June 22

The Energy Question Episode 47: Armando Cavanha

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The Energy Question Episode 47: Armando Cavanha

In Episode 47 of The Energy Question, David Blackmon interviews his podcasting partner, Armando Cavahna, about the oil and gas situation in Brazil.

 

00:00 – Intro

01:05 – Armando Cavanha background and career

05:29 – President Lula’s energy policies – how are they stacking up compared to Bolsonaro?

09:59 – Positive prospects for more development in Brazil

12:53 – BRICS – Brazil’s involvement and possible expansion this year

19:27 – Petrobras developing the offshore; involvement by international companies

24:54 – Is there any prospect to increase natural gas production to an extent where you would no longer have to import LNG from overseas?

26:35 – Significant Lithium Reserves

31:08 – Outro

 

The Energy Question Episode 47: Armando Cavanha

 

David Blackmon [00:00:03] Okay, here we go. Hello. Welcome to the Energy Question with David Blackmon. I’m your host, David Blackmon. And my special guest today is Armando Cavanha, my fellow panelist on the Energy Transition podcast, along with Arena, Slav and Tammy Nemeth, which we record every Monday. It’s my favorite hour or every week. Great way to start, start the week and get my brain functioning on Monday mornings. Armando, How are things in Brazil today?

Armando Cavanha [00:00:35] Brazil is trying to be better, but complicated count or not, this is not too different from the United States, I suppose,.

David Blackmon [00:00:44] Where energy is concerned, that’s for sure. Fortunately, it’s not necessarily a good thing. Before we go into our interview, I wanted to just give you a chance to to talk about your background. I know you have a long background in the industry and academia and tell our viewers about who you are and what you do.

Armando Cavanha [00:01:05] Okay. Thank you, David. I’m a mechanical engineer and I was a master’s degree in production engineering. I work for 33 years for the same company, one company only Petrobras, the state oil company in Brazil. I was in many positions as Director of Petrobras, Netherlands, and the United States and as Petrobras being procurement manager for the first installation of Petrobras in the Gulf of Mexico. And after retirement, I went to another company in Nice. They saw Thompson Light and just services.

David Blackmon [00:01:43] Yes. Yeah.

Armando Cavanha [00:01:43] I was CEO of this company for a time. And there is a chamber of commerce between Brazil and the United States called the Texas Chamber of Commerce. I was the director. Two terms of this institution was was a great time. Nowadays, I’m a professor, and academic advisor at the Catholic University in Rio de Janeiro, and I joined a company called Rystad Energy recently.

David Blackmon [00:02:16] Oh, I didn’t know that.

Armando Cavanha [00:02:17] That’s a wonderful company for Notre Dame, Germany. This is a fantastic company. They organized a debate about energy. I’m loving this sequence.

David Blackmon [00:02:29] So I use their information quite a bit in my writing, you know?

Armando Cavanha [00:02:33] Yeah. Really? Yeah. It’s growing very fast. And they came to Brazil for some visits and I followed them. So. Fantastic. I really love them.

David Blackmon [00:02:45] Yeah. I moderated a panel discussion in Houston a couple of months ago with Ed talking, and one of their executive vice presidents at Rystad was on the panel. He’s incredibly knowledgeable.

Armando Cavanha [00:02:57] Yeah, Yeah, very, very interesting. But that’s it’s my career and knowledge of what I’m doing. It’s going great. But the most important thing is Monday is 10 a.m. Brazilian time the podcast with David Black on that in the slot in 10 minutes.

David Blackmon [00:03:17] Yes.

Armando Cavanha [00:03:17] Great pleasure. For me, it’s fun.

David Blackmon [00:03:21] Well, we cover a lot of ground in that podcast. It’s quite amazing. You know, I try to focus on one area, on this podcast, but on that one, man, we we go all over the place every week. Well, you’ve told me that I was at OTC last week. You said you’ve been at OTC several times in the past. Did you enjoy being in Houston? I probably have a lot of similarities to Rio, right?

