HardAssetsInvestor

Written by Amine Bouchentouf  |

February 21, 2012

The Commodity Investor: Petrobras, OGX Can Unlock Brazil’s Oil Boom For You

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Latin American country’s oil reserves just got an added boost from ric new discovery.

The recent discovery of significant oil reserves off the cost of Brazil (known as pre-salt reserves due to the geological composition of the resources) has shed a spotlight on this growing Latin American powerhouse.

Brazil’s proven and probable oil reserves before the pre-salt discovery came in at 20 billion barrels. With this discovery this number will jump to 70 billion and may even eventually surpass 120 billion barrels. These offshore reservesmay hold as much oil as all of the North Sea, which is shared by several countries such as the UK and Norway.

In addition, the discovery rate off Brazil’s coast is one of the highest in the world and on record; exploration success is more than 85 percent in Brazil versus a global average of 25 percent. The Brazilian government, through Petrobas (NYSE:PBR), is investing more than  $200 billion in five years to develop these fields. It expects that total production will hit 5 million barrels per day by 2020, compared to an average of 2.7 million barrels per day today.

Brazil is already producing more than 100,000 barrels per day from the pre-salt regions today and it has begun an aggressive exporting program. If all goes according to plan, Brazil will be on track to export 1.5 million barrels per day in a few years. This is a remarkable number for a country with a booming economy and large internal demands for energy. The pre-salt discoveries will catapult this Latin American powerhouse from the Top 15 to Top 5 oil producers worldwide.

Putting things in perspective, this oil bonanza is similar to throwing jet fuel into a burning fire; the Brazilian economy is growing by leaps and bounds, and is one of the hottest economies in the world right now. In the closing days of 2011, the Center for Economics and Business Research (CEBR) officially declared that Brazil had become the world’s sixth-largest economy, overtaking economic powers such as the UK, Italy, Russia and India.

Brazil is now the third-largest automobile marketin the world, behind only the US and China. And the Brazilian economic story is not relying merely on export sales of raw materials such as coffee and iron ore. Brazil boasts one of the most dynamic consumer markets of any country; indeed almost 70 percent of the Brazilian economy is consumer-driven. The only country with a similar consumption pattern: the United States.

When you add oil to this booming economy, it’s easy to understand why Brazil will be one of the top economies this decade and beyond. To be sure, the country still has many issues to deal with such as poor infrastructure and growing inequalities. However, its prolific oil resources, if developed effectively, should be able to catapult this Latin American powerhouse into the global rankings in many categories.