Lula to reposition Petrobras for energy transition

Brazil already has one of the world's cleanest power mixes thanks to its hydro fleet, but Lula wants more renewable investment

Brazil's presidential frontrunner, Luiz Inacio Lula da Silva, wants to recast state-run Petrobras' role in the country's energy transition, giving it a much sharper focus on investment in renewable energy that will allow it to catch up with European and Latin American companies' decarbonisation strategies.

Petrobras has so far concentrated on an environmental, social and governance agenda by boosting less-polluting pre-salt flows while scaling back production at less prolific onshore and post-salt areas. It is also targeting a 25pc reduction in its absolute operating emissions by 2030, while investing in carbon capture and CO2 reinjection technologies for almost all new upstream projects.

"Petrobras' vocation is to continue operating in pre-salt fields. The Santos and Campos basins are the company's fundamental resources and where its competitive advantage is concentrated," says William Nozaki, a member of the Workers' Party (PT) team advising Lula on Petrobras affairs.

But Lula wants Petrobras to shift away from what PT sees as an over-emphasis on the lucrative pre-salt fields off the coasts of Rio de Janeiro and Sao Paulo and increase investment in other sectors. His manifesto states that Petrobras must "go back to being an integrated energy company", investing in exploration and production, but also in refineries, distribution, biofuels and renewables.

Plans to step up upstream and refining activity have cast doubt on Petrobras' emissions reduction plans. But Nozaki — who is also co-ordinator at the Ineep petroleum, natural gas and biofuels studies institute that is linked to oil workers' union FUP — says the problem of increased emissions is "minimised" if the company is also taking decarbonisation steps.

Europe's BP, Equinor, TotalEnergies and Shell have all increased investment in green energy in recent years, as has Colombia's Ecopetrol.

"Brazil's oil companies are a bit late coming into the game. The idea is to follow the same route as other major players," says Mauricio Tolmasquim, a University of Rio de Janeiro professor heading a team advising PT on the power sector.

Need for green

More Petrobras funding for development of green energy is part of Lula's wider strategy to incentivise investments in renewables. Tolmasquim says a Lula government would consider private capital essential to Brazil's transition.

The US, Germany, France, Italy, the UK, Canada and Japan pledged in May to decarbonise their electricity-generating sectors by 2035. Tolmasquim says his group would advise PT to sign Brazil up to the same commitment.

The International Energy Agency says large hydro plants already account for around 80pc of Brazil's power generation, making the Brazilian mix one of the cleanest in the world. But many of Brazil's hydro plants were built over two decades ago and would benefit from being modernised. The committee is also advising PT to boost wind and solar output — the country would make the most of its 7,000km coastline by encouraging investments in offshore wind.

Brazilians vote in the first round of presidential elections on 2 October and former president Lula is ahead in the polls. Incumbent Jair Bolsonaro has cast doubt over whether he will accept the results, sparking fears of instability.