Armando Cavanha [00:03:49] Yes. We have all this ritual flow.

David Blackmon [00:03:52] Yeah.

Armando Cavanha [00:03:52] Yeah, we. But yes, more than time downtimes, I suppose 15 times. Because of where I was living in the United States. I used to be there and from Brazil, probably we, we go to, to Houston. I have it in May, at the beginning of May of each year.

David Blackmon [00:04:10] Yeah.

Armando Cavanha [00:04:10] To participate in this. Fantastic. Even not. What is a service provider? Let’s see. Exposition more than service providers, than oil companies.

David Blackmon [00:04:23] But yeah,.

Armando Cavanha [00:04:24] Very attractive. And the technical sections are deep understanding and deep discussion. So it’s really fantastic seismic logging, well drilling, subsea topside, everything about upstream basically that they have done.

David Blackmon [00:04:42] There were a lot of sessions focused on South America at this. So to see last week on Brazil what’s going on in Argentina and of course Guyana and Suriname. But we’re going to talk about Brazil today because there’s so much potential offshore Brazil and onshore.

David Blackmon [00:05:03] You have a new president, President de Silva, who replaced JAR Chair Bolsonaro after the last election in a very hotly contested election, kind of like we had in the United States in 2020. And subdued De Silva’s. He’s a, I guess, socialist. How do his energy policies, how are they stacking up compared to Bolsonaro’s?

Armando Cavanha [00:05:34] Yeah, they have two different mindsets, opposite mindsets. Bolsonaro is more to the private sector. He loves privatization. So something that’s a risk if he won, but the rest probably would be the next one to be privatized. Lula is exactly the opposite.

Armando Cavanha [00:05:56] So he likes state companies. He understands that the state must finance and invest directly. So it’s totally different. So that only to see a detail Petrobras sold last year or last two or two years before the company, the arm of the company, the distribution of the products of the refinery, the special product we sell, we sold this company and Lula is talking about to buy again this discount. So so is this something that we cannot believe that maybe. But he’s talking about this. And people are scared, of course.

David Blackmon [00:06:44] Yeah.

Armando Cavanha [00:06:45] There’s another detail that Lula probably will intensify this next day or next month. Is the local content, the protection of the local market. in The construction, modules have been placed showing subsea. We are very strong in Brazil. And why we are strong in Brazil because was the first country that installed anticipate systems with flexible lines.

Armando Cavanha [00:07:10] So this is something that Brazil started.

David Blackmon [00:07:13] Yeah. Yeah.

Armando Cavanha [00:07:15] So it’s so the subsidy is not a problem to have local content but topside, for instance, is more complicated, has turbines, compressors and this is something that we are facing a challenge for Brazil to, to have the projects in a good timeline and at the same time forcing local content. We do not know.

David Blackmon [00:07:36] So on local content, I mean, it won’t just it’s not just talking about the number of jobs that local citizens have. It’s also focused on the manufacturing of the equipment there in the country rather than importing it from remote places.

David Blackmon [00:07:52] Yeah, so that’ll take quite a lot of time to develop that capacity, won’t it? Where’s the capacity already There?

Armando Cavanha [00:07:59] Exactly. But, and establish the following 25% minimum local content for exploration, 40% for subsea, and 40% for topside. So this is something that puts the market crazy. Totally. And the oil company is forced to delay some projects plus prices on products because we do not have exactly the right equipment and the right systems to be installed. So, yes, that’s the challenge.

David Blackmon [00:08:31] Yeah. And that’ll put pressure on the education system. The higher education system.

Armando Cavanha [00:08:35] Takes time, as you said.

David Blackmon [00:08:36] Yeah. Yeah. And we see that all over the world, you know, I mean, that that happens everywhere. But as you say, it has the impact of slowing these projects down. And that’s one of the reasons why despite having this massive potential resource there in Brazil, the development of it has not proceeded, you know, efficiently over the years as we see in Guyana with the consortium on the STABROEK block.

