When the transcript becomes available, we will include it here. -Thank you!

David Blackmon [00:00:09] Hey, it’s David Blackmon with the energy question today. I hope everybody out there is having a good day. And with me today is my special guest, an old friend who we haven’t talked to since I think February. Armando Cabana is a u r a student advisor right, at Catholic University in Rio. But 40 years experience at Petrobras and elsewhere in the oil and gas business, right?

Armando Cavanha [00:00:31] That’s right. Yes, yes a pleasure.

David Blackmon [00:00:33] Pleasure. And Armando, of course, I know many of you are familiar with Armando. He’s one of the most prolific podcasters related to energy I’ve ever seen. He seems like he pops out, I don’t know, half a dozen episodes a week, almost. It’s probably not that many, but it’s just very frequent. I mean, you’re really busy.

Armando Cavanha [00:00:50] Yes, I’m doing there a lot of demons either singing because some poetry is now increasing a little bit. The the portion of Brazilian communications. And then I was with some friends from the United States and Europe, too. It’s a pleasure to be here, David, today. And you are one of the best persons in terms of our energy. And that is is fantastic. I love your your texts and your podcasts, so I follow you everyday.

David Blackmon [00:01:14] Oh well thank you. That’s so nice. Very kind and probably too kind to kind. I mean, I often feel like I’m having a hard time keeping my head above water. There’s so much happening, of course, in the energy and political world and as it relates to energy and but there’s been a lot happening down in South America as well. Yes. I you know, one of the things I wanted to ask you about, there’s this huge project of the pipeline natural gas pipeline project between Brazil and and Argentina. And, of course, this recent dustup between Argentinean President Javier Malé and Brazilian President Lula, and which just popped off and called Lula a communist. I mean, are the political tensions, you know, is there any concern that the political tensions may interfere with that big natural gas project?

Armando Cavanha [00:02:03] Yeah, yeah, there is a high tension between them. They they hate each other and that that’s impressive. And military is doing a very good job is coming to, to solve some bureaucratic problems that the region has. And so it’s a very stubborn guy and the clear vision. And in Brazil, unfortunately, I need to say that’s my opinion. Personal opinion is not good about the good way. So increasing the size of state interference and things like that, I don’t like that. But anyway, this a gas from Argentina is important for Brazil because our presence is not. So let’s see, we do not have too much natural gas in the present, so much more because carbonate formation is much more oil. And it’s a good question following the high level API, API. So that’s the reason that we produce only 140 million barrels a day. 4,000,000m³ of gas is too little to Brazil. Brazil could be 30 40,000,000m³ per day consumption. But it’s the reality. And we have a pipeline from Bolivia to Brazil, right? That in the past was 30,000,000m³ per day of gas coming from Bolivia to now, but nowadays is declining to almost eight from 30 to 8. Wow. And we need more gas. And Argentina is a source of gas. That could be interesting for us. But this political issues are interfering, no doubt. And Bolivia and Argentina are doing a very good partnership job. And maybe Brazil, instead of go directly to Argentina, I could go to Bolivia buying gas of Argentina through Bolivia. It’s not.

David Blackmon [00:03:40] That. Bolivia. Yes. Yeah.

Armando Cavanha [00:03:42] Yeah. But at the same time, there are many conversations between Brazil and especially south part of Brazil and Argentina to make to conclude, some some pipelines to Brazil could could be a very interesting part, especially because a rich part of the country, the consumption is high and that we could have support of natural gas there.

David Blackmon [00:04:01] Yeah. I mean, the great majority of the population in Brazil is in the southern part of the country, right? I mean, that’s where Rio is.

Armando Cavanha [00:04:07] And yeah, yeah, Rio is more and more in the center. Is it exactly in the south. But the south three count, three states in the country recall Rio Grande do Sul, Santa Catarina, Parana that I live in are the richest country until of course, are the four richest countries and they are in the south. And yeah, the consumptions is very high and the industry developing them so could be very attractive to have this backup. Guess why we do not have from Brazil more gas production that work. So Brazil is investing to do that. But the investments in Brazil David, sometimes is not so clear and easy because the state is very present in the in the investments and the interference of states and private investors. See this fluctuation of interference and see, oh my God, I will put my money here four years later. Maybe the governance change for a different way of thinking. And how can I do that? So that’s the the key point for investors here.

