Located in the north of Brazil, between the states of Amapá and Rio Grande do Norte, the Equatorial Margin has important oil potential Petrobras
Exploration & Development

FEATURE | Brazil's Lula seizes on offshore oil find to bolster re-election hopes despite uncertain future

Petrobras needs to drill at least three more wells to gauge commercial viability

Reuters

Brazil's oil discovery in an exploratory well in a controversial offshore frontier off the Amazon coast last week has handed far-left President Luiz Inacio Lula da Silva a fresh boost for his re-election campaign, helping him burnish his pro-development credentials in a region that could prove crucial in electing a friendly senate.

"You can call this," Lula said earlier this week, as he held a tiny vial of oil during a visit to the region, "a passport to this country's future."

Yet even if the discovery ultimately proves commercial, which remains far from certain, state-oil firm Petrobras is unlikely to begin production for at least seven years, meaning any economic benefits would arrive long after the International Energy Agency expects global oil demand to peak, around 2030.

Still, Lula's campaign believes that the find could sway voters in Amapa, the state expected to reap the biggest gains from any oil development, one person in the campaign told Reuters.

While the state is home to only 803,000 people, small for the nation's population of 213 million, it is the political base of Senate President Davi Alcolumbre, a hugely influential figure in congress who could both help elect allies and push for legislation that could benefit the campaign in the coming weeks.

The same source added that publicity materials about the oil find are already being made.

Petrobras' P-40 offshore oil platform

Oil boom remains uncertain

Lula was quick to compare the oil find in the Amazon to Brazil's huge 2000s revelation, which was unveiled during Lula's second term in office and transformed Brazil's state-run oil firm Petrobras into one of the world's major crude producers.

But Petrobras needs to drill at least three more wells to ascertain if oil production in the region would be commercially viable, said the firm's CEO, Magda Chambriard.

Chambriard said last year that if large reserves are confirmed, Petrobras could start production within seven years.

Still, the oil discovery has generated excitement among local officials, who are already thinking about which towns could house oil facilities in Amapa, a state where over 90 per cent of the land is covered in pristine rainforest.

Petrobras is studying a logistics centre in Amapa, where there are plans to set up two industrial districts, and even build an artificial island for oil industry ships to dock, said Wandenberg Pitaluga Filho, Amapa's secretary of economic development.

An oil boom around expected development could start in around two years, once Petrobras determines whether oil production in the region is economically viable, said Telmo Ghiorzi, head of ABESPetro, Brazil's oil service company association.

"That is when we will see extraordinary activity," he said.

A campaign focus on oil would contrast with Lula's attention-seeking push to present himself to the world and voters as a "climate leader" who could save Brazil's immense rainforest from destruction.

Even as he presented the oil find as pivotal for Brazil earlier this week, he was also cautious to add that he was not walking away from his commitment to "a day when we no longer need fossil fuels."

Environmental concerns

Petrobras' push to drill an exploratory well in the Foz do Amazonas basin, near the mouth of the Amazon River, has sparked a contentious debate within Lula's own government, pitting environmental concerns against the oil firm's argument that it needs to replenish its reserves.

But, in a tight electoral race, Lula's pro-oil turn could prove useful by helping undo views among an increasingly conservative electorate in the Amazonian states that the president favours the environment over the region's development, said Breno Rodrigo, a political analyst at the Federal University of Amazonas.

"The prevailing view is that excessive environmental preservation and over-regulation have stalled or hindered our development," he added.

The internal dispute led to a years-long delay in permitting, as Brazil's environmental agency Ibama demanded that Petrobras improve its emergency oil spill response plan.

Lula at times criticised Ibama, but also claimed the drilling would be done in the safest way possible.

Environmental issues materialized in January of this year, after a fluid leaked during the drilling.

Ibama fined Petrobras around $480,000 for the leak, while local Indigenous organizations in Amapa said the accident confirmed their concerns about the activities.

"These are the contradictions that Lula will have to face, and is already facing," said Rodrigo.

(Reporting by Fabio Teixeira and Marta Nogueira in Rio de Janeiro and Lisandra Paraguassu in Brasilia; Editing by Aurora Ellis)