David Blackmon [00:09:10] You know, having one consortium developing that entire resource in cooperation with the government is really created a very efficient and quick process, just churning out discovery after discovery where it becomes so more. Complex and difficult with all the government oversight in Brazil.

Armando Cavanha [00:09:34] And the most complicated part of this game is that they apply fines and penalties for those that do not reach the minimal level. So so.

David Blackmon [00:09:46] Yeah.

Armando Cavanha [00:09:47] Incredible.

David Blackmon [00:09:49] Well, I guess it’ll all get developed sooner or later. I know. Wood, Mackenzie and. And Rystad too, I think projects very positive prospects for more development in Brazil. Right. The resource. No one questions the resource availability. Right.

Armando Cavanha [00:10:10] Right. Not only in the conventional press outlets in the south part of the country, in front of spit at Central State in the Rio de Janeiro and Sao Paulo but now trying to copy and paste from Guyana exploration.

Armando Cavanha [00:10:28] So the successful exploration of Guyana and they call a new pre-salt because the kind of formation is very similar to the south of Brazil carbonates. And so so the idea is to explore exactly south of Guyana exploration blocks. And we have the intention to do that more than five years ago.

Armando Cavanha [00:10:54] We are trying to apply the environmental, the license, and the government does not allow this exploration drilling. They have some. So that’s the point. So a very good potential because Brazil has well, around 12 billion barrels of oil.

Armando Cavanha [00:11:18] So it’s a huge reserve, not because Venezuela or Saudi Arabia or as I said, but it’s good enough so we can produce 3 million barrels a day, much more than we need to the internal consumption. So that would position it. What is the average export volume? Brazil, I know you’re a net exporter of crude oil. How much?

Armando Cavanha [00:11:42] 1 million, 1 million barrels a day.

David Blackmon [00:11:43] A million barrels a day. So that would rank Brazil in the top 12 or so countries. I believe, IN terms of export,

Armando Cavanha [00:11:52] You know which country we are exporting to? Probably China, mainly. Yeah, right. Yes. Because the United States didn’t accept the desire from Brazil. I don’t know why because it’s so clear. So let’s see. The logistics are not vertical and yeah, so simple. The logistics, the United States and we import diesel and gasoline and I said it could be kind of a trading barter.

David Blackmon [00:12:22] I don’t understand that. I mean, it’s not due to any kind of sanctions, is it? I mean, I don’t think the United States has any economic sanctions on Brazil, do we?

Armando Cavanha [00:12:32] Yeah, there was no clear intention, but the friendship was not as good as in the past. So,

David Blackmon [00:12:40] Yeah.

Armando Cavanha [00:12:41] Forcing us to be part of our groups and China breaks and so. Well, BRICS is of course. And I was going to bring that up later. But let’s talk about it now. You know, Brazil is the be in BRICS along with Russia, India, China, and South Africa, a very robust, growing, and increasingly influential trading alliance that is about to start adding members, apparently. And, you know, so that is a big part of what’s what drives Brazil’s economy now, isn’t it? The relationship with those other four countries and all the trade relationships she has with them.

Armando Cavanha [00:13:27] Yes, very good point. They’ve been setting successful relationships with Europe and with the United States. This shows the places that are forcing Brazil to move, too. But BRICS has more than 2014, I suppose so almost ten years. And now they are trying to put more, let’s see, velocity speed in this process.

Armando Cavanha [00:13:54] But is something interesting because we export 1 million barrels a day to China and we sell some commodities everywhere in the world. So Brazil is attractive in terms of being part of new groups that that Brazil can make much more money than them, the only being the South American. So.

David Blackmon [00:14:20] Sure. Absolutely. Yeah. But it’s perfect. It is.

