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®
CERA
An IHS Company
CERA 
Advisory 
Service
Southern Cone Energy • Global Oil
Brazil’s Subsalt 
Discoveries
A Complex Path to First Oil Production
DECiSiOn BriEF 
®
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ABoUT THE AUTHoRS 
PETER m. JACkSon, CErA Senior Director, Oil industry Activity, is a widely respected authority on 
oil and gas production and upstream development. He combines expertise with practical experience in 
some of the world’s most important production areas. At CErA he is responsible for global oil capacity 
outlooks worldwide. A major component of his research is examining current trends and challenges in 
productive capacity and reserves distribution as well as forecasting which areas will become a focus 
for exploration and production (E&P) industry investment over the next ten years. He was principal 
author of CErA’s 2007 report Bumpy Road Ahead—Global Liquids Capacity to 2017. His most recent 
paper, Finding the Critical Numbers—What Are the Real Decline Rates for Global Oil Production?, was 
an important contribution to understanding the future of oil supply. He has also played a major role in 
developing CErA’s new E&P Trends Forum. Dr. Jackson has 22 years of E&P experience with what were 
Britain’s two leading independent oil companies, Britoil and Enterprise Oil, as a geologist and manager. 
With Enterprise he was President and General Manager of Enterprise Oil’s Gulf of Mexico business, 
where he gained extensive experience with deepwater development. He served as Chief Geologist for 
Enterprise, responsible for the worldwide view of prospects and development, during the period that 
Enterprise was the world’s largest independent oil company. He also gained extensive knowledge of 
E&P projects while working in the United Kingdom, indonesia, and italy. Dr. Jackson holds a BSc from 
St. Andrews University and a PhD from Edinburgh University.
SylvIE D’APoTE, CErA Associate Director, has 15 years of experience as an energy economist and 
for over 10 years has focused on Latin American energy issues. She specializes in South American 
natural gas sector developments, with particular expertise in supply-demand dynamics, regulatory 
issues, gas market integration, cross-border pipelines, and gas-power convergence. Prior to joining 
CErA Ms. D’Apote managed her own consulting company, Prysma E&T Consultores, based in Brazil, 
carrying out projects and studies in the areas of energy policy and planning, gas and power market 
analysis, and corporate strategy. Previously Ms. D’Apote was Head of the Latin American Program 
with the international Energy Agency (iEA) in charge of monitoring and analyzing Latin American energy 
issues, including market trends for oil, gas and power, as well as energy policies and regulation. She 
is the author of South America Gas: Daring to Tap the Bounty and contributed to several other iEA 
publications. Ms. D’Apote previously worked as an energy consultant for the WEFA Group, in London, 
specializing in coal and power, and for the Organisation for Economic Cooperation and Development in 
Paris. She holds an MSc from the University of rome, La Sapienza, and an MSc from imperial College, 
University of London.
© 2008, All rights reserved, Cambridge Energy research Associates, inc. 
55 Cambridge Parkway, Cambridge, Massachusetts 02142. 
no portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.
BRAzIl’S SUBSAlT DISCovERIES: A ComPlEx PATH To fIRST 
oIl PRoDUCTIon
kEy ImPlICATIonS 
Brazil’s upstream is emerging as one of the more important long-term growth areas for world 
oil resources and production. The potential scale of the discoveries that have been made in the 
subsalt play in Brazil is prompting much discussion about the likely impact and the future role of 
these resources in the international oil markets. Already, Brazil’s energy authorities and politicians 
are considering possible changes to the upstream regime (including to the fiscal terms), with 
important consequences for future investment in Brazil’s upstream sector and the pace of activity. 
But is the timing right?
Large-scale development and production of the subsalt play will face major challenges, and success 
hinges on key near-term decisions:
Defining the scale. •	 Limited appraisal (and even more limited well testing) of the play and its 
complex geology leaves room for major surprises to both the upside and the downside. 
