Wednesday, January 15, 2014

Changing Face of Energy Investment in BRIC (Brazil, Russia, India, and China ) Countries

India and China have made significant improvements in energy intensity in recent years and are fast growing economies. They also have a very large population. India has established a national agency focused on energy efficiency and is relying on market-based mechanisms, whereas China has adopted a more command and control approach. While each of the BRIC (Brazil, Russia, India, and China ) countries face unique challenges, all have recognized the importance of improving energy efficiency and have taken concrete steps forward. Perhaps even more significantly, given similarities in the size of these economies to the US, energy efficiency innovations in these countries will begin to offer US policymakers new policy and program models to consider. Sharing these innovations across the US and BRIC countries will become increasingly critical.  By examining each country’s current national energy efficiency initiatives and unique challenge.

The bidder’s registration for the first oil rights auction in Brazil’s pre-salt on 8th January, 2014, was highly pessimistic. There was a lack of oil majors such as ExxonMobil and BP, and the small number of bidders; 11 as opposed to some 40 expected by the Brazilian government. This was dissimilar to Brazil’s inaugural pre-salt auction to the tectonic-shifting announcements of the pre-salt several years ago. Yet with a mix of emerging market and European players, the list of bidders is perhaps a reflection of the nature of exploration and production in the Americas today.

 BRIC countries are very significant to the world economy and to international efforts to regulate climate change effects. Each one of it faces different challenges and opportunities. Brazil has targeted energy efficiency programs and policies that curb its emissions and continue to support economic growth. Brazil ratified the UNFCCC (United Nations Framework Convention on Climate Change) in 1992 and the Kyoto Protocol in 2002, which allows Brazil to participate in the CDM (Clean Development Mechanism). The CDM allows certification of emission reduction projects in developing countries and the subsequent sale of the certified emission reductions to be used by developed countries to meet their targets. There are good opportunities for CDM project development in Brazil’s electricity sector, especially those related to power generation by using byproducts and residues from the industrial sector, such as sugar and ethanol, chemical, metallurgical, paper & pulp and steel industries. Currently, almost half of the registered CDM projects in Brazil belong to the renewable energies category.  

Currently, Brazil is the third most active country, with 438 projects (8%), while China ranks first, with 2136 projects (37%) and India second, with 1,524 projects (27%). Russia begins its quest toward greater energy efficiency at a comparative disadvantage. Under the Soviet Union, the country industrialized heavily and the legacy industrial base and building stock is for the most part aged and inefficient. Russia’s energy intensity is significantly higher than Western Europe and thus it has adopted a 40% energy intensity improvement goal by 2020 over 2007 and established a National Agency to address energy efficiency.  

Brazil has been very effective in promoting energy efficiency and has benefited from a largely hydro-based electric sector, indigenous production of oil and natural gas, and a strong agricultural program to address deforestation and promote ethanol feedstock from sugarcane. The February-2014’s auction of blocks in the Libra field will not be only the first pre-salt bid round but also will be the first auction under the revamped hydrocarbons law, which gives greater control over pre-salt development to state-owned Petrobras. The outcome could have far-reaching implications for the future of Brazil’s efforts to exploit the pre-salt reserves.

The registered bidders include three Chinese firms (CNOOC, CNPC and Sinopec in partnership with Repsol); India’s ONGC Videsh, Japan’s Mitsui & Co., Malaysia’s Petronas, and Colombia’s Ecopetrol, as well as familiar European outfits Shell, Petrogal, and Total. Nothing to sneeze at to be sure and certainly no reason to give up on pre-salt’s promise. The Libra prospect holds an estimated 8 – 12 billion barrels of oil, and Brazil’s hydrocarbons regulator, ANP, reckons the field could produce up to 1 million barrels per day at its peak. The country currently produces about 2 million barrels per day nationally, placing it just behind Venezuela as South America’s.

There was also a concern about the apparent straitjacket that has been placed on Petrobras by requiring the national oil company to be the sole operator and own a minimum 30% stake in all pre-salt projects. Despite this seemingly endless litany of concerns, the opportunity the pre-salt presents is not a trifling one. When the Tupi  (now Lula) field was discovered in 2007, it set off exuberance in the international oil and gas business. And with good reason: the discovery was easily the largest in the hemisphere in several decades. 

Today, oil majors and participants in the international E&P milieu are increasingly hard pressed to find opportunities of the magnitude of the pre-salt. Indeed, across Latin America there is no bidding underway that compares to the pre-salt. Not in much-heralded Colombia, nor in Ecuador, Venezuela, or Argentina, and not yet in Mexico. That said, this first step is still a promising one. 

Whether this new set of players can bring about a return to the pre-salt’s halcyon days, however, is far less clear.  


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