Today in the Guardian
Brazil's troubled waters
Deep-sea oil
The discovery of tens of billions of barrels of oil in fields far off the coast of Rio de Janeiro was billed as
one of the biggest finds of this century when it was announced in 2006.
Many hoped it would deliver a bonanza for education and health and make Brazil one of world’s major
economies.
But with the country’s biggest energy company, Petrobras, mired in debt and scandal, the low price of oil
and the dangers of a second Deepwater Horizon, the viability of this massive undertaking has never been
under more scrutiny.
episodes
Chapter 1
A murky business
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episodes
A murky business
On the surface, this 412 sq km body of water dotted with more than 100
islands is picture-postcard Brazil, a symbol of the country’s immense
natural wealth and beauty and a backdrop for Rio’s world heritage
tourist sites.
But oil-fuelled development is transforming this iconic landscape into a
petrochemical and service centre for the oil and gas fields more than
200km offshore in the Campos and Santos basins.
While this has delighted local politicians and businesses, Alexandre
Anderson and his fellow fishermen say their territory, the bay
environment and the aquatic food supply are the victims.
Alexandre, the leader of a traditional community in Rio’s Guanabara
Bay, has devoted his life to defending local fisheries against what he
sees as the encroachment of the oil industry.
Environmental activism in Brazil can be
dangerous.
Alexandre has been shot twice, arrested 12 times and had 28 lawsuits
filed against him. Several members of his fishing union were murdered
during a pipeline protest a few years ago. Alexandre says his friends
were killed by guards and militias linked to Petrobas. The company
vehemently denies any involvement, and rejects any threats to
fishermen.
He’s now under a federal protection programme, but he still patrols the
bay in search of oil spills, illegal construction and other environmental
crimes.
“Guanabara Bay is a sacred place for us. We respect it like a church,” he
says. “But the bay is becoming an industrial hub in a disgusting and
criminal way.”
Few Cariocas, as Rio’s residents are known,
are aware of the extent of Petrobras’ sprawl
across the land and water.
It started in 1961 and has accelerated dramatically since the discovery of
the pre-salt, deep-lying oil underneath an extremely thick layer of salt.
To demonstrate, Alexandre takes the Guardian on patrol. Starting from
his quiet fishing village in Magé, we first pass by a propene and
ethylene terminal, which began operating in 2008, then the Iesa
shipyard where several oil tankers are being refitted.
Further along the shore, Alexandre points out the vast Duque de Caxias
refinery, which stretches across the horizon, belching murky smoke
from six chimneys, then a liquified natural gas terminal and a smaller
refinery on Redonda Island, which is undergoing expansion.
Near Rio-Niterói bridge, we spy the famous tourist sites - Sugar Loaf
Mountain and the Christ the Redeemer statue - but closer to the shore
are storage tanks, huge warehouses, factories and shipyards - almost all
of which are geared towards the oil industry: General Electric pipes and
cables, a huge drilling platform waiting for a refit, a cluster of shinynew mini refineries waiting to be loaded on to floating platforms by an
enormous crane painted in the canary yellow and green colours of the
national flag, the national team and the national oil company.
Guanabara, it seems, has become Petrobras Bay.
Altogether, there are at least two refineries, four terminals, four
shipyards, as well as countless storage tanks, support ships, service
factories and underwater pipelines.
The waters - now deemed too dirty to swim in
- are like the forecourt of a giant petrol
station.
Instead of cars lining up at the pumps, there are 30 huge tankers waiting
to load or unload oil and gas at the terminals. A huge new refinery will
soon be added to the list. Petrobras’s Comperj plant is now under
construction close to the northeast - and currently least spoiled - corner
of the bay. It will be the destination for gas from the pre-salt fields once
a new pipeline is completed later this year.
Alexandre vows to fight this threat.
“Once Comperj is finished, the impact of Petrobras will spread right
across the bay. We hope that refinery won’t be viable because of the
low price of oil, because of the struggle by people like us, and because
of the growing clamour in society about the environment,” he says.
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Chapter 2
verty
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Passport out of poverty
The odds are stacked against him. Far more than BP in Britain or Exxon
in the US, Petrobras stirs up nationalist passions.
Established in 1953 by president Getúlio Vargas, it has been at the
forefront of Brazil’s drive to catch up with the world’s leading
economies. Until recently, it was the pride of the country, with the
greatest stock valuation of any company in Latin America thanks to the
pre-salt fields, which are its most valuable asset.
President Dilma Rousseff, a former energy minister and honorary chair
of the state-controlled firm’s board, is the industry’s greatest
cheerleader. Her ruling Workers Party claims oil revenues will fund
programmes for education and poverty alleviation.