Prioritization and timing. •	 Development of the discoveries will require major personnel, 
service sector support, and capital resources. Petrobras already has a world-class inventory 
but faces the enviable task of rebalancing its portfolio following such large-scale additions 
from the subsalt. 
Choosing the right legal and fiscal framework for the new discoveries. •	 Brazilian authorities 
are already considering a wide range of options, from restricting access to international 
and private company investment in the subsalt, to increasing government take or—less 
likely—maintaining the status quo. Each one has different implications for future upstream 
development in terms of timing and investment patterns. 
A major exporter. •	 Existing fields and new projects assure Brazil of oil self-sufficiency in the 
medium term. With Tupi onstream Brazil could export as much as 1.5 million barrels per day, 
but not before 2017 at the earliest.
September 2008 1
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CERA Decision Brief
BRAzIlIAn SUBSAlT DISCovERIES: A ComPlEx PATH To fIRST 
oIl PRoDUCTIon
by Peter Jackson and Sylvie D’Apote* 
REDEfInIng THE PlAyIng fIElD
Brazil’s upstream sector is getting much bigger. The Tupi discovery in 2006 demonstrated 
that the Santos Basin subsalt might be a major oil and gas province in its own right. Since 
then, further wells in the adjacent blocks show that the Brazilians have unlocked a major 
world-class play (see the box “Milestones and Expectations: Tupi and Other Discoveries”). 
The discovery of Tupi, a major technological achievement, has launched a new era for 
Brazil’s oil industry. The exploration program in the Santos Basin has so far yielded eight 
discoveries and one successful appraisal well (see Table 1). These discoveries have confirmed 
Petrobras’s leading role in deepwater activity globally andits commitment to further develop 
its technical capabilities to be a leading world-class energy company (see Table 2).
There is limited data about the discoveries to date; only a handful of wells can be used 
to calibrate the sizes of the discoveries, and some of these wells have not been fully 
evaluated. Reported resource volumes must be considered very preliminary. Even with a 
full suite of formation evaluation results for each well, the reserves estimates would only 
*In collaboration with Carla Maria de Souza e Silva.
milestones and Expectations: Tupi and other Discoveries
The subsalt fairway of the Santos Basin extends along the Brazilian coast some 800 kilometers 
(km) from the state of Espírito Santo in the north down to Santa Catarina. The prospective 
area is up to 200 km wide in water depths of up to 3,000 meters (m). in november 2007 
Petrobras announced the completion of formation tests at the Tupi discovery, an ultradeepwater 
accumulation in the subsalt play of the Santos Basin (see Figures 1a and 1b). Currently being 
evaluated by a joint venture between Petrobras (operator), BG, and Galp Energia, Tupi has 
estimated recoverable reserves at between 5 and 8 billion barrels of medium gravity crude oil 
(28–30 degrees APi) with a high gas-oil ratio (1,100 to 1,200 standard cubic feet per barrel). 
Júpiter, the gas and condensate discovery in block BM-S-24 announced in late January 2008, 
has been described as potentially similar in size to Tupi. Another recent announcement reinforces 
the view of significant potential in the subsalt play: drilling in the BM-S-11 block (iara) has 
confirmed the discovery of a significant find of light oil in the subsalt layer with an estimated 
recoverable resource of 3 to 4 billion barrels.
Discoveries have also been made at Carioca, Caramba, Bem Te Vi, Parati, and Guara, but 
resource estimates are speculative at best. Additional undrilled prospects such as Sugar Loaf, 
iguaco, and Ogum are located toward the south of Tupi and appear to cluster around a massive 
base salt structure. The looming block expiration dates and the inability to mobilize additional 
drilling units in the near future have resulted in Petrobras’s not testing either the Carioca or 
Bem Te Vi wells. instead, it has preferred at this stage to drill untested prospects in the area 
to meet license commitments and retain as much acreage as possible. The perception of high 
value in the unallocated acreage in the immediate area also caused the reframing of the ninth 
licensing round earlier this year. 
