US embassy cable - 05BRASILIA1503

UNCLAS SECTION 01 OF 03 BRASILIA 001503 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/BSC 
NSC FOR RENIGAR, BREIER, SHANNON 
TREASURY FOR OASIA - DAS LEE AND FPARODI 
DOE FOR SLADISLAW 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON 
 
E.O. 12958: N/A 
TAGS: ENRG, EINV, ECON, PGOV, BR, Energy 
SUBJECT: BRAZIL: THE ENERGY MINISTRY'S INTERNATIONAL AGENDA 
 
REFS: (A) Brasilia 1437, (B) Brasilia 0775, (C) Brasilia 1239 
 
1. (SBU) SUMMARY. In a May 27 meeting, the Special Advisor to 
the Brazilian Minister of Mines and Energy, Rubem Barbosa, spoke 
to Brasilia EconOffs regarding some of the issues on the 
ministry's international agenda.  Barbosa voiced both concern 
and a "wait and see" attitude about the impact that Bolivia's 
instability may have on Brazil's natural gas supply.  He 
considered Argentina an "unreliable" supplier of natural gas, 
and opined that the troubled US-Venezuela relationship has led 
to improved Brazil-Venezuela relations.  He considers GOB 
engagement with Chavez, especially in the energy sector, as key. 
Barbosa said the GOB is still considering a possible roadshow to 
promote upcoming investments opportunities in the energy sector 
(such as the Seventh Round of petroleum blocks and the 
electricity energy auctions), but these plans have been shelved 
for now.  In light of Petrobras' continued increases in oil 
production, Barbosa expressed hope that Brazil may achieve its 
goal of oil self-sufficiency as early as December 2005.  End 
Summary. 
 
Natural Gas Supply: Bolivia vs. Argentina 
----------------------------------------- 
 
2. (SBU) In a May 27 meeting, Special Advisor to the Minister of 
Mines and Energy, Rubem Antonio Correa Barbosa, told Brasilia 
EconOffs that the GOB is "worried" about the reliability of its 
natural gas supply from Bolivia, but it will have to make the 
best of the situation as Brazil is dependent on Bolivia for the 
short-term.  Despite Brazil's discovery of large natural gas 
reserves in the Santos Basin, he estimated that the soonest 
Brazil could replace Bolivian gas would be by the end of 2008, 
but more likely 2009.  Putting the best face on a bad situation, 
Barbosa expressed admiration that La Paz has continued to honor 
its gas contracts with Brazil despite Bolivia's serious internal 
turmoil. 
 
3. (SBU) Barbosa confirmed that Bolivian officials were in 
Brasilia the weekend of May 21-22 to discuss natural gas issues. 
He said the GOB message was very clear on two points: the GOB is 
not planning to leave Bolivia, but it will also not invest any 
more money under the current conditions.  Noting that Petrobras 
had already invested US$1.5 billion in Bolivia, about 15% of 
that country's GDP, he opined that Bolivia needed Brazil just as 
much as Brazil needed Bolivia.  Still, while Brasilia has 
pursued regional energy cooperation and sought to support 
Bolivia during this difficult time, he said the Bolivians had 
reached the point of asking too much.  He summarized the MME 
policy towards Bolivia's natural gas supply as "wait and see." 
 
4. (SBU) If the gas supply from Bolivia decreased and prices 
soared, Barbosa admitted that Brazil would face a serious 
problem.  However, he did not think that such a situation would 
lead to electricity shortages akin to the 2001 energy crisis. 
He noted that new hydro projects were being built and the 
country's national transmission network allowed authorities to 
transfer electricity where it was needed.  (This latter point is 
one of the key reasons why the drought in Southern Brazil 
earlier this year (Ref B) has not led to electricity 
brownouts/blackouts.)  In general, Barbosa saw Brazil as still 
only a "modest" consumer of natural gas, adding that it will 
take time and more investments for the sector to grow.  Although 
he considered it good that initiatives like natural gas use by 
cars were moving forward, he admitted that the automobile sector 
was only complementary; real growth in consumption would require 
industry use of natural gas. 
 