Suggestions by climate campaigners that this
reservoir of fossil fuel is a “carbon bomb” that
should be left in the ground, are dismissed as
hypocrisy.
“The big countries of the world today developed without any concern
for the environment. The base of US development was the oil in the
Gulf of Mexico. The base of the UK’s industrial revolution was coal.
How can they now say we can’t use our own pre-salt?” says Guilherme
de Oliveira Estrella, the retired Petrobras geologist whose team made
the discovery of the pre-salt fields.
He is not blind to the impact of his industry. Estrella grew up on Rio’s
Ilha do Governador. “It was a paradise in the 1940s and 50s,” he recalls.
“The big change came when Petrobras built their first refinery in 1961.
That began the destruction of Guanabara Bay. It has been destroyed by
so-called progress.”
But, having found what he estimates to be 50bn barrels of oil, he says
the government is right to put fossil-fuels first.
“This oil has to be used to improve the life of
the people with better schools and better
hospitals. The real pollution is poverty,” he
says.
Brazilians, he points out, use just a seventh of the energy consumed by
people in the US and almost 80% of it comes from hydroelectricity not
fossil fuels. “So we surely have some credit to burn some carbon.”
Sources of electricity in Brazil
Hydroelectric
76%
Fossil
fuels
13%
Other
10%
Note: Other sources include renewables (7%) and nuclear (3%)
Source: US Energy Information Administration, 2012
While that question will be determined at global climate talks, a more
pressing concern in Brazil is whether the pre-salt oil can be extracted
safely and economically.
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Chapter 3
dangers
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Deepwater dangers
Engineers at Petrobras’s Cenpes centre in Guanabara Bay explain the
obstacles that make this one of the world’s riskiest drilling operations.
Firstly, the remote, hostile location - up to 300km offshore - is beyond
the range of most helicopters and in often turbulent waters. Secondly,
the depth of the drilling is more than 2,000 metres below the surface of
the water and then many thousands of metres more below the sea bed.
Thirdly, the strata of salt “flexes like plastic” according to one engineer.
Fourthly, the reservoir includes vast quantities of unwanted gases,
including hydrogen disulphide, which is extremely toxic, flammable,
explosive and corrosive.
Overcoming these difficulties is costly. Presalt wells can cost as much as $300m (£190m)
to drill, about four times more than those in
shallow water.
To filter out contaminants and separate oil, gas and water, the company
has had to buy and build the world’s largest fleet of FPSOs (floating
storage and offloading vessels), which are essentially refineries hoisted
on to tankers. These awe-inspiring vessels, which cost up to $2bn each,
are part of the reason why Petrobras is now the world’s most indebted
company.
There are similarities with the set-up at the Deepwater Horizon rig in
the Macondo field before it suffered a devastating blowout in 2010 that
killed 11 people, and allowed 4.9m barrels of oil to gush into the ocean
for 87 days until it was finally capped. As yet, that is the world’s worst
spill at sea.
An accident in Brazil’s pre-salt fields could be more catastrophic
because the Campos and Santos reservoirs are deeper and larger so the
pressure and volume of oil are greater.
“If there is an accident from this kind of well,
nobody knows what will happen, but it would
certainly be worse than the Macondo,” said a
government source.
The guide at Petrobras’s Cenpes centre, Heitor Araujo, dismisses such
claims. “We use a safety valve to prevent a repeat of the Macondo
blowout. If there is a surge in the pipe, it will close automatically just as
an electricity fuse switches off when overloaded.” He acknowledges the
technology is similar, but insists, “our maintenance standard is higher”.
A few days later, Vitor Marques, an oil platform engineer and union
safety representative, tells a less reassuring story.
On 20 December 2013, Vitor reported an accident on the FPSO Cidade
de São Mateus operated by BW Offshore on behalf of Petrobras. A
worker had passed out from the fumes from a leaking pump, setting off
alarms and temporarily halting production. Instead of acting on his
complaint, Marques says managers punished him with a suspension and
then transferred him to another platform. A little more than a year later,
on 11 February 2015 the same pump on the São Mateus exploded,
killing nine people, he says.
Marques alleges criminal negligence was to blame for the deaths, which
included two of his former room mates. “Even before I reported it,
others had complained. That leak was known for three years, but they
wouldn’t stop production to fix it because that would cost too much.”
Petrobas did not respond to requests for a comment.