2 September 2008 
CERA Decision Brief
© 2008, Cambridge Energy research Associates, inc. 
no portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.
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September 2008 3
© 2008, Cambridge Energy research Associates, inc. 
no portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.
CERA Decision Brief
Table 2
Santos Basin Blocks with Subsalt Discoveries/Potential:
ownership Structure
Discovery Bidding Other 
name Contract Round Operator Partners
Parati BM-S-010, Block 1 2 Petrobras 65% BG 25%, Partex 10%
Tupi BM-S-011, Block 1 2 Petrobras 65% BG 25%, Galp Energia 10%
Carioca BM-S-009, Block 2 2 Petrobras 45% BG 30%, repsol YPF 25%
Caramba BM-S-021 3 Petrobras 80% Galp Energia 20%
Júpiter BM-S-024 3 Petrobras 80% Galp Energia 20%
Bem Te Vi BM-S-008 2 Petrobras 66% Shell 20%, Galp Energia 14%
Guará BM-S-009, Block 1 2 Petrobras 45% BG 30%, repsol YPF 25%
iara BM-S-011, Block 2 2 Petrobras 65% BG 25%, Galp Energia 10%
 BM-S-022 3 Exxon 40% Amerada Hess 40%, 
 Petrobras 20%
Source: iHS, CErA, Petrobras, AnP.
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4 September 2008 
CERA Decision Brief
© 2008, Cambridge Energy research Associates, inc. 
no portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.
be approximate at this stage as there has been insufficient appraisal activity to develop a 
complete understanding of reservoir characteristics over such a large area, and still less an 
understanding of the dynamic behavior of the reservoirs. 
Despite this uncertainty, the National Petroleum Agency (ANP), the industry regulator, and 
other Brazilian analysts indicate that the entire subsalt play could hold up to 56 billion 
barrels of oil equivalent (boe) resources—on a par with the total for the UK portion of the 
North Sea. At 5 to 8 billion barrels the Tupi field would be twice as big as the Roncador 
field in the Campos Basin, which is the largest Brazilian field developed to date (see 
Figure 2). Indeed at this scale Tupi would be the largest field discovered since Kashagan 
in Kazakhstan in 2000. 
Changes to Brazil’s upstream policy are in the cards. The improvement in prospectivity 
may lead to amending fiscal terms for existing as well as new licenses. The scale of the 
discoveries and the resulting call for personnel, equipment, and services will affect local 
contentpolicies, employment prospects and the ability of the Brazilian services industry to 
compete for exports. It will also have an impact on the oil import/export status of Brazil 
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September 2008 5
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CERA Decision Brief
itself. Expectations in Brazil and among importing nations regarding the scale of the new 
reserves and future oil export volumes are high. But if history is any guide, this could be a 
roller-coaster ride. Appraisal results are likely to include both negative and positive surprises. 
An undertaking of the scale proposed to develop these new resources may well be hit by 
cost and schedule overruns, especially with today’s pressures on personnel, equipment, and 
services in the E&P sector. 
A RoAD mAP foR fUTURE CERA STUDIES AnD REPoRTS
This Private Report lays out a road map for subsequent CERA reports and research that will 
examine the challenges and opportunities arising from the exploitation of Brazil’s subsalt 
play, including analyses of
The regulatory and fiscal framework for the subsalt discoveries.•	 The Brazilian 
government is considering changes to the current exploration and production (E&P) 
regulatory framework, at least for the acreage included in the subsalt play. Various 
options are currently under discussion and will have different impacts on the pace of 
the sector’s development and on Brazil’s economic and social development. CERA 
will evaluate the opportunity, compared with other emerging provinces, for Brazil to 
retain the maximum economic benefit including the benefits and risks of fiscal and 
legislative changes—production-sharing agreements versus concession agreements, 
nationalization, and the fiscal load that can be borne by the subsalt developments.
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6 September 2008 
CERA Decision Brief
© 2008, Cambridge Energy research Associates, inc. 
no portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.