David Blackmon [00:05:05] Well you know, that’s becoming a. A problem here in the United States. You know, we we keep going back and forth between political parties and administrations. And, of course, in this current administration, we’ve seen the Biden philosophy be a lot more interventionist in the economy and in investment decisions. I mean, the latest example is this ridiculous pause in permitting on LNG facilities that’s been in effect since January. And, you know, I mean, when investors see that and people don’t seem to understand it, of course, these are people in the Biden administration don’t understand. But when you know you’re talking about multi-billion dollar investments and long term projects that are going to span across three different presidential terms, companies, investors have to have confidence in consistency of policy. And so, I mean, that’s that’s the same kind of thing you’re running into in Brazil. You know, there’s lack of this back and forth and lack of consistency and confidence in the legal system. And it makes it really hard to justify a multibillion dollar investment.

Armando Cavanha [00:06:10] Yeah. But when people see the regulatory system that can change every year for one side or another side, how can I put my money to this project? Right. Okay. It’s not that complicated, really.

David Blackmon [00:06:21] But the Petrobras has had success here over the past few years in attracting investment in the offshore, haven’t they? I mean, I know they’ve made several pretty big deals, partnership joint ventures out there offshore in the Deepwater. Right.

Armando Cavanha [00:06:36] Right. Yes. Petrobras in these cases is a success. Really? Sam Nunn thanks to to to the past concept of joint venture with big companies like shell, Exxon, Chevron, BP, all big, TotalEnergies, Repsol. All of them are right. And they are not only this better, but they are alone investing alone in projects and then other deepwater opportunities, especially in the east part of the continent, in the north. That’s another problem in equatorial margin. That’s another term. But in the south and in the south, the volumes, we have around 12 billion barrels reserves in situ to be idle. So yeah, something’s up there. United States is 40 or 50 billion, right. So much bigger, of course, but that these 12 for us is very important to prevent future the 3 to 4 million barrels a day with a consumption of two and one half. So we have you can export a part of the crude oil. And so Brazil’s in a good shape in terms of deepwater technology. Petrobras is good. The partnerships with providers, first class providers, first tier providers. So it’s a very strong relationship with a long time more than four decades. So it’s a good position for both of us. No, that’s the challenge for Petrobras is to face the energy transition that so called energy transition transition. But it’s this transition not so easy to do. No David. So no it’s not how can we replace things like oil petrochemical feedstock. It’s almost impossible now. Maybe one day we have something that can replace that. But no, this is impossible. I have heavy logistics ships, trains, trucks. How can we replace the sinks now? So yeah, oil in this case is irreplaceable at the time.

David Blackmon [00:08:25] Well, for natural gas, let’s just talk about that in that context. You you need more natural gas is natural gas. I mean, what’s the main use for natural gas in Brazil? Is it in power generation mainly or is it.

Armando Cavanha [00:08:37] Yeah, we have electricity in Brazil, 50% is from hydro, right? Wind, 12% solar, 17% biomass. Okay. 70% of electricity in Brazil is a come come from from this. Let’s see. Renewable.

David Blackmon [00:08:52] Fantastic. Yeah. That’s real renewables.

Armando Cavanha [00:08:55] Yeah. Yes. Very strong position. And at the same time Brazil has more than 300 thermoelectric generators plants to generate from natural gas. Yeah. Because of course if you have much you have more renewable energy. You need more contingency and backup systems. So that’s the reason that we have gas. We use gas a lot too much. But a good portion in the industry to to to move industry, especially in remote areas and things like that. So gas has a very strong position back a lot because the volume that’s a small volume yet, but because the importance a very strategic gas flows in some some states far from from the hydro center we use gas to generate electricity.

David Blackmon [00:09:41] Is is the hydro is it does it mainly come in the Amazon basin from the tributaries and from the Amazon itself?

Armando Cavanha [00:09:49] The sales part is very close to my my, my city. We have first request through the Parana rivers, Argentina, Paraguay and Brazil center. And there’s a huge hydro generator called E-Type. So monster, some monster and several other big ones. In the center of the country and Amazon. Yes, we have an Amazon, but in the center of the country we have hydro generation and in several, several different places. So it’s a very well distributed. The highest in Brazil is I’m like, God, God came here and put water in this country.

David Blackmon [00:10:25] So is the government in Brazil. Of course, here in the United States, the Biden administration has made this big, big, huge push for offshore wind generation, which is the most ridiculous and most costly form of power generation. I just wonder if if the Lula government is doing anything similar to that.

Armando Cavanha [00:10:43] Yes. Are doing the north east part of the country. That wind is a constant in the region is poor. So there are 12 or 14 projects, big projects, huge to be studied by the environmental area in Brazil, some just released and people are investing. So we have 12% of our energy electricity coming from wind and that is from this areas of offshore wind. I agree with you. I don’t like too much this solution. I prefer solar if you need compare. Yeah, solar is much better but they like they love wind. I don’t know why is this so complicated and so often it’s.

