Partnerships With Brazil.

Brazil's oil market, the biggest in Latin America, consumes over 2.2m b/d. PDVSA has pursued it through Citgo Int'l Latin America (CILA), which has exclusive gasoline distribution contracts with companies having retail stations in north-eastern Brazil, Puerto Rico and other Latin American countries.

The stations market Venezuelan fuels under the Citgo and/or PdV brands. The products include gasoline, high quality diesel, heating oils, jet fuel, lubricants, waxes and asphalt. The state-owned Petrobras, Brazil's NOC, is an IOC investing heavily in Latin America, including Venezuela, and in other parts of the world.

In February 2005 PDVSA and Petrobras signed an initial accord to have a 200,000 b/d refinery in the north-eastern Brazilian state of Pernambuco at a cost of $4 bn. But since then the cost has doubled. In September 2007, Brazil officially broke ground on the project, although the two NOCs had not reached a final agreement concerning the project. The facility, to be owned 51% by Petrobras and 49% by CILA, will have units designed to process the very heavy varieties of crude oil produced by Venezuela and Brazil.

An agreement with Brazil on June 29, 1999 called for PetroAmerica (PA). Further accords between Chavez and his Brazilian counterpart, Luiz Inacio Lula da Silva, have focused on this PA scheme, which Chavez says should join the assets of Petrobras, PDVSA, Enarsa of Argentina and other Latin American NOCs. However, Lula is among Latin American leaders suspicious of Chavez's ulterior motives and earlier this year has reached a far reaching deal with US President Bush, including co-operation in biofuels of which the Venezuelan ruler and other Latin American allies are supicious.

Lula has been emboldned by the recent discovery of the Tupi field, an offshore oil super-giant which can produce up to 1m b/d from ultra-deep Fms in Brazil's Santos Basin. Tupi, in a promising pre-salt area, could reach this peak output as early as 2014. Now Petrobras says it can make rough estimates of Tupi's reserves. Petrobras on Oct. 8 said it estimated oil and gas reserves at Tupi at 5-8 bn barrels of oil equivalent (BOE), making it Brazil's largest ever discovery.

Tupi is 7 km below sea level: water depth is about 2,000 metres, followed by 3,000 metres of rock and sand below and then a further 2,000 metres through a salt layer. Petrobras CEO Sergio Gabrielli says further pre-salt finds could place Brazil among the eight countries with the largest oil reserves in the world. He says Tupi's output could exceed 200,000 BOE/d. Pilot production may start in 2010-2011 at 100,000 BOE/d. Wood Mackenzie says Tupi's output could peak at around 1m BOE/d only by 2022, calling the field "one of the most significant oil discoveries in the last 20 years", only surpassed by the 12.9 bn barrel Kashagan field found in Kazakhstan in 2000. Petrobras is Tupi's operator with 65%. BG Group has 25%. Galp Energia of Portugal holds the remaining 10%. Brazil will weigh whether it would join OPEC after it has gauged the impact on its exports from Tupi, Isnard Penha Brasil, Brazil's ambassador to Saudi Arabia, said in Riyadh on Nov. 16.

If Petrobras' estimate is proven, it would boost it Brazilian reserve by 47-76%. Its Brazilian oil and gas reserves on Dec. 31, 2006, stood at 10.573 bn BOE, according to the US Securities and Exchange Commission (SEC). Petrobras' new reserve estimate came after a year of speculation that a second province the size of Brazil's Campos Basin could lie below the salt layer. With a production of 1.5m b/d, the Campos Basin accounts for more than 80% Brazil's oil output. But production comes from layers above the salt, as does all current offshore production. Tupi crude is 28[degrees] API.

Next to Tupi, where first oil was hit in October 2006, Petrobras has found oil in other pre-salt areas. In September, it announced a find in the BM-S-9 block. The find, dubbed Carioca field, lies in ultra-deep waters close to Tupi. In March, Petrobras announced another oil find in the ultra-deep pre-salt layer, but that is in the Campos Basin off the coast of Espirito Santo State. Petrobras says pre-salt Fms are below a salt layer extending from areas on the Brazilian shelf off the coast of south-eastern Espirito Santo state southward to the southern state of Santa Catarina.