The technology opportunity.•	 The development of the subsalt resources will require 
major technological innovation and many “first-of-a-kind” solutions. This may provide 
opportunity for Brazil eventually to become a significant exporter of energy-related 
equipment and services based on the critical mass it could develop. CERA will evaluate 
the likely learning curves and their impact on program implementation, technology 
leverage, and other issues.
The timing and investment requirements.•	 The subsalt discoveries will require a staged 
development approach and large-scale investments. CERA will assess the supply chain 
implications in terms of capital, personnel, services, equipment, and other parameters 
(versus Brazil’s current and future execution capacity both in quantity and quality).
The associated gas challenges.•	 While oil reserves will provide the main driver for 
development, the associated gas reserves in the subsalt play will offer additional 
opportunities and challenges. CERA will analyze the various technical alternatives 
and challenges for marketing the subsalt gas. We will also analyze through a scenario 
approach the possible outlooks for a natural gas balance in Brazil and in the region. 
The impacts on global oil supply.•	 Although Brazil’s liquid productive capacity 
may expand significantly above current expectations, the scaling back of investment 
plans elsewhere may affect the rise in global output resulting from the discovery of 
this giant new oil and gas province. CERA will analyze the oil capacity outlook for 
Brazil and its contribution to global supply, including the potential offsetting impact 
of reprioritization of Petrobras’s (and other companies’) investment plans.
PoSSIBlE CHAngES To UPSTREAm lEgAl AnD fISCAl TERmS
The goals surrounding potential policy changes to Brazil’s upstream are similar to those of 
opening the Brazilian upstream sector in 1997: increased upstream investment and revenues 
and the benefits of economic growth such as improved health care, better education, and 
greater employment opportunities. This time around, however, the stakes are larger, and the 
choice of development model for the oil and gas sector in Brazil will need to be considered 
in terms of its possible impact on development of Brazil’s hydrocarbon resources, and on 
the subsalt play in particular. For example, it may seem superficially attractive to reserve the 
high potential subsalt play for Petrobras as a “national champion.” However, this might raise 
legal concerns. More likely, if the subsalt is to be reserved for a national player, it would 
result in a new, wholly state-owned company. CERA understands that such a company would 
be the right holder for the government interest and could then contract for the exploration 
and development of the resources (perhaps along the lines of Argentina’s Enarsa; Indonesia’s 
Pertamina in its early days; or, as an alternative, of Norway’s Petoro). This approach could 
allow the benefits of diversity of approaches and execution capacity that the involvement 
of international companies might bring. This is especially true given the very tight markets 
for people and hardware (including rigs) in which costs are escalating worldwide.* 
*See the CERA Special Report Capital Costs Analysis Forum—Upstream: Market Review.
September 2008 7
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CERA Decision Brief
It is instructive to compare the rates of production buildup from Brazil and the US Gulf of 
Mexico in water depths greater than 1,000 m. The reserve bases are broadly comparable, 
but the latter grew faster and higher, in part because of the diversity of approaches and the 
associated innovation (see Figure 3).
Some signs of change in Brazil appeared even before the more recent announcements of the 
success in the subsalt play. The offer of fewer but more focused new frontier and mature areas 
in the formerly suspended eighth round possibly hinted at future changes in Brazilian upstream 
policy. However, the obvious turning point was the government’s decision to withdraw the 
most attractive areas of the ninth bid round soon after confirmation of the possible scale of 
the Tupi discovery.* Tupi triggered an immediate debate about the application of the current 
upstream model to the high-potential subsalt trend. In the meantime the ANP has postponed 
the tenth licensing round until the situation is resolved. A ministerial committee is studying 
the legal and regulatory reform proposals for Brazil’s upstream sector in light of the new 
subsalt discoveries. The committee will make a preliminary report on September 25, before 
handing its recommendations to President Luiz Inacio Lula da Silva on September 30.