Armando Cavanha [00:14:25] Yeah. The connection with the U.S. was very strong and decades ago very, very strong. And now this new world that we are living here. And of course, the United States, too, is the new president so we cannot predict what can happen with Brazil in terms of.

David Blackmon [00:14:44] Well, neither can we. We can’t predict anything coming out of this administration either. But other than we can’t predict. None of it will make any sense. But not much else. I you know, I don’t know if you saw it. We follow one another on Twitter, and I don’t know if you saw it yesterday, but I came across a fascinating chart of the fastest-growing economies on Earth in recent years. And when you look at the top five.

David Blackmon [00:15:20] It was China. India. Brazil and Russia were the top four. Number five was Saudi Arabia, which has applied for membership in BRICS. And if BRICS admits Saudi Arabia, that would have amazing ramifications for the United States’ continuing influence in the Middle East. And then South Africa was number nine on the list.

David Blackmon [00:15:45] So when you look at the fastest growing economies, BRICS countries already have a bigger combined GDP than the G7 does. And those are the fastest-growing economies on Earth. It’s just extraordinary how powerful that alliance is becoming. And it makes complete sense that, you know, Brazil’s relationship, particularly with China, I think right more than any of the other companies, has grown so much in recent years.

Armando Cavanha [00:16:20] There are 19 countries applying to be part of BRICS.

David Blackmon [00:16:24] Yeah. Yeah,

Armando Cavanha [00:16:25] BRICS. Plus you could call BRICS Plus like Coolpad. Cool BRICS, Big plus. But the Fred we have and Brazil is at the top. Like Natal is an economic and military connection. BRICS is starting as an economic group but is not forbidden to transform into the military.

David Blackmon [00:16:49] Sure,.

Armando Cavanha [00:16:50] This is a very bad point in this sense.

David Blackmon [00:16:54] Yeah. And it’s amazing to me how little attention. Is being paid to that in our news media in the United States and frankly, by our government, which, you know, doesn’t really even seem to notice. And I just think it’s so preoccupied with what’s happening in Ukraine that it doesn’t our people at our State Department don’t seem to be making the connections between,.

David Blackmon [00:17:26] You know, what’s happening with our sanctions on Russia related to the war in Ukraine and how that’s causing Russia to build these stronger relations with China and India. And by extension, that is also helping, you know, to expand influence by that alliance with Brazil and other countries in South America.

David Blackmon [00:17:52] I mean, we see it growing almost day by day with China’s entry in Bolivia to take control of the development of the lithium reserves in Bolivia now and where copper is concerned in Peru. I mean, Chile, you know, China is also making great inroads there into South America. And it’s just all that seems to be happening without. Much notice from the American government, which seems, you know, kind of troubling to me from America’s perspective. But it’s good for Brazil. I think.

Armando Cavanha [00:18:29] Yeah, it’s a good time. But the short, short time, I suppose, because these interests are much bigger than our capacity, to manage this. And so this, this new country center in Brics station will be something different because there is no leadership in this Chinese leader.

Armando Cavanha [00:18:53] But the. We do not have totally led to a connection with China. The mindset, the culture is totally different. Yeah, different from Western countries we have a very good relationship. So we need to start to create just this new growth. I do not believe that is something strong in the future.

David Blackmon [00:19:17] The back to the oil resource. And Petrobras, you know, it’s not just entirely Petrobras developing the offshore. Right. Just Monday of this week, we had Equinor announcing this big $9 billion deal with a partnership in partnership with Repsol and Petrobras to develop an offshore natural gas asset there. Talk about what’s happening there.

Armando Cavanha [00:19:48] Yeah, but this is something that happened in the past and was very good to Brazil. We opened the market to two international companies, Big Oil, and they apply with Petrobras and some consortiums for exploration. Isolated for others. And being operating in different ones is the case of this south part of Campos Basin that Equinor applied as an operator.

