Petrobras might win this battle, but it faces tougher environmental regulations in the future, writes Constance Malleret
Brazilian state-controlled Petrobras this week moved closer to gaining authorisation to drill in a promising new oil frontier off the northern coast, but environmental watchdog Ibama has cast doubt over the future of other exploration permits there.
Brazil's equatorial margin, and particularly the northernmost Foz do Amazonas basin, is Petrobras' main bet to replenishing its oil reserves — currently set to decline from the start of the next decade. The offshore region is believed to contain massive crude deposits similar to those found off Guyana, with Foz do Amazonas alone possibly holding 10bn bl of recoverable crude, according to energy research bureau EPE. But obtaining the regulatory green light to drill in this environmentally sensitive area is proving a lengthy process. Environmentalists worry about the impact oil exploration will have on the region's little-studied coral reefs, indigenous communities and ecosystems.
Ibama denied Petrobras a permit to drill off the coast of Amapa state in May 2023. The oil firm promptly appealed but, two years later, the process continues. The watchdog's experts recommended it reject Petrobras' request at least twice in recent months. But mounting political pressure for approval — including from President Luiz Inacio Lula da Silva, who publicly accused the agency of working against the government — led Ibama head Rodrigo Agostinho on 19 May to approve Petrobras' emergency plan to protect fauna in the event of an oil spill.
Petrobras will soon run a simulation of the plan, which it describes as the final step towards obtaining the sought-after drilling licence. Adding to the firm's urgency to secure the permit is the fact that the contract for the probe it plans to use in block FZA-M-59 expires in October.
Behind the controversy over this single permit lies a politically fraught debate on whether the Brazilian government can reconcile its push for new oil exploration with its climate ambitions. In its decision this month, Ibama outlined important caveats on the future of exploration in Foz do Amazonas, where Petrobras holds the rights to five other blocks. The watchdog recalled the "challenging" environmental licensing process for drilling in Foz do Amazonas in 2013, when hydrocarbons regulator ANP first auctioned exploration rights there.
Round and round
Future permits are unlikely to be awarded without a more complex and lengthy environmental study, known as an AAS, which was not required from Petrobras this time, Ibama warned. That may cool oil firms' interest for the region in ANP's next licensing round, due on 17 June, when 47 blocks in Foz do Amazonas will be up for grabs. Environmental groups last month called for the upcoming oil auction to be suspended and threatened to take the issue to court.
Oil proponents, including Lula and much of his government, say exploring new oil frontiers is a matter of economic and energy security, arguing that oil revenue can fund the energy transition. Critics point out that there is currently no framework in place to guarantee this.
The oil industry would support a discussion on how to channel resources towards mitigation efforts, oil chamber IPB president Roberto Ardenghy tells Argus. "We are suggesting, if we find and produce oil [in the equatorial margin], a different distribution of royalties, to channel resources into fighting the real scourge of Brazilian emissions", namely deforestation, he says.
Finance minister Fernando Haddad is in favour of "research" in the new oil frontier, but any hydrocarbon discoveries should not be an excuse for Brazil to delay its energy transition, he said in an interview broadcast two days before the Ibama decision. "Humanity needs to relinquish oil," he said.
