Exclusive Interview: Brazil Cannot Join OPEC in Cutting Production

Coming off its worst economic recession and a string of corruption scandals in the highest echelons of power, Brazil is banking on a new era in its key oil industry to pull through one of the most turbulent spells recorded in recent history.

And the world's ninth-largest economy will accept no compromise to achieve its oil ambitions, Brazilian Minister of Mines and Energy, Fernando Coelho Filho, told the Financial Tribune in an exclusive interview in Tehran on Monday.

The minister, on his way from a BRICS summit back to Brazil, stopped in Tehran for talks with Bijan Namdar Zanganeh, the oil minister, and other top officials. Holding the reins of the petroleum industry of Latin America's No.1 oil producer at just 33, Coelho Filho struck a pragmatic note about his plans and policies.

"Five or six years ago, Brazil intended to produce around 4 million barrels per day by now. Because of all the problems that we faced, especially the Petrobras crisis, we are now at 2.7-2.8 million bpd," he said.

“I talked at the end of last year with [Saudi Energy Minister Khalid] al-Falih from Saudi Arabia. He called me about the OPEC decision to reduce oil supply and I told him about the crises that Petrobras faced in the last three years, the political and economic crises. We are now making efforts to create more jobs, to see how we can put our economy back on track.”            

OPEC and 11 other nations are in an agreement to remove 1.8 million barrels per day of crude oil from the saturated market through March next year. But additional supplies by Brazil and other producers can undercut the OPEC-led initiative and push down prices that are at more than half their peak levels from three years ago.

This indeed is a bitter reality that has given rise to unprecedented economic, political and social challenges in all the countries living with oil money and who refused to diversify despite repeated calls from their own and international economic experts.

“I told him (al-Falih) that we couldn’t commit to reducing our production. We are already behind where we had planned to be...he understands. Of course he was expecting our support, but he knows what happened to us.”

The minister effectively ruled out the prospect of joining any OPEC-led production cut deal in the near future. “First we have to reach that [point] to see, to reach 4 million barrels. We need five to 10 years.”

  Petrobras in Better Shape

Just as Brazil’s hopes of winning the World Cup at home came to a crushing end in 2014, the nation’s economy plunged into a deep recession that saw over 1.5 million people losing their jobs. That was compounded by a wide-open political controversy that centers on Petroleo Brasileiro S.A., as the country’s state oil company is officially known.

A large circle of people, including two former leaders and current President Michel Temer, face allegations of abusing Petrobras assets for political and personal gain. But Coelho Filho is certain his country of 207 million people is strong and competent enough to overcome the huge challenges and move ahead with decency.

“Petrobras is starting to come out of a difficult period that it is still facing. But we’re in much better shape now.”

He said the state oil company is testing the waters for new oil and gas opportunities in Iran, particularly in offshore fields where the company’s expertise can be of help.

“There might be some opportunities for Petrobras to work here in the future. Petrobras has unique expertise in deepwater exploration. That is an opportunity to work together. We have initiated the talks with local authorities to see how we can collaborate. We have talked to executives of Petrobras and they are excited about potential developments,” he said. Almost 95% of Brazil’s oil supply last year came from offshore, very deep waters, data shows.

He pointed to Petrobras’ strategic alliance with Norway’s Statoil and France’s Total for exploration in Brazil and said the latter company could facilitate the entry of Petrobras in the Iranian market.

“I’ve heard that Total has huge investments in Iran…if it is with Total, it will be easier for us.”

  Strong Conviction

Coelho Filho, who became energy minister in May 2016, preferred not to share his vision of the political situation in Brasilia over the next few years. However, he held a strong conviction that the drawn-out legal battles at the country’s highest level of political hierarchy send a strong message.

“That is a very clear sign that nobody in Brazil is above the law, nobody is safe. Everybody has to face the consequences of their actions. We are going to have elections next year, so hopefully the person chosen to be our next president is going to know that the country he is going to run will be very different from the country in the past.”

Despite his tough stance on the oil market, the minister hoped for a recovery in both oil prices and the health of the Brazil’s economy.

“I think for the next year, we will still have some challenges because of the oil prices, we cannot have the numbers that we had in the past, so that is a challenging thing for oil states and companies,” Coelho Filho said.

“But hopefully, the years to come are going to be more ‘tranquilo’.”