South America’s Oil & Gas Industry

By Tsvetana Paraskova

South America is a key oil and gas producing region and is set to be one of the most important contributors to increased global oil supply over the next few years.

Despite the fact that it is a South American country that has seen the biggest non-war inflicted plunge in oil production in recent years  Venezuela and other nations on the continent are set to boost their crude oil and natural-gas production, thanks to the development of both conventional offshore resources and unconventional shale reserves.

Global oil and gas upstream spending is expected to rise by 6 per cent this year, which would be the third consecutive year of modest spending increase after the plunge in 2015-2016, the International Energy Agency (IEA) said in its World Energy Investment 2019 report.

“There are signs in the 2019, guidance that conventional spending in general, and offshore investment in particular, maybe turning a corner. This is being led by the Middle East and Latin America,” the Paris-based agency reckons.   

According to the IEA, upstream spending in Latin America is set to rise by just over 10 per cent this year, mostly thanks to higher investments in Brazil, Guyana, Argentina, and Colombia. Brazilian state-held oil firm Petrobras said in its five-year strategic plan that it would lift spending, while international oil companies are increasing their activities offshore Brazil.

“Despite high declines from mature fields, and supply disruptions in Venezuela, South American production is slated to see a new growth wave, supported by supply additions from new projects in Brazil and shale developments in Argentina,” Rystad Energy said in June 2019.

The biggest producer in the region, Brazil, was the only country that boosted production despite the oil price downturn, thanks to investments in the Lula (x-Tupi) project made before the 2014 oil price crash. Brazil will also see production growing in the short to medium term, thanks to the Buzios, Iaram, and Mero (Libra NW) projects, Rystad Energy says.

Brazil will also drive the global floating production, storage and offloading vessels (FPSOs) market, which is headed for a major renaissance, Rystad said in August. As many as 24 FPSO awards are expected by 2020, mostly driven by Brazil.

Brazil is expected to award seven more FPSO awards in 2019, which would lift the country’s tally to more than one-third of the awards anticipated globally this year and next, according to Rystad.

“Brazil’s greater competitiveness on a global scale is a driver behind such huge FPSO awards, along with the region’s recovery from the Car Wash corruption scandal, Petrobras’ debt reduction, substantial pre-salt discoveries and healthier oil prices,”

Audun Martinsen, Head of Oilfield Services Research at Rystad Energy.

Brazil’s oil production rose by 8 per cent year on year in August and is now estimated to be nearing 2.8 million bpd, IHS Markit said in September 2019. The Lula field in the pre-salt Santos Basin has been the largest producer. Over 95 per cent of Brazilian oil production currently comes from offshore areas.

“Brazilian state-run oil company Petrobras posted a long-awaited production boost in July after a disappointing June, as it ramped up production in the promising offshore pre-salt region,” OPEC said in its Monthly Oil Market Report in September.

According to the Organisation of the Petroleum Exporting Countries, Brazilian crude oil production will increase by 320,000 bpd-360,000 bpd in the second half of this year compared to the first half. Total liquids supply from Brazil will grow by 180,000 bpd to average 3.48 million bpd in 2019, while 2020 liquids output will rise by 290,000 bpd to 3.77 million bpd, OPEC has estimated. Brazil will also be the main driver of non-OPEC supply growth right after United States, OPEC reckons.

Another large economy in South America—Argentina—is also set to see increased liquid production, both oil and natural-gas, thanks to the greater development of the Vaca Muerta shale play. Argentina exported its first liquefied natural-gas (LNG) cargo and resumed pipeline natural-gas exports to its neighbours Brazil and Chile, as rising gas production in the Vaca Muerta helped it lift its domestic supply, the US Energy Information Administration (EIA) said in a report in July.

Argentina was a net exporter of natural-gas between 1990 and 2007, but declines in production from mature fields made the country a net natural-gas importer in 2008. The development of Vaca Muerta has been the main contributor to the country’s rising natural-gas production, while Argentina’s oil and gas group YPF, as well majors Exxon, Chevron, Shell, and Total aim to tap more oil from the Vaca Muerta formation.

The shale play is expected to lead the rig demand in South America over the next five years, despite the current economic problems in Argentina, Westwood Global Energy Group said in an analysis in September 2019.

“While the Vaca Muerta is expected to provide the cornerstone for rig demand in Latin America, opportunities for rig contractors are also anticipated in Ecuador and Peru, offering three potential ‘hot spots’ for activity over the next five years,” said Westwood Analyst Katy Smith.

While established oil and gas producing nations are expected to boost their production and demand for rig and oilfield services in South America, a newcomer from the region is also set to make its mark.

Guyana will begin contributing to the global oil supply as early as next year. ExxonMobil plans to start up the Liza Phase 1 development by the first quarter of 2020 and will produce up to 120,000 bpd. Liza Phase 2 is set to start up in 2022 and produce up to 220,000 bpd.

ExxonMobil has made more than a dozen oil discoveries offshore Guyana, and other companies have also had exploration success recently.

Tullow Oil said in August that the Jethro-1 exploration well on the Orinduik licence discovered oil—the first discovery on the Orinduik licence that comprises high-quality oil-bearing sandstone reservoirs of Lower Tertiary age.

“It is an excellent start to our drilling campaign in the highly prolific Guyana oil province. We look forward to drilling both the Joe and Carapa prospects in our 2019 drilling campaign and the material follow-up exploration potential in both the Orinduik and Kanuku licences,” Tullow Oil’s Chief Executive Paul McDade said.

Commenting on the discovery, Rystad Energy’s Exploration Analyst Palzor Shenga said:

“After dominating the list of major offshore discoveries in 2018, Guyana has extended its winning streak. With multiple prospects identified, Tullow and its partners could easily be sitting on a multi-billion barrel block.”

Other operators will also drill exploration wells offshore Guyana in the near future, so additional discoveries could also be made in the coming months.

South America, despite economic woes in some countries, is set to boost its oil and natural-gas production over the next few years, supporting the rig, FPSO, and oilfield services market.