The ultimate outcome of this debate is difficult to gauge. The successful results obtained 
in the ninth round coupled with further successes in the subsalt play will likely push the 
Brazilian government to modify the upstream fiscal terms.** The debate is between those 
that desiremore state control of the resources and those that believe radical changes could 
*See the CERA Insight Brazil’s Ninth Bid Round—Or What Is Left of It.
**See the CERA Insight A New Face for Brazil’s Oil Sector? Lessons from the Ninth Bidding Round.
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8 September 2008 
CERA Decision Brief
© 2008, Cambridge Energy research Associates, inc. 
no portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.
undermine needed investment. Petrobras already has a major investment program involving 
an impressive portfolio of domestic and international developments, but it has stated that it 
will repatriate much of its talent to focus on the development of Tupi and its satellites in 
the subsalt. It will take some time to readjust priorities to design and execute the optimum 
outcome for Petrobras and Brazil. However, such realignment may constrain the positive impact 
on global production expectations since investment in the subsalt will be at least partially 
offset by compensating reductions in investments elsewhere in the Petrobras portfolio.
In any case Petrobras, like other oil and gas companies, is already facing challenges in 
bringing existing projects onstream. Delays of one or two years have been fairly common, 
particularly with some larger Campos Basin projects. A decade ago, delays of up to a year 
and cost overruns of around 25 percent were typical for megaprojects.* Today, the escalation 
of costs and shortage of suitable rigs, yard space, and skilled people have combined to 
exacerbate the situation globally—and Brazil is not immune.
Lessons will no doubt be learned from recent operational setbacks in some Gulf of Mexico 
projects, and Petrobras has a clear history of developing solutions to new and challenging 
problems. The cost base of the Brazilian subsalt developments is expected to lie between 
$20 and $30 per boe. This implies breakeven prices of more than $60 per boe after taking 
into account the time value of money and the fiscal burden. There will be pressure not just 
to prevent continued cost escalation but also to reduce these figures. Open source approaches 
have typically proven to be more effective accelerators than monopolies, and innovation is 
a numbers game—five independent research centers investing $200 million each are more 
likely to come up with an answer than one center investing $1 billion. For example, decoding 
the human genome benefited from the number of different “competitors” in the race and 
was achieved far more quickly than even the most optimistic forecasts.
Even if Brazil does not consider a significant change in the sector’s legal and regulatory 
model, it is at least reconsidering its fiscal terms. Resource-rich countries must decide how 
they benefit more from high prices for their resources. For example, if oil production makes 
up a significant proportion of gross domestic product (GDP), then the damage that high oil 
prices cause to the nonoil GDP may be small compared to the boost that high oil prices 
provide. On the other hand, if oil production is only a small portion of the economy, high 
oil prices may cause more damage to non-oil GDP than the benefit of higher oil prices 
warrants. 
Prior to the subsalt discoveries, the Brazilian economy probably fell into the latter category—
high oil and gas prices would be a net negative. With the potential scale of the new oil 
and gas resource base, there is probably not yet an incentive to limit oil sector activity in 
order to maximize prices nor sufficient drivers to infect the Brazilian economy with “Dutch 
Disease” (generally referring to the harmful effects to other sectors of the domestic economy 
from sizeable revenue from a single commodity export industry). CERA will analyze the 
level of fiscal take that the sector can bear. Upside ambitions must be weighed against the 
negative impact that changes will have on Brazil’s reputation for stability, which has made 
Brazil an increasingly favored location for investment, and on the pacing and timing of 
investment.
*Source: Independent Project Analysis Inc., 2003.
September 2008 9
© 2008, Cambridge Energy research Associates, inc. 
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CERA Decision Brief
CERA will be examining the impact on the Brazilian economy of increased levels of activity 
in the oil and gas sector and the relative contribution that the sector can make. Based on 
the cost and investment projections from the scenarios that CERA will develop, we will 
evaluate the impact of different fiscal regimes and sector development models. This will 
provide an indication of the impact on economic development for Brazil arising out of the 
newly increased endowment. 
