Brazilian energy ministers have announced the second largest discovery of new oil reserves in the past 20 years in a find that could transform the country into one of the world's largest producers.
The Brazilian government said tests on the Tupi oilfield, in the Atlantic Ocean 160 miles off the coast of Rio de Janeiro, showed it could eventually produce up to 8 billion barrels of light oil and natural gas, increasing the country's reserves by more than 60 per cent. That would make Brazil the world's eighth biggest oil producer, ahead of Nigeria and not far behind its Latin American neighbour Venezuela.
The find, the largest new oil discovery since the 12-billion barrel Kashagan field found in Kazakhstan in 2000, also enabled BG, the British gas group, to defy the falling stock market yesterday. BG, which posted a 1.6 per cent share price rise to 1,005p, has a 25 per cent stake in the Tupi venture, which is 65 per cent owned by Petrobras, the Brazilian oil giant. The final 10 per cent of the operation is held by Galp, a Portuguese exploration company.
Tupi should prove particularly lucrative because the light oil found is more valuable and cheaper to refine than the heavy crude that is much more common in Brazil's existing 14.5 billion barrels of proven resources.
"Tupi changes everything for Brazil and Petrobras," said Carlos Renato Nunes, an oil analyst with the Brazilian firm Coinvalores. "Tupi is not only huge, its light oil offers huge cost advantages."
Brazil became a net exporter of oil last year, but currently imports light oil for its refineries. Nevertheless, the discovery will not transform Brazil's oil industry overnight, because getting at the reserves will require Petrobras and its partners to overcome some significant obstacles.
The field lies 5 to 7 kilometres below the sea-bed, which is itself more than 2km below the surface of the Atlantic. Some of those involved with the project also said further tests were needed to provide certainty about the size of the find.
Nevertheless, Petrobras, which has a good track record in extracting oil from very deep reserves, said yesterday it believed production could begin by 2010, but it would take longer to realise the full potential of the field.
Once this comes on stream, Brazil could reap substantial political benefits from its oil reserves as well as financial rewards. The country would be well placed to export oil to the US, which currently buys more barrels than it would like from Venezuela, with which it has major political disagreements.