable to incentivise private sector investment given the country's less favourable above-ground environment.

The expected rise in natural gas consumption will be supported by the start up of the Route 2 offshore pipeline on February 12. This will increase takeaway capacity from the Lula Nordeste play in the Santos Basin by 16mcm/d to the Caiunas Gas Processing Terminal processing plant in Mecae, supporting efforts to increase thermal generation utilisation over the next several years.

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