Armando Cavanha [00:20:17] We have helped some. Petrobras was bought up and the initiative by Equinor too to be, let’s see the leader of this process and to start production of natural gas is something very welcome to Brazil, of course. Why? Because Brazil has. Create a billion cubic meters of reserves of gas, natural gas. It’s not too much, but enough to produce 140, 50 million cubic meters per day.

Armando Cavanha [00:20:53] This is not enough for Brazil, for the industry. So you have some issues in terms of energy for the industry in Brazil. So if we can. At just 14, meaning about 1,000,002 meters per day from Equinor and the partners is related to 10% of the total production of these goods. A very good position. The tricky point is how they can move this gas from the platforms, from that vessel to two to onshore.

Armando Cavanha [00:21:30] So it is far from the pipelines, existing pipelines. So needs to construct yes, some pipelines to connect to the main pipelines or to transfer LNG. But the complicated is expensive and takes time. So the probable situation is to make some connections and start producing natural gas. It will take time not today or tomorrow.

David Blackmon [00:22:03] Yeah. Seven years, eight years, something like that. Probably timeline.

Armando Cavanha [00:22:07] But Equinor is a very traditional partner, partner in Brazil, and I don’t know if you should know about that, but the most important asset of Equinor outside Norway is in Brazil.

David Blackmon [00:22:23] So I didn’t know that. No.

Armando Cavanha [00:22:24] Yeah. Yeah. This is the most important thing for ethanol. So the relationship with Norway is very strong and coming very, very strong over the.

David Blackmon [00:22:37] And the silver government is okay with this relationship, this private investment in the oil sector. Good point. Very good point.

Armando Cavanha [00:22:48] Yes, because of the two mandates that he had in the past, he accepted very well, ignoring other companies, applying to some critics and some points. But the. I suppose that the business is much better than this quarter and solve some warrants that they have.

Armando Cavanha [00:23:09] So yes, they accept well, and that is to many a huge investment. Petrobras is part of the process, the partnership. So there is no way to stop this. Look.

David Blackmon [00:23:27] That’s a positive thing. You know, again, I think Petrobras has 30% of that project as an operator and Repsol has 30% And and the rest is with Ecuador.

Armando Cavanha [00:23:40] Exactly. Exactly.

David Blackmon [00:23:42] I didn’t realize there was such a relationship with Ecuador in Brazil. That’s what’s interesting to me. And the good point. That’s Ecuador. B. Operator The difficulties that they can have is good to talk to, let’s say, to support Petrobra’s claims.

Armando Cavanha [00:24:01] Yeah. In terms of local content and everything. So it’s good to have different operators in Brazil. We shall be operator Right. Some fields and accent routes. So that’s good.

David Blackmon [00:24:13] So yeah, that is actually one of the best. I was at Channel for a couple of years back in 2006-2007 timeframe, and that was one of, the best aspects of being there was getting to meet all the folks in our operations in Brazil and Venezuela, and other parts of South America.

David Blackmon [00:24:33] Unfortunately, shortly after that, Venezuela, you know, shut Shelbourne and other companies down in terms of private investment there, but had wonderful interactions with folks from Brazil there. It’s really a very cool part of that job. On LNG.

David Blackmon [00:24:53] You talked about how Brazil’s natural gas production doesn’t really fill the domestic requirements. Is there any prospect to increase natural gas production to an extent where you would no longer have to import LNG from overseas?

Armando Cavanha [00:25:11] Good point. Because part of our natural gas, we reinject the reservoirs to increase the oil production.

David Blackmon [00:25:20] Yeah, of course. Yeah.

Armando Cavanha [00:25:21] Profitable things. But if we and we are constructing the route, the number three from some platforms and getting brucella 222.2.4. So if we can so have this pipeline ready soon, we can export more from front platforms to onshore, more natural gas to our industry.

Armando Cavanha [00:25:45] But at the same time, I don’t believe that Brazil be a let’s say, an exporter of LNG. I do not believe because our reserves are not too big, our production is not too big. And to be part of this game of LNG exportation is something very complicated. So yes, the investments are huge. The logistics are something that must be I.