ConqUERIng nEw fRonTIERS: THE TECHnology oPPoRTUnITy
Subsalt E&P activity is not unusual in the oil industry. Significant volumes of gas in northwest 
Europe are produced from horizons underneath salt. In the Gulf of Mexico major new subsalt 
plays have been opened up over the past decade as companies began to develop techniques 
for shooting and interpreting seismic to resolve structures beneath thick salt layers. In Brazil 
pilot oil production has already started from the subsalt in the Jubarte field in the Espírito 
Santo Basin to the north of the new discoveries (see Figure 1b).
However, these new discoveries mark major advances in technological innovation. At Tupi 
drilling through a 2 km thick salt layer presented significant challenges that are being 
overcome as experience develops.* Furthermore, the dolomitic reservoir will likely be 
complex and difficult to characterize. The initial well was drilled to a total depth of 6,000 
m and produced 2,900 barrels per day (bd) on test through a restricted choke; expectations 
are that production wells could flow as much as 10,000–20,000 bd.
The development of Tupi and other subsalt discoveries will face many important challenges, 
including,
Reservoir characterization.•	 Definition of facies and determination of vertical and 
lateral reservoir attributes from well and seismic data. Evaluation of reservoir drive 
mechanisms and feasibility of gas and water injection.
Flow assurance.•	 Control of paraffin deposition in long pipelines, as well as hydrates, 
and scale.
Well engineering.•	 Execution of high deviation of the wells, slow penetration rates, 
hydraulic fraccing of horizontal wells, and materials selection to deal with the high 
carbon dioxide (CO2
) content. 
Gas handling.•	 Laying and operating a gas pipeline larger than 18 inches in water 
depth of 2,200 m over long distances (300 km) or alternatively other commercialization 
approaches, including liquefied natural gas, gas-to-liquids, offshore power, and 
others.
Subsea engineering.•	 Riser design for 2,200 m of water, and dealing with high pressures, 
high CO
2
 content, and thermal insulation.
*The discovery well at Tupi cost $240 million, yet subsequent wells in the area have been much less expensive, and 
Petrobras has an ultimate, ambitious target closer to $30 million each.
10 September 2008 
CERA Decision Brief
© 2008, Cambridge Energy research Associates, inc. 
no portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Floating production facilities.•	 Mooring in water depths of 2,200 m, riser interfaces 
and the potential for floating platforms with well access (SPAR; floating, drilling, 
production, storage, and offloading platforms).
Several of these challenges may require first-of-a-kind solutions, while others will rely on 
lessons learned from other developmentsthat have overcome such challenges. However, 
homegrown solutions to any of these challenges could provide an opportunity for ultimate 
export of equipment and services in much the same way that other developing hydrocarbon 
provinces have provided the foundation for a thriving export market.
CERA will be examining the technical issues raised by the subsalt play and the ways in 
which technology will be deployed and leveraged. Depending on the policy decisions that 
the Brazilian government takes, the center of gravity of the global ultradeepwater industry 
could return with opportunities for Brazil to become a major player.
Timing and Investment: The Supply Chain Challenge
The apparent scale of the resources will, in common with most giant fields, result in a 
phased approach to development. Indeed, based on its experience in Campos Basin, Petrobras 
has already drawn up a staged development strategy for Tupi and other subsalt discoveries 
along the following lines: 
Phase 1•	 will be an extended test using one well tied back to a floating production, 
storage, and offloading unit with oil exported by shuttle tanker. This will allow the 
operator to evaluate the long-term flow potential of future development wells and 
provide a model of the characteristics of the reservoir over a larger area than has 
been evaluated to date. 
Phase 2•	 will be a pilot scheme involving five production wells, which will produce 
up to 100,000 bd, with two water injector wells and one gas injector well starting 
up in late 2010. This will test the viability and impact of injecting water or gas in a 
larger-scale development.
