Transcript Industrialization under increasing uncertainty

Industrialization under
increasing uncertainty
André Furtado, DPCT/IG/UNICAMP, Campinas, Brazil
TECHNOLOGY, MANAGEMENT AND POLICY GRADUATE CONSORTIUM
AND RISK GOVERNANCE RESEARCH WORKSHOP
Lisbon, Instituto Superior Técnico, June 23-25
Outline

Brazilian Deindustrialization – Empirical Evidence

Pre-salt Risk and Opportunity



Petrobras Present Situation
Petrobras Changing Path

Industrial and Innovation Policies

Institutional Instability
Final Remarks
Brazilian Deindustrialization- Empirical
Evidences

Brazilian deindustrialization is controversial:
 It
is happening at an earlier development phase
 The
share of manufacturing industry is falling since the
end of the 80’s in current prices
 There
is a change in relative prices against industry
since the opening up of the economy in the 90’s
 Industrial
employment that has decreased dramatically
in the 90’s, started to rise again in the present century
Brazilian Deindustrialization- Empirical
Evidences
Manufacturing Value Added in Brazilian GDP
40
35
30
% of GDP
25
20
15
10
5
0
Source: IPEADATA
1992.01
1992.06
1992.11
1993.04
1993.09
1994.02
1994.07
1994.12
1995.05
1995.10
1996.03
1996.08
1997.01
1997.06
1997.11
1998.04
1998.09
1999.02
1999.07
1999.12
2000.05
2000.10
2001.03
2001.08
2002.01
2002.06
2002.11
2003.04
2003.09
2004.02
2004.07
2004.12
2005.05
2005.10
2006.03
2006.08
2007.01
2007.06
2007.11
2008.04
2008.09
2009.02
2009.07
2009.12
2010.05
2010.10
2011.03
2011.08
2012.01
2012.06
2012.11
2013.04
2013.09
2014.02
100 = 2006
Industrial Employment
Brazil: Employement in Industry
140
120
100
80
60
40
20
0
Source: CNI
Brazil Development Challenges

Brazil is a natural resources rich developing country

Since 2003, mineral commodities prices increased
impressively  development opportunity


Industrialization based on commodities
However, there are great risks:

Deindustrialization due to currency overvaluation

Consumerism

Populism
Pre-salt Challenge

Pre-salt Discoveries are creating a New Risks and Opportunities for the
Brazilian Economy

Opportunities of Pre-salt for Brazil:


Self-sufficiency in Oil

World Oil Exporter

Increase Industrial Activity based on Natural Resources

World Leader in Offshore Technology
Risks of Pre-salt for Brazil:

Fuel Prices Control Policy

Institutional Bargaining

Limited industrial capacity of suppliers
Petrobras Present Situation

Pre-salt promises are impressive:

Total oil and gas reserves are expected to reach 100 billons of bep
(barrels of oil equivalent)

Petrobras is investing since Pre—salt discoveries 5 times more than
previously

Pre-salt production reached 470 thousands barrels per day in June
2014

However, there is an increasing lag between investment growth and
the total oil production and proven reserves expansion, which is
strangulating Petrobras
Petrobras Investments (US$ millions 2012)
Source: Petrobras
Fonte: Petrobras
Petrobras Critical Situation

Troubles with Oil Extraction

The recent drop in Brazilian oil output is related to the rapid fall of
mature fields, partially due to lack of investment

Pre-salt production expansion wasn’t enough to balance mature
fields decline

Investments in downstream are deferred (Recife and Rio
refineries)

Bioethanol production drop increased gasoline imports

Oil products consumption increased steeply during the last
years

Federal Government is holding back gasoline and diesel oil
prices
Petrobras Oil Production in Brazil
Fonte: Petrobras
Brazil Oil and Gas Production by Firm
(february 2014)
Oil (bbl/day)
Petrobras
Gas (Mm3/day)
Total Production
(boe/day)
1,923,432
76,186
2,402,640
Statoil Brasil
76,632
95
77,231
Shell Brasil
43,566
656
47,690
144
6,101
37,954
Chevron Frade
16,230
166
17,279
OGX
15,820
57
16,180
HRT
10,521
33
10,729
2,089,694
83,248
2,613,326
Parnaíba Gás
Total Brasil
Source: ANP, 2014
Oil Products in Brazil: Production, Imports,
Exports and Total Consumption
Fonte: EPE – Balanço Energético
Petrobras Changing Path