Armando Cavanha [00:26:16] So I do not believe but of course. So a. If you could at least bring this gas from platforms and our coast through to onshore, is something that’s enough for you. My understanding is that’s enough not necessarily to be exported.

David Blackmon [00:26:35] Well, one other thing. If you know, that’s not doesn’t have anything to do with oil and gas. But Brazil also has pretty significant lithium reserves, correct? Isn’t there? I don’t know what part of the country it’s and it’s not part of the lithium triangle, obviously.

David Blackmon [00:26:53] But I know that there’s been some talk about Brazil joining with the three countries that have the lithium triangle to form kind of a cartel on lithium exports is a really significant resource for the country.

Armando Cavanha [00:27:10]  I’m not sure about the volume of reserves in Brazil. I know that other countries like Chile and Argentina, Bolivia, and Bolivia, are, Yeah, Peru. But Brazil looks like one of the most important lithium reserves. I’m not sure about that. What Brazil has is still processing. So we export steel.

David Blackmon [00:27:43] Oh,.

Armando Cavanha [00:27:44] Yeah. Yeah.

David Blackmon [00:27:45] So you have I mean, there’s Brazil have a substantial mining sector for iron ore and yeah, feedstock for the Brazilian, one of the most important ones in the world to export to China and to everywhere. So this I know that’s something strong. Brazil.

David Blackmon [00:28:07] Yeah.

Armando Cavanha [00:28:07] But lithium and other other rare earths and so we do not have.

David Blackmon [00:28:14] Okay. Okay. Well, I misunderstood that part of that story. Then we are running up against time. These half hours go too fast, as you well know. I also before we go, though, you also do other podcasting, correct? You do other podcasts in addition to the Energy Transition podcast that we work on together. Right.

Armando Cavanha [00:28:41] Right. And with some of them topics related to the do the legislation or not dollar bill have some friends that are from banks and we talk about that and sometimes a bit about diversity. So as I work with some ladies in the past and they always are claiming about this relationship in the workspace and so it’s very interesting.

David Blackmon [00:29:16] Well, we have a lot of diversity on our own podcast with Irina and Tammy and gosh, I’m just amazed at the level of information and knowledge they bring to the table every way. Impressive. Impressive.

David Blackmon [00:29:31] It really is. It’s pretty extraordinary. You know, every time I talk to either one of them, I’m just amazed at all the things I didn’t know before. I talk with them about something. So anyway, listen, thank you so much for doing this. We’re going to make a habit of it. Maybe do it every three months or so, just cycle back together, and really appreciate your time and hope you have a great week.

Armando Cavanha [00:30:02] David, It’s a great pleasure for me. Do not forget that you give. You gave the name. And the transition to our podcast was your idea. Yes. And we are not against the energy transition. We are in favor of that. But.

David Blackmon [00:30:22] We just wanted to make sense. Yeah.

Armando Cavanha [00:30:24] Yeah. What we need and we are trying to explain to everyone is that must be irrational, must be something feasible with no charges. So that’s a good point. And this is, the way I love our podcast and I admire you a lot.

David Blackmon [00:30:43] Well, thank you and I appreciate it. It was just so folks know. I mean, Armando reached out to me on LinkedIn one day about three years ago, and that was how we became acquainted. And all of this grew out of that and that initial connection. So I always give you credit for starting the process on all of that.

Armando Cavanha [00:31:06] Thank you so much, David.

David Blackmon [00:31:08] Well, thank you. And have a wonderful week. And thanks to Erick Parel, our extraordinary producer, to Stu Turley and the Sandstone Group for hosting our podcast, which can be found on Spotify, Apple Podcasts, and Spreaker. All those platforms just go out there and search for us. You’ll find all our past episodes and really appreciate you all for tuning in. And for now, this is David Blackman signing off.

 

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