Phase 3•	 will be the initial full field development using a large-scale floating production 
facility with approximately ten wells and gas export infrastructure producing up to 
200,000 bd and 200 million cubic feet (MMcf) per day soon after 2013.
Phases 4•	 and above will involve five to ten floating production units to produce up to 
1 million barrels per day (mbd) of oil and 1,000 MMcf per day of gas after 2015. This 
phase will be a massive undertaking in terms of drilling requirements and construction 
of facilities and will require many years to implement.
The announced timetables for implementing each phase of the development are aggressive 
and may be driven as much by policy as by logistic or technical considerations. Historically, 
around the world, however, overly accelerated schedules have been a recipe for cost overruns 
and, somewhat ironically, schedule delays. One wild card that might hold up progress is 
the possibility of field unitization—the division of interests in a field that crosses license 
boundaries owned by different consortia. The current lack of data and the higher levels 
September 2008 11
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CERA Decision Brief
of further appraisal required to determine the ownership interests in such potentially vast 
accumulations could impose significant delays on the development program if any field is 
found to extend beyond the boundaries of current licenses.
It is impossible to be precise about the scale of these new discoveries, but there are 
several indications that Petrobras has a high level of confidence that it has discovered a 
major new resource. Firm plans for the phased development of Tupi have been reported as 
summarized above. Additionally on May 20, 2008, Petrobras, in a press release along with 
government support, announced it was tendering for 40 deepwater and ultradeepwater drill 
ships and semisubmersibles and 24 support vessels to be delivered through 2017, indicating 
a commitment of approximately US$30 billion.
CERA will be preparing an assessment of the overall investment requirements for a range 
of possible outcomes in the subsalt play that will include the supply chain implications—the 
call on personnel, services equipment, capital, and other elements. Viewed in conjunction 
with current and projected capacity in Brazil, this analysis will provide a picture of the 
challenges that Brazil faces.
Don’t forget about natural gas…
Amid the focus on the expanding oil potential, there has been a significant addition to 
Brazil’s gas resource base that may alter the prospects for natural gas imports not only for 
Brazil but for the whole Southern Cone. Indeed, gas reserves from Tupi alone could amount 
to 4.5 trillion cubic feet (Tcf), an increase of 22 percent over Brazil’s current proved and 
probable reserves of 20.4 Tcf. If the Júpiter gas condensate discovery is confirmed to be 
around the same size as Tupi, assuming 5 boe, Brazil’s current proved and probable gas 
reserves could well double. Even without considering Júpiter, the gas output of Tupi alone, 
which could reach 1,000 MMcf per day after 2015, would be sufficient to replace the whole 
of Brazil’s imports from Bolivia. 
However, the path for gas development is probably more technically complex than that 
for oil. The marketing of the gas in the subsalt play will require innovative solutions and 
probably high costs, due to the depth of the accumulations and the distance from the coast. 
Various options are already being evaluated in addition to a traditional subsea pipeline or 
to reinjection: offshore liquefaction and offshore large-scale power generation. CERA will 
analyze the various technical alternatives and challenges for marketing the subsalt gas. We 
will also examine the consequences for regional gas balances resulting from Brazil’s growing 
gas resource base.
TAkIng IT wITH A gRAIn of SAlT: PoSSIBlE oUTlookS foR gloBAl 
SUPPly
The results of the early exploration program have been positive. But data are sparse and 
incomplete, and caution must be exercised until more appraisal wells are drilled and 
production test data become available. A comparison with Brazil’s Mexilhão field, also in 
the Santos Basin, is a good example of how problematic initial reserve estimates can be on 
12 September 2008 
CERA Decision Brief
© 2008, Cambridge Energy research Associates, inc. 
no portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.
both the upside and downside.* Announced in April 2003 at 2.5 trillion cubic feet (Tcf), 
Mexilhão’s reserves were revised upward to 14.8 Tcf in September 2003, after just three 
wells were drilled. In the following years Mexilhão’s reserves have been gradually revised 
downward to around 6.1 Tcf. 