Since 2010, Petrobras is trying to introduce a
more realistic administration
 Targeting
the Upstream (70% of total Investments)
 Slowdown
in the Downstream (New Refineries are
posponed)
 More
realistic production previsions, which is
expected to reach 2.5 millions bbl/day in 2015 and
4.2 millions bbl/day in 2020 (2011-2015 Work Plan
expected 4.9 millions)
 To
reach its main planned targets, Petrobras is
mobilizing its own staff to follow up local suppliers
Petrobras Work Plans
2010-2014 Plan
US$
millions
Exploration and
Production
%
2012-2016 Plan
US$ millions
2014-2018 Plan
%
US$ millions
%
118.8
53.0
141.8
60.1
153.9
70.0
Refineries
73.6
32.8
65.5
27.8
38.7
18.0
Gas and Energy
17.8
7.9
13.2
5.6
10.1
5.0
Petrochemicals
5.1
2.3
5.0
2.1
Distribution
2.4
1.1
3.6
1.5
2.7
1.2
Biofuels
3.5
1.6
3.8
1.6
2.3
1.0
Others
2.9
1.3
3.0
1.3
3.2
1.4
224.1
100.0
235.9
100.0
220.6
100.0
Total
Source: Petrobras
0.0
Pre-salt Evolution

In spite of its high priority, the number of Presalt projects were reduced (32 until 2020)




Libra field is out of that figure (9 platforms)
First new platforms for Pre-salt must start 2016
In 2020, Pre-salt will reach 47% of Brazilian oil
production (aprox. 2 millions bbl/day)
Foreign Suppliers like FMC, Baker Hughes,
Schlumberger have installed new labs close to
the University of Rio related to Pre-salt
Industrial and Innovation Policies
In 2003, Ministry of Energy created PROMINP with Petrobras,
which is program to promote local suppliers
 ANP (Oil National Agency) established since 2003 local
content requirement in the bids.
 New initiatives:




Petrobras Progredir Program: facilitate supplier access to bank loans
BNDES P&G Program: contribute to the development of oil and gas
supply chain :

BNDES P&G Automatic, for cash flow funding

BNDES P&G Estruturante, to create and widen local productive capacity,
facilitate firm restructuring, foreign expansion, support of technological
capabilities and innovation
Inova Petro Program(BNDES-FINEP-Petrobras), to fund oil and gas
suppliers technological development (R$ 3 billions from 2012 to
2017)

Gathers a set of funding instruments from BNDES and FINEP, with Petrobras
technical supervision
Institutional Instability

Rent seeking behaviour of society, and especially of political elites is a main
feature natural resources course

Federal Government tried to change institutional framework because of Presalt:


Production sharing system

Petrobras became the single operator

Social Fund to promote Brazil development
The Fund Project was a good idea, however the result was very different
from the original idea:

Congress reduced impressively the share of royalties and of other taxes allotted
to Oil Producing Municipalities and States

Between 2008 and 2013 several law Project were vetoed by the President, but
the veto was rejected by the Congress

Final arrangement assign to Education (75%) and Health (25%)

This arrangement is creating a great stress for Oil Municipalities and States, and
also for Science and Technology Ministry
Final Remarks

Brazilian industry, which was for long time the locomotive
of the economic development, is loosing space in the
Brazilian GDP


Part of this situation is due to macro-trends of the economy
The Pre-salt example shows the risks for the Brazilian
Economy of the present phase:

Petrobras is grieved by Federal Government price policy

Mature fields production is decreasing very sharply

Low returns investment in Downstream

Local Suppliers are not following Petrobras and others companies
investments

Pre-salt royalties dispute among regions and several government
priorities created institutional instability
Final Remarks

Will Brazil take advantage of Pre-salt opportunity to become a
large oil exporter?
The production leap will be smaller than what was previously
expected, however until the end a decade Brazil must become
an oil exporter

Will Brazil make an industrial and technological leap in offshore
technology?
The industrial and technological change is happening, but more
slowly than firstly expected. There are some promising signals
like new industrial and innovation policies and the decision of
some foreign suppliers to built research close to Rio University.