David Blackmon [00:11:23] You know, the offshore wind particularly. You’re going to be replacing those turbines and towers every ten years. May people think you’re going to build this stuff and it’s all going to be there forever. You’re going to have to particularly offshore with the saltwater environment. I mean, it’s just such a it’s such a nonsensical thing and so totally unnecessary. It drives me crazy. I mean, it really drives me nuts.

Armando Cavanha [00:11:47] And all in all, time will show us this errors and things like that, because now people are involved in some emotional decisions and that we the renewable, okay, we will not replace the energy that we have today. The former ones coal, natural gas, oil. That’s impossible. We can add, we can put more energy with them. But think in conservation that we need confusion since backup systems. So what’s the real total cost of this.

David Blackmon [00:12:15] So yeah yeah that’s a point. So Brazil of course I mean you know, people in the United States I think, don’t pay enough attention to what’s going on in Brazil because it’s such an enormous country. It’s it’s actually a little bigger than the continental United States in terms of geographic geography. And how many people in Brazil? 100 million.

Armando Cavanha [00:12:35] 200 200 million. 200 million.

David Blackmon [00:12:38] Holy moly. And of course.

Armando Cavanha [00:12:40] It’s just three. 300. Yeah. Wow.

David Blackmon [00:12:43] Yeah, man. 200 million. So of course, Brazil is also one of the original members of BRICs, the BRICs alliance, along with China and Russia, India and South Africa. And I you know, I know that, of course, now you’ve added Saudi Arabia and Egypt and Iran and the UAE as well to to that coalition. Argentina was going to join and then wasn’t going to join. And I think now they’ve decided they’re going to join again. Right. Is that right. And so I mean this is a powerful trade alliance that is heavily influenced I think by China, you know. Yes. Because as yeah, as the, the economic powerhouse really, of all those powerfully economic countries. I wonder if you’re seeing in Brazil now, I mean, I’ve got to believe China is making great inroads in Brazil in terms of investments and and in these renewable energy spaces. Right. If for nothing else, just in terms of supplying the lithium and other minerals that are required for all this stuff.

Armando Cavanha [00:13:46] Well, the first point BRICs with five countries now is stable. They trying to to make some change to, to use internal coin clearances that of petrodollar. And so this is a difficult movement not simple. But they are doing this effort. And maybe something can happen soon and grow this group. Growing this group means more complicated administration of that with five countries is just too much complicated. Imagine with 40 they are. Yeah, they are blending 40 countries in this group. I cannot see something feasible to manage the decisions. And that was Argentina Brazil. So opposite mindsets now because they change positions every four years. And the other part that was mentioned by China influence in this situation, especially in Brazil, yes, China has in Brazil is owner of several ports along the coast. The of course several points. So the dominance of China in terms of logistics is very, very huge. So they are buying they are clever, they are intelligent and just lab on the. So how can I assure that my goods can export to the country if I do not have ports of control? The ports you have this this doors open and but another point that the dependance of China I see that’s the same United States. I’m not sure the companies that use and. Turbines and the blades and the energy and the G components. Oh. Since. Come, come, come from China, right? The dependency is high. Very high. So this influence can drive our decisions. And then this group of decisions based on China thinking model. Maybe this one this way.

David Blackmon [00:15:28] So in the United States were electric vehicles are concerned. You know, we have a bunch of automakers here in the United States. And I don’t know this Brazil. And we’re very concerned. The administration’s concerned. Everyone’s concerned about China eventually bringing, you know, high quality and inexpensive electric vehicles into the US market and really disadvantaging our domestic auto companies. Is that a concern in Brazil? I don’t know if Brazil has automakers. I assume you must have domestic carmakers in Brazil, not Brazilians.

Armando Cavanha [00:16:01] Of that, they are all from from the United States. Oh, Chevrolet. Ford. Yeah, from from Asia. Honda. The same United States, but we do not have own Brazilian ones. And at the same time, we are importing much more everyday EVs from from China. Sure. But making part of this manufacturing process here in Brazil by bike and other several of the Chinese Tesla is here but is not strong. Yeah, I don’t know.

David Blackmon [00:16:28] They have a really focus there.

Armando Cavanha [00:16:29] Yeah, yeah. But some important point when we talk about EVs in Brazil, why it’s so difficult to implement if you in Brazil the infrastructure we do not have. Yeah a good energy never ever replaced. So how can I have a trip and how can I charge my car other clumps for here. It’s not as simple as the United States. So much more simple in this case. And another point that’s very relevant is that the more than five decades ago when Brazil started the problem of ethanol.

