Chevron spill unlikely to prompt new Brazilian rules

While fallout from the disastrous Gulf of Mexico oil spill reverberated across the deep-water drilling industry last year, the oil leaking into Brazil’s Atlantic waters this month won’t create such major waves, energy analysts say.

Brazilian officials have hit Chevron with a $28 million fine for releasing an estimated 3,000 barrels of oil into the Atlantic Ocean from a well off the coast of Rio de Janeiro state. Chevron has taken full responsibility for the incident and says the residual oil is moving away from Brazil’s coast.

Unlike BP’s spill in 2010, which released an estimated 4.9 million barrels and led to a moratorium on some drilling in the Gulf of Mexico, few consequences of the Brazil incident are likely to fall beyond the company at fault, Morningstar analyst Allen Good said. The environmental impact was comparatively small and, for Brazilians, the economic stakes are seen as too big.

“I don’t think you are going to see any slowdown” in Brazil’s offshore drilling, Good said. “They’re banking on that industry really exploding there.”

Deepwater oil production in Brazil has more than doubled in the past decade, from 749 thousand barrels per day in 2000 to 1.6 million barrels per day in 2010, according to Brazil’s state-controlled oil company, Petrobras. Brazil’s gross domestic product more than tripled during that decade, according to data from the World Bank.

Brazil’s National Petroleum Agency said the oil slick from Chevron’s well is less than 20 percent the size it was four days ago. The agency said in a statement posted Tuesday on its website that the oil slick on the water’s surface now covers 0.78 square miles compared with the 4.63 square miles registered on Friday.

Though the oil is moving away from Brazil’s coast, Rio de Janeiro state Environment Secretary Carlos Minc still warned that the slick could reach beaches west of the city of Rio that are popular with tourists.

In 2007, announcement of the major Lula field discovery off the Brazilian coast positioned the country to rise to be one of the world’s top energy producers. Since then, companies have been making greater investments in Brazil’s “pre-salt” areas, where oil lies beneath miles of ocean, rock and salt.

Brazil has maintained a friendly relationship with the oil and gas industry, which has been a major revenue generator for the country, Good said. With an estimated 50 billion to 100 billion barrels of oil in the pre-salt areas, national sentiment has been supportive of the economic boon that offshore oil production can bring.

That sentiment will prevent officials from overreaching in their response to the spill, Good said.

“They might tighten up regulations a bit, but deep water is a big part of what is going on with Brazil’s economy,” he said. “As long as there is no negligence proven … I don’t think there will be any long-term effect.”

Chevron has said that its quick response to plug the leak limited the spill’s effect and that it has followed government-approved processes to clean up the slick, including containment booms and skimming.

“Everyone is looking at this to see what is the behavior of the Brazilian government when something goes wrong,” said David Mares, scholar for Latin American energy studies at the James A. Baker III Institute for Public Policy at Rice University. “If the Brazilians push too hard on this, it will make people rethink the terms on which they are in Brazil.”

Some Brazilian regulators and officials have been quoted in media reports saying Chevron and Transocean, which operates the rig for the well where the spill occurred, could face stiffer penalties, including a ban from deep-water drilling there. Transocean also operated the Deepwater Horizon rig that was destroyed in the BP Gulf disaster.

James West, a Barclays Capital analyst, said severe measures are unlikely.

“There’s a lot of chatter, but banning Transocean would have very serious negative consequences,” he said.

The Associated Press contributed to this report.

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1 Comment

  1. The original report was a much larger amount. Makes you wonder………..

    #1