5. (SBU) Finally, Barbosa characterized Argentina as an 
"unreliable" supplier of natural gas.  Because of increased 
consumption in Argentina, he said, Buenos Aires had reneged on 
commitments to sell gas to Brazil.  And while there have been 
discussions of connecting the Bolivia gas pipeline to Argentina 
and of constructing a pipeline that runs all the way to the 
Brazilian Northeast, he considered these ideas to be only paper 
dreams at this point. 
 
Chavez: Bad for US Relations, Good for Brazil 
--------------------------------------------- 
 
6. (SBU) Barbosa noted that while Venezuela has historically 
always looked first to the US, that dynamic has changed with 
Chavez in power, observing that this change has been good for 
Brazil-Venezuela relations.  He said that Venezuela now feels 
more isolated and that Chavez is very much behind regional 
integration, primarily in the energy sector.  Despite Chavez's 
"defects," Barbosa (strictly protect) said, increased regional 
cooperation, including Petrosur (Ref A), could bear fruit. 
Barbosa considers Venezuela a stable energy supplier and that 
there could be more exchanges of energy between the two 
countries, noting that the extreme north of Brazil already buys 
energy from Venezuela. 
 
Hit the Road? Outreach to Energy Industry 
----------------------------------------- 
 
7. (SBU) During World Bank and IMF meetings in Washington in 
April, the Minister of Mines and Energy, Dilma Rousseff, 
discussed with private sector officials the idea of an energy 
"roadshow" to tout upcoming investment opportunities in Brazil. 
Barbosa noted that the three places floated for the roadshow 
were New York City, Washington DC, and somewhere in Texas 
(probably Houston).  The MME was planning the trip primarily to 
promote the Seventh Round Auctions of Petroleum blocks 
(scheduled for October 2005), he continued, but would also 
consider including the electric energy auctions (likely to take 
place towards the end of 2005, see Ref C) if the timing was 
right.  The MME had originally planned to do the roadshow by the 
end of June, but Barbosa considered that unlikely.  He said that 
the roadshow idea in general has been put on hold because of the 
Minister's busy schedule and the earliest it could be held was 
September.  A Council of the Americas invitation to host such a 
presentation still stands, he added. 
 
8. (SBU) In the meantime, Rousseff, Barbosa, and the MME 
Secretary of Petroleum participated in an energy sector 
 
SIPDIS 
conference in La Jolla, California sponsored by the Institute of 
the Americas.  The energy ministers from Chile and Colombia were 
also there, as well as the Secretary of Energy from Mexico and 
many other government representatives from Latin America.  On 
the Sunday afternoon before the conference, Barbosa said 
Minister Rousseff met with private sector representatives from 
CERA (an energy sector consulting firm), El Paso (a private 
energy company with investments in Brazil and an on-going 
dispute with Petrobras), Schlumberger (an international oilfield 
services company), Shell, and Exxon to discuss investment 
possibilities and doing business issues. 
 
Oil Self-Sufficiency Expected Soon 
---------------------------------- 
 
9. (SBU) Barbosa reiterated Brazil's long-standing goal of 
achieving oil self-sufficiency, and noted that Petrobras' 
continued increases in production may make that goal a reality 
sooner than later.  On May 12, Petrobras pumped 1,819,604 
barrels, surpassing its previous one-day production record. 
Although the official goal is to reach self-sufficiency during 
2006, Barbosa said he would not be surprised if Brazil met its 
goal as early as December 2005.  Barbosa observed that it had 
taken years of hard work for Brazil to reach that one-day (i.e., 
May 12) of "self-sufficiency" (in the sense that its oil 
production 100% met its consumption).  Indeed, Petrobras' 
monthly production has been picking up lately.  In May, 
Petrobras' average monthly production was 1,729,000 barrels per 
day, a record-breaking amount and a 21.1% increase from May 
2004.  Although Brazil does not possess the known oil resources 
of neighboring countries such as Argentina, Colombia, and 
Venezuela, Barbosa opined that successful investment -- not just 
in exploration and production, but in conservation (i.e., 
ethanol) as well -- had helped Brazil reduce its dependence on 
imports. 
 
DANILOVICH