David Blackmon [00:16:59] Yes. Right.

Armando Cavanha [00:17:00] After all, is this trunk we have I have number here, ethanol. We have 27% of gasoline is ethanol. Yeah. It’s a baseline. So and our cars are flexible. You can put zero of ethanol or 100% of ethanol the same water. So this was the solution that is disruptive was surprising. That and these for me is the renewable movement. That’s important. At the same time when we use ethanol to to for motor you are not using to food and to other parts. That could be to right. Yeah. So so another discussion and biofuels biodiesel for instance we use 14% in diesel. So what is the maximum position that we have. And the support in parts of the country the generation of bio biodiesel. Interesting.

David Blackmon [00:17:52] So what what crop is used to make ethanol in Brazil. Is it sugar cane sugar.

Armando Cavanha [00:17:58] Sugar. Yeah. Nice.

David Blackmon [00:17:59] It’s a lot more efficient in corn.

Armando Cavanha [00:18:01] Yeah. Is much more efficient than corn. But at the same time we are importing ethanol from Sacramento from the United States apart. Yeah. Unbelievable. Because to move from the South, when the produce sugarcane ethanol to the north part of the country is cheaper to come from Sacramento and come to Brazil. That is it.

David Blackmon [00:18:21] Wow.

Armando Cavanha [00:18:21] Incredible.

David Blackmon [00:18:22] That’s amazing that that is incredible. Golly. But you know, I mean, that’s that’s that’s why we have this global trade. You just never know what’s going to be the most economic thing to do until you get there.

Armando Cavanha [00:18:34] Yeah. About the global trade using what kind of fuel to do all this.

David Blackmon [00:18:39] Of course, you know, they have adopted the shipping industry, did move to to a mandated a cleaner, a less polluting form of diesel here in recent years. And so the emissions are a lot lower, but still diesel. And it’s hard to see. I know some some ships have converted to using ethanol and LNG and I don’t know what all else, but I mean, it’s really going to be diesel for the time being. And people don’t think about that aspect of it either. No, but it’s just the the hypocrisy of the whole thing. It drives me nuts. So we are here. I mean, so I wonder also in the United States, of course, we have this. It’s almost a Watergate like situation with Joe Biden and his own party trying to force him to withdraw from the nomination, and that’s still ongoing today. It’s getting more intense every day. Is that making news? I’m just curious. Is it making news in Brazil and how are people reacting to it?

Armando Cavanha [00:19:38] Totally. We follow the United States every day. United States, for Brazilians are is a reference country. So we follow and we have almost the same position of Americans. So we have half of country supported Biden, the half of country supporting them. But the point for us is that it’s so clear that this guy has problems to follow. This whole this the sometimes system sometimes what can I how how can I help this guy? Got to decide these things because it’s the primary final night states. Imagine he will imagine that he can wait so so, so weak.

David Blackmon [00:20:15] So yeah. No. How’s it going to serve another four years? I mean, he can barely function today.

Armando Cavanha [00:20:21] And the vice president is not not so strong. No.

David Blackmon [00:20:24] I guess there’s a very kind way to put it. Armond, you’re so tactful. Yeah, that’s that’s a very kind way to put it about our vice president. She she has not displayed a very high degree of competency over the past three and a half years.

Armando Cavanha [00:20:38] And how about him? We in Brazil, how can we see United States? That’s a reference that is for us. And that being let’s see there even by by people with a lot too much stronger.

David Blackmon [00:20:50] Well, it’s it’s almost as if we intentionally choose the worst possible people to, to take these offices. I mean, that’s what we did in 2020 for sure. And the choices now, of course, are either Joe Biden or Donald Trump. And there’s a lot of people who think the same thing about Donald Trump and our system has become. I blame a lot of it on the news media, because it is such an unpleasant thing to be in politics now, because you have to constantly put up with false stories about you in the news media are misleading stories at best, and some just intentionally false. As we saw during the Trump presidency repeatedly every day, just legion false stories in the news media and, it it unfortunately, it all has the impact of discouraging really quality people who would actually be good leaders from running for these offices. And so you end up with these marginal folks who half the country hates, and half the country won’t say anything bad about. And it’s really a polarizing situation that I believe is just almost entirely driven by the news media. And it’s utter corruption.