Although the Cidade de São Mateus does not operate in pre-salt fields,
its problems are symptomatic of those facing Petrobras, which has
suffered a string of explosions and fires in the past year. Among the
causes are growing cost pressures, hefty no-accident bonuses (which
give managers an incentive to downplay incidents), woeful management
and weak oversight.
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Chapter 4
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The curse of corruption
In the past year, the institutional weaknesses of Petrobras have been
exposed by an eye-wateringly epic corruption scandal. Despite promises
that the company’s oil revenues would be used to fund social programs,
it has been revealed that almost $2bn has, in fact, been siphoned off by
executives, partners and politicians, including several senior figures in
the ruling Workers Party.
This has coincided with low gas prices and financing problems to make
the blessing of oil seem more like a curse.
Petrobras is now the most indebted company
in the world, its share price has plunged 80%
from its peak and its chief executive has been
forced to resign.
The ripples have spread outside the industry. Tens of thousands of jobs
have been lost, more than 40 politicians have been arrested or
questioned, and Rousseff, although not implicated by prosecutors, has
become the most unpopular president this century.
Pre-salt is not immune. Petrobras admitted in a recent report that its
credit problems may affect investment plans, most of which is
earmarked for pre-salt projects. Construction of the Comperj refinery
has already slowed. Shipyard workers say contracts for new platforms
are being delayed. Government sources say several other off-shore
projects have been put on the back burner.
How long the slow-down lasts will depend on the oil price. The breakeven value for pre-salt production has variously been estimated at $40
to $60 a barrel, which makes it a questionable proposition in the current
market.
Break-even price for Petrobras’s pre-salt production
“In my view, this pre-salt discovery is posing huge challenges to the
government because of price, because of the scandal and because of
Petrobras debt. It’s one thing when oil is $130 a barrel, but a very
different situation at $60 a barrel,” said the government source.
“Brazilians were expecting to export pre-salt oil and earn a great deal of
money. But it’s actually very expensive to extract and also very
dangerous because of the environmental risks.”
Public perceptions have also started to shift.
Below the arches of Lapa close to the central
district, the opinions of passersby range from
patriotic support and economic pragmatism to
unease about mismanagement and
environmental risks.
“Pre-salt is important for Rio because this is the capital of the Petroleum
industry in Brazil. It’ll generate jobs and income,” said Luis Henrique
de Sousa, an office clerk.
“I have to say it is a good thing because last week I started working for
a firm that extracts oil,” said economist Karyna Fontes.
“It’s part of the city’s identity now so overall it can be a good thing, but
whether the money actually goes where it should is another matter,”
commented retired municipal official Brenno Matoy.
“It ought to bring in money, but it’s a risk because we are investing state
funds in an industry where the returns are uncertain because people may
stop using petrol in the future,” said music student Luisa Pena.
But now that Brazil has invested hundreds of
billions of dollars in platforms, wells and
terminals, it will take more than doubt to halt
the world’s biggest deep-sea oil exploration
programme.
Last month, production at the pre-salt fields hit a record 885k barrels
per day, up more than eightfold since the first pilot wells opened in
2010. China - which is a major partner in the fields - has indicated it
will provide fresh financing.
Ildo Sauer, a former Petrobras director who now heads the Institute of
Energy and Environment at the University of São Paulo, sees little
prospect of Brazil’s oil remaining in the ground. As technology
improves, he believes it will either become cheaper to extract or the
barrel price will rise to make it profitable. The most he hopes is that the
revenue will be used to develop alternative energies.
“I would prefer renewable. I work with biodiesel, ethanol and wind. But
I have to look at the world as it is. Between the internal logic of the
economic system and the speeches of those who want a cleaner system,
the gap is too big to be breached... I don’t like it, but that’s how it is,” he
says grimly.
Changing that logic requires a more fundamental shift in economic
values - both in terms of the cost of oil (which would be far higher if a
carbon tax were introduced, subsidies reduced or environmental risks
fully accounted for) and in terms of appreciating the worth of
unpolluted food supplies and an unsullied landscape.
Back on Guanabara, it is almost dusk as the
fisherman, Alexandre returns from patrol.
The scene would be idyllic, but for the smell of untreated sewage from
the village and the black petrol stains left on the sands from the boat
engines.
Nobody, it seems, is completely innocent when it comes to oil. But
there are different shades of guilt, varying attitudes to change and
competing views of a better future.
“Guanabara Bay is not a lost cause. If the petroleum industry stopped
expanding, we could recover. But if it keeps growing, our traditional
communities will disappear in 20 years,” Alexandre says. “What is
happening makes me sad. What gives me hope is talking to other
fishermen and hearing their willingness to resist. We’ve won some
battles and in the end, we’ll win this war.”