War affects oil, gas market players

(MENAFN- Brazil-Arab News Agency (ANBA))

São Paulo – In 2021, oil was the third most exported product from Brazil at 67 million tonnes shipped to China, the United States, India, Chile, Portugal, and South Korea. On the other hand, the country imported derivatives, mainly from Saudi Arabia, the US, Algeria and Iraq, says Brazil's oil regulator ANP and the Secretariat of Foreign Trade (SECEX) affiliated with the Ministry of Economy. But just a small amount of derivatives came from Russia.

Refinery: Brazil imports light oil

“Although Brazil is self-sufficient in oil production, we export the heavier type, which is not ideal for the refineries of the country, and imports the lighter type. We buy derivatives like diesel and gasoline,” says Mauro Rochlin, economist and MBA professor at Fundação Getulio Vargas (FGV)

Notwithstanding Russia has had a small share in Brazil's oil imports in 2021 – only 0.6% — they still amounted to a relevant volume 365,000 barrels.

World looks to fuels

According to Florival Carvalho, chemical engineer and general coordinator of the Fuel Lab of the Institute for Oil and Energy Research of the Federal University of Pernambuco (UFPE), and Eduardo Costa Pinto, professor at the Institute of Economy of the Federal University of Rio de Janeiro (UFRJ) and researcher of the Institute for Oil Industry Research (INEEP), if Brazil stopped importing Russian derivatives , the Arab League states could step in to fill the gap.

“Due to Brazil's current financial situation, there's no prospect of increasing imports, but in the unlike event that this changes, there's room for the Russian oil to be substituted with Arab derivatives. For this to take place, the Brazilian refineries would have to be restructured, as the Russian oil is heavier than Saudi Arabia's,” Costa Pinto said.

Change in exporters

Considering the rest of the world, the Russian share as oil exporter is much higher. According to an analysis by the Oxford Institute for Energy Studies, the Russians rank second as the world's largest crude oil producer. The country accounted for around 14% of the global extraction and nearly 40% of the Russian oil exports were shipped to Europe in 2021, the International Energy Agency (IEA) said.

Saudi Aramco: Saudis could gain ground

With the sanctions on Russia due to the war, several countries like Brazil and Saudi Arabia could take this opportunity to increase negotiations with other countries.“There're other ways to substitute the oil supply from Russia, and substitution could come mainly through the Middle East, if there's capacity to boost production. Brazil could also benefit from the void left by the country as we are the world's eighth largest exporting market,” Florival Carvalho said.

The UFRJ professor agrees with the chemical engineer, but he believes that other things should be analyzed regarding oil imports.“As Saudi Arabia has a lower cost production, it'll play a larger role now. If we see the oil market as commodities, looking at costs and prices, I'd say Saudi Arabia would gain a dispute with the US due to its cheaper production, but this is not just an economic but a geopolitical issue.”

For Carlos Henrique Canesin, professor of International Relations at the University Center of the Federal District (UDF), the sanctions on Russia could benefit not only Saudi Arabia but other countries of the Organization of Petroleum Exporting Countries (OPEC), too, like Libya, Kuwait, Iraq, and the United Arab Emirates.“There's a window of opportunity to boost the relative power of the group in the global scenario. In the short term they could direct stocks and in the medium term boost production and increase the global supply of the product.”

Gas imports

The global escalating blockade of the Russian gas comes in a moment when Brazil is increasingly dependent on imported liquefied natural gas (LNG). In the first two months of 2022, the imported volume of LNG climbed 42%, the Brazilian Foreign Trade Association (AEB) reported. This product is used to fuel energy production in thermal power plants and serves as fuel in industries, ships, heavy vehicles etc.

Qatar is a major gas exporter

Although Russia is not one of Brazil's major suppliers, the economic changes ushered in by the war could influence the purchasing price of gas. The sanctions could push international prices up, which would cause impacts on light bills and industrial costs in Brazil. This increase would be caused by the rush for new energy suppliers and a reduced supply in the short term.

Qatar is a country that could compete to break into Brazil's gas market. “We could increase gas imports from Qatar to substitute diesel,” Carvalho said.

Gas in ship being re-gasified

Experts also believe that Qatar could boost gas exports to Europe. Now 30% of the gas used by the bloc comes from the Arab country and other 32% comes from Russia.“Considering the country's large reserves located in the border with Iran, there's room for a substantial increase in supply. But I don't see this happening in the short term as it'll demand investments and partnerships in extraction and building appropriate logistics networks to direct the production to the European market,” Canesin said.

Both Costa Pinto and Carvalho believe the change in logistics is the key for this shift. There're established ducts and central areas taking gas from Russia to Europe. So the easiest way to transport gas from Qatar would be by ship. But this could make the product more expensive. Considering this scenario, we'll have to await the next moves of the Arab League states.

*Special report by Rebecca Vettore for ANBA

Translated by Guilherme Miranda

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