Armando Cavanha [00:22:01] And what we see from here that the candidates to replace Biden in his, run could be Michelle Obama and California Governor Gavin Newsom. Yeah. And when we see some videos from from both. Yeah. Okay. They do not have the same problem that Biden Biden has. What the I not I because they would see United States for us is the center of capitalism right. The center for right wing all always my life I mean almost 6070. And so we cannot see the United States go into a different way. And we are see this dots at this time. So this is something that pay attention to Brazilians. And we are we have no problem that United States, of course, because we are waiting between left and right every four years is something. Yeah. Complicate the for our country but not for United States is unbelievable.

David Blackmon [00:22:54] Well it’s it’s it’s undeniable that the Democratic Party is trying to move us to a different non capitalistic system and has made great strides in this administration, doing it with the government intervening particularly so heavily in the energy markets and picking winners and losers and that enormous piece of our economy and that, of course, you know, with with all the ancillary impacts from the energy business, I mean, everything’s involved in energy. Everybody relies on energy. So so when the government intervened so forcefully in the energy business, it’s really intervening very forcefully across the entire economy. And yeah, you know, I mean, if we give if I think it’s undeniable, if we give this administration another four years, our country is going to look, it will hold very little resemblance to what it did four years ago, and particularly from an economic standpoint and in the energy space. And that’s what this whole global effort related to climate change and energy transition really is trying to drive not just in the United States, but across the Western world. And so it’s it’s very disconcerting to me. You know, I and you and I have talked about it many times, I think everything they do has the obvious impact of of rendering us dependent on China for our energy and energy security. And I think the same thing is true in Brazil.

Armando Cavanha [00:24:16] Good point. And that what we see more than that is that the United States does exporting, let’s say, mining, not clean process to less, less wealthy countries and trying to to become clean in in his region. But it’s not true because if you export something that make dust far from you, the atmosphere will you’ll bring back to you. Right? Same problem. So it’s not, not not simple to understand this moment.

David Blackmon [00:24:45] No, it really is. And it’s somebody I forget who I was watching or reading made a great point about the UK. Same things happening in the United Kingdom, of course, and I forget who it was. It certainly was not Rishi Sunak, but someone opposed to the Labor Party and and the net zero policies in the UK was making that. A very point that we’re not really cutting emissions. All we’re doing is industrializing our economy and moving or relocating the emissions to China and to a lesser extent, India and the, you know, the Philippines and that whole.

Armando Cavanha [00:25:21] Africa.

David Blackmon [00:25:22] Pacific Rim and and so we you know, that’s what’s happening across the Western world. And, you know, I this this election in the United States is is really, really crucial. And if it goes, you know, I mean, if we reelect the Democrats, then it’s it’s inevitable that we’re going to go in that direction and there will be no going back. So it’s I always avoid try to avoid saying any election is the most important election we’ve ever had, but this one really is. I just think it’s kind of undeniable. So it was certainly November, one way or another is going to be a big month for all of us.

Armando Cavanha [00:25:58] Yeah, that’s clear for us. That’s a crucial election. And that if you have the same trend that the that today will confirm this, regulatory systems politics and that will be something difficult in the future. Yeah. No, that’s all that’s.

David Blackmon [00:26:12] Well, Armando, I just, this has been fun. I, you know, let’s do it again soon. Let’s make a habit of this. It’s so nice to talk to you again. I’ve learned so much from you over the years.

Armando Cavanha [00:26:24] let’s combine it quick 30 minutes.

David Blackmon [00:26:27] Let’s do it. Let’s do it. We just do an update every every Thursday if you want to.

Armando Cavanha [00:26:33] My. Excellent.

David Blackmon [00:26:33] That’d be good for me.

Armando Cavanha [00:26:34] For me, it’s a great pleasure. You’ll know that I like this comment.

David Blackmon [00:26:39] Maybe we can alternate between this, our platform here and your platform on your your podcast.

Armando Cavanha [00:26:44] So no problem. May be in your platform because I’m transmitting my platform at the same time. Maybe you are.

David Blackmon [00:26:49] Oh, okay. All right. Good, good. Well, we’ll just do that. Let’s just plan on next Thursday at this time. Make a regular deal of it.

Armando Cavanha [00:26:56] It’s a deal.

David Blackmon [00:26:58] All right. Hey, have a great week. And and thanks, everybody for joining us. I’m sorry we didn’t get the questions and comments, but we’ll do that next time. I apologize I didn’t think about it. Anyway, thank you all for joining us. Thanks to our great producer and friends, Stuart Turley and the Sandstone Group, and Eric Parel, our extraordinary producer. I’m David Blackmon, and that’s all for now. And we will end this stream.

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