For Petrobras, maintaining the payment of fat dividends in the long term will not be an easy task.
While dealing with the decline in oil production in its oldest fields and the difficulties in prospecting and extracting oil from new areas, the company follows debates about future demand for fossil fuels with a magnifying glass.
Today, Petrobras is committed to revitalizing mature areas in the Campos Basin and also tries to prove to Ibama that it is possible to extract oil at the mouth of the Amazon River in a safe and environmentally responsible way. Every drop counts, but the cost of searching for oil is not negligible – in the last investment cycle, the Campos Basin drained US$22 billion.
Decisions on where, when and how much to invest in new fields will be made amid a complex scenario. On the one hand, the transition to renewable sources works against future demand. Ditto for the less optimistic prospects for global growth and rampant production in non-OPEC countries, such as the USA, which fill stocks.
On the other hand, the risk of a military escalation in the Middle East encourages investments in production in less explosive areas.
Because of all this, it is increasingly challenging to guess what will be the most important variable for investments in production: the price of a barrel in the coming years.
Fortunately, this is one of the World Bank’s jobs. He predicts that in 2025 global oil production will exceed demand by 1.2 million barrels per day, a very rare mismatch: in the last 30 years, it only happened in 2020, at the peak of the pandemic, and in 1998, as a consequence of the Asian financial crisis.
The World Bank’s arguments are the first three of the five listed below – which make up the troubled background that Petrobras and its investors are keeping an eye on:
1) It is oil that never ends
The Organization of Petroleum Exporting Countries (OPEC) can do a lot, but it cannot do everything.
Although the cartel has been holding back production as best it can, nations that are not part of the group continue to extract more and more oil, with emphasis on Guyana – which shares the Equatorial Margin with Brazil – and the United States. The largest economy in the world, in fact, is also the one that produces the most oil, breaking record after record in recent years.
2) Car plugged in
China’s automobile market plays an important role in global oil demand. Being the largest in the world, the rapid electrification process of the Chinese fleet exerts negative pressure on commodity prices. In 2021, electric and hybrid vehicles represented 7% of cars sold in the country. In July 2024, for the first time, more than half of new cars were of these types.
In the United States, the second largest car market, electric and hybrid cars accounted for 18% of sales in the same month. In Brazil, where the phenomenon is recent, they still represent 7%. But growth is fast. Last year, it was only 4%.
3) Lower growth
Economy growing less means a decrease in the need for oil. And this tends to be the scenario in the coming years.
The International Monetary Fund (IMF) expects average global growth of 3.1% per year from now until 2029, the lowest in decades. China is also a protagonist in this process and the loss of momentum in the Chinese economy should also affect the growth of Latin American countries. Europe is another region whose countries fall between slow growth and economic stagnation.
These are the basis of the World Bank’s projection. But you know how it is: training is training, a game is a game… And the game of the world economy is currently moving around the Middle East. Which brings us to the next factor that could shake up barrel prices.
4) War news
The risk of the Middle East conflict escalating into a more comprehensive war that could include major global oil producers, such as Iran, also forms part of the global commodity picture. Tensions between Israel and Iran have recently risen, and experts have highlighted the possibility of Israeli attacks on Iranian oil wells.
It is worth remembering that Russia occupies number two in the ranking of producing countries and has been at war with Ukraine for two and a half years.
So far, neither the conflict in the Middle East nor the war in Eastern Europe has caused oil prices to soar for long periods, but possible interruptions in oil supplies are also part of the analysis.
5) AI and natural gas
Although it is still a somewhat abstract subject for many people, artificial intelligence has already become an energetic challenge. And big ones. To process the mountains of data that are the basis of the large language models (LLMs) of generative AI, data centers expend an absurd amount of energy.
Absurd indeed. In 2022, data centers consumed 3% of the planet’s energy. But that was before of the AI explosion. And a data center dedicated to LLMs consumes five to ten times more energy than a “normal” one. Do the math, considering that the trend is to build more and more data centers, as AI becomes embedded in our cell phones, and in our lives.
This turned into a public relations problem for big techs, in fact. Because in recent years they have made bold commitments to reduce carbon dioxide emissions related to their activities.
The explosion in demand for energy led by Google, Amazon, Microsoft and company even gave a new life to debates on nuclear energy – since, despite the dangers, uranium-powered plants provide uninterrupted energy without emitting greenhouse gases. But the fact is that the bulk of energy around the world continues to depend on fossil fuels. And Google, for example, increased its emissions by 48%.
Oil is irrelevant for the production of electrical energy. The fossil fuel that reigns there is another: natural gas – in the USA, it accounts for 43% of the matrix.
Petrobras extracts a lot of natural gas – it is a byproduct of oil wells. But the company returns half underground, as it is expensive to channel gas from offshore platforms to land. In a scenario of extreme appreciation of natural gas, it might make sense for Petrobras to invest in this type of structure – and there we have another piece to the puzzle.
