Brazil ocean oil push unfazed by events elsewhere

RIO DE JANEIRO Thu May 13, 2010 7:12pm EDT

RIO DE JANEIRO (Reuters) - Brazil's massive offshore oil projects are unlikely to be slowed by the oil leak threatening the U.S. Gulf shore or Thursday's gas rig sinking in Venezuela, despite fears elsewhere of a backlash against deep-sea drilling.

The political furor over hazards of offshore drilling has pushed up crude futures spreads as traders bet on lower supplies in the future amid concerns the United States may backtrack on plans to open up new areas for drilling.

But Brazilians are not calling for a slowdown in state oil company Petrobras' push to tap massive deep water reserves. Thge country already tightened safety regulations following a major rig disaster in 2001.

"I don't think there will be any change in the investments in the subsalt," said Lucas Brendler, an analyst who covers Petrobras for the brokerage Geracao Futuro.

"Those accidents could increase insurance contracts but I don't think companies would change investments because of that." He said possible changes to environmental legislation were also unlikely to alter the subsalt production timeline.

Traders worried that tighter offshore drilling regulations could slow global crude supplies have been pushing up spreads between the front-month U.S. crude contract and the contract for U.S. crude delivered in December 2012.

Those spreads have widened to more than $15 per barrel from around $9 per barrel on April 19.

Global oil markets are counting on Brazil to deliver 2 million barrels per day of additional crude production by 2020, equivalent to 10 percent of the forecast rise in global oil demand between now and 2030, according to the International Energy Agency.

This increase mostly hinges on Petrobras' plan to tap billions of barrels of crude that lie as much as 7 kilometers (4.35 miles) under the ocean's surface.

The company already produces the lion's share of its 2 million barrels per day of output in Brazil from offshore shallow water fields.

Analysts said the fact that two offshore rigs sank in less than a month was coincidence, not a trend.

"It is rare enough for one rig to go down at any time ... So the odds are one in a billion, this is very coincidental," said Brian Petty, head of government affairs for the Houston-based International Association of Drilling Contractors."

DEEP-WATER FUTURE

The accidents have had no discernible impact on the political debate over Brazil's oil sector.

Attention remains focused on disputes between Brazilian states over how oil royalties should be distributed under new oil legislation being discussed in Congress.

Politicians from Rio de Janeiro state, which has a huge tourist economy and hosts most of its offshore drilling operations, mostly discussed the accidents in the context of the royalty dispute while playing down the chance of such an accident in Brazil.

"I honestly don't think the development of the subsalt is going to change as a result of these accidents," said Julio Bueno, Secretary of Economic Development for the state of Rio de Janeiro.

"But is shows why it's important to maintain royalties, to mitigate this sort of risk, he added, echoing similar comments last week by Rio state's top environment official.

In 2001, Petrobras' P-36 offshore production platform was rocked by explosions that killed 11 people. It sank off the coast of Rio de Janeiro five days later, spilling some of the 10,000 barrels of fuel and crude it was storing into the Atlantic.

Brazilian officials say Petrobras has since improved both environmental standards and emergency response systems.

Many point out that the deep water subsalt projects are in some cases more than a hundred miles off the coast of Brazil in Atlantic waters. In contrast, the Deepwater Horizon rig sank just 40 miles off the coast of Louisiana.

"I think that this is unlikely to have a very significant impact on Petrobras' investments or on the development of the sector in Brazil," said Erasto Almeida, an analyst with Eurasia Group in New York, when asked about the effect of accidents.

(Additional reporting by Denise Luna in Rio de Janeiro and Alonso Soto in Santiago; Editing by David Gregorio)