Brazil and Guyana are preparing for a bonanza. But declining demand threatens the rest of the region
waters off the coast of Guyana, gargantuan ships are sucking oil from reservoirs three kilometres below the surface. These machines are transforming the fortunes of one of South America’s smallest and poorest countries. In 2015 ExxonMobil, an American oil giant, found the first of what are now around 11bn barrels of proven crude oil reserves, or around 0.6% of the world’s total. Production began three years ago, and is now picking up pace.
In Brazil this upcoming boom dates back decades. In 2006 engineers at Petrobras, Brazil’s state oil firm, made a blockbuster discovery. Off the coast of São Paulo state, and under three kilometres of water and five more of rock and salt, lay one of the world’s greatest offshore oil fields. For the president at the time, Luiz Inácio Lula da Silva, the discovery proved that “God is Brazilian”. The so-called pre-salt fields appear bottomless.
Few oil firms in the region have learnt the lessons of Petrobras’s extraordinary turnaround—or had the good luck of tapping new discoveries. Latin America has the second-largest proven oil reserves in the world after the Middle East, yet its state firms have repeatedly squandered opportunities. Unlike most Gulf countries, the region’s governments have generally failed to set up sophisticated sovereign wealth funds to channel oil revenues into long-term investments.
Since coming to power in 2018 his administration has lavished the company with $45bn in tax breaks and other financial support. A much-touted new refinery, which may have cost up to $18bn to build—more than double the original price tag—was inaugurated last year. All told Pemex is now a drain on the country’s coffers rather than a provider to them. With over $100bn in debt, it is the world’s most-indebted oil company.
Petroecuador plans to expand production in and around a national park inside the Amazon rainforest. Ramón Correa, the company’s boss, estimates that output in the area could provide cumulatively almost $14bn in revenues for the state by 2043, or the equivalent of 13% of today’s. That windfall looks increasingly distant. On August 20th Ecuadorians will elect a new president and legislature, and vote in a referendum on whether to cease all production in parts of the national park.
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