Even before the announcement of the likely scale of Tupi field resources, Brazil was 
already expected to lead productive capacity expansion in Latin America over the next five 
years.** In the longer term Brazil’s position will become even stronger, supported by the 
new discoveries. At its plateau the Tupi field could produce around 1 mbd, which represents 
56 percent of current Brazilian oil consumption. By 2020 the subsalt play could contribute 
significantly to Brazilian net oil exports, which are expected to reach 1.5 mbd (see Figure 
4). While fields currently in production will continue to decline there is a large inventory 
of new projects under development and under appraisal outside the Santos Basin subsalt 
play that will compensate.
With Petrobras holding an interest in every significant component of Brazilian capacity growth, 
the decisions that it makes will be critical. As noted above, Petrobras may repatriate many 
of its experts from international operations to support the increased effort offshore Brazil. 
The future capacity profile will depend on the overall capital investment program. As part 
of our research into global oil productive capacity, CERA will be evaluating the outlook for 
*See the CERA Alert Santos Basin Gas Find May Triple Brazilian Reserves.
**See the CERA January 2008 Latin America Energy Watch The Strategic Risks of Oil in Latin America: Geopolitics 
ShapeInvestment Flows.
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September 2008 13
© 2008, Cambridge Energy research Associates, inc. 
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CERA Decision Brief
Brazil. However, in addition, we will be examining in detail the net effect on oil supply of 
the subsalt discoveries and the complex interactions among investment priorities.
ConClUSIon: A nEED foR mEASURED EnTHUSIASm?
The subsalt play may have reset the bar for the Brazilian upstream in terms of potential 
resources, complexity, and the future scale of production. Uncertainties remain concerning 
field sizes and likely long-term reservoir performance since Petrobras is still at the early 
stage of exploring and appraising the area. The number of discoveries in the subsalt play 
provide strong encouragement, but there is a long way to go. Major investment will be 
required before material volumes of sustainable production can be established. Like most 
giant fields being developed today, these fields will be developed in multiple stages requiring 
increased levels of skilled personnel, equipment and services, and major capital resources. 
While Petrobras will likely be able to build on its world-class deepwater operational skills, 
it already has a world-class inventory of both domestic and international assets that will 
compete for these scarce resources. The result may be that the net impact on future oil and 
gas production is not as large as currently expected—even if Brazil’s share of the global 
total increases.
In the event that further major discoveries are announced, Brazil will likely need to decide 
whether it is better to become a major exporter or to slow the pace of development, at 
least for now, given the difficulties with managing oil rents in a constructive way. Although 
Venezuela and to some extent Mexico continue to be textbook cases for Dutch Disease, 
Brazil’s large and diversified economy—and the size of its population—should help it escape 
that fate.* 
Nevertheless, an overly optimistic expectation of a windfall from subsalt production could 
lead to some policy changes—with the aim of taking advantage of the huge revenues to be 
gained at current high oil prices. Despite the considerable potential unfolding in the Santos 
Basin subsalt play, a complex spectrum of above- and below ground risks is already apparent, 
and likely changes in Brazil’s upstream model are already being considered—quite possibly 
a source of delay, especially in the context of the existing Hydrocarbons Law, which took 
four years to materialize. 
CERA will address each of these key issues in a series of future reports: the oil sector 
regulatory model, including the benefits and risks of legislature and fiscal changes, the supply 
chain and challenges, the technology leverage and the opportunity for Brazil to become a 
significant exporter of energy-related services, and the impact on global oil supply and the 
regional gas balance.
Brazil’s upstream sector is expanding—but how big and how quickly? Much will depend on 
how Brazil and Petrobras respond to the challenges. Whatever the answers, the subsalt play 
offshore Brazil will be a continuing focus for the oil industry during the coming decade as 
this major new province moves from discovery to development. n
*See the CERA Private Report Hydrocarbon-fueled Regional Leadership: Is It Sustainable?