BG's Guara oil field in the Santos Basin is estimated to contain up to two billion barrels of recoverable reserves
The potential of Brazil to become one of the biggest oil producers in the world was highlighted today when BG – the former exploration arm of British Gas – reported a "supergiant" field with up to two billion barrels of recoverable reserves.
The Guara discovery builds on a series of other major successes in very deep waters off Brazil and dwarfs rival strikes such as Tiber in the US Gulf which was announced with great fanfare by BP last week.
The Brazilian oil rush not only undermines claims that the world may run out of oil soon but threatens to upset the political balance in Latin America where Hugo Chávez's Venezuela has held sway as the continent's dominant energy provider.
The BG find comes as the Brazilian government proposes laws that will tighten its grip on its newfound oil wealth through a state-owned management company.
Frank Chapman, the BG chief executive, could not hide his excitement about the latest results emanating from appraisal drilling of the Guara area. He said: "The well-test results on Guara were excellent and underscore again the potential in BG Group's extensive position in the world-class Santos Basin."
Chapman has never before given a figure for the size of Guara's reserves which are on par with fields like Forties, the biggest find in the North Sea. Neither has he commented on Tupi, in which BG also has a stake, where operator Petrobras has talked about recoverable reserves of between five and eight billion barrels.
Shares in BG rose 3.5% to £10.90. and David Thomas, oil analyst at Goldman Sachs said of Guara: "In our view, this resource size is likely to be above current market expectations and should be taken as a positive."
Brazil, which ironically was one of the first countries in the world to make a major switch to biofuels for local cars using its abundant sugar crops, has unveiled a new law to govern the extraction of huge offshore oil reserves
President Luiz Inácio Lula da Silva revealed this month details of how Brazil proposes to tap as much as 150bn barrels of oil off its Atlantic coast in the so-called pre-salt belt.
Four bills will be submitted to congress under a fast-track system, giving the body 90 days to approve or reject plans to create, among other things: a state company, Petro-Sal, to manage the reserves; a fund to direct oil revenues to social programmes and infrastructure; a huge issue of new capital in the state oil company Petrobras.
The announcement resolved some but not all significant questions about how Brazil will develop the biggest new oil zone discovered this century, an offshore treasure trove which proved, as Lula put it, that "God is Brazilian".
That confidence contrasted with downbeat news from Venezuela, the continent's traditional energy power, where bidding rights for the Orinoco belt, one of the world's biggest oil auctions, were postponed for a third time because of wrangling between investors and president Chávez's government.
If Brazil's hopes are realised by 2020 the part-public, part-private Petrobras will, with foreign partners, produce 5.7m barrels of oil and gas a day – more than double the output of Venezuela.
Brazil's optimism is on display in the coastal city of Angra dos Reis where thousands of shipyard workers build massive, 49,000-tonne oil platforms.
"There is nobody else in the world building so many platforms," beamed Roberto Moro, a Petrobras construction manager in a garish orange jumpsuit. "There is lots of work, there are lots of projects and this will continue for a long time."
Technological and political questions still hang over Brazil's bonanza. Estimates of the so-called pre-salt reserves, discovered in 2007 under sea water, rock and a compacted layers of salt, range from 60bn to more than 150bn barrels.
There is no agreement yet on how to divide revenues between the country's states and municipalities. Nor is it known exactly how big will be the government's capitalisation of Petrobras.
The government's leader in the Senate, Romero Jucá, estimated it at $50bn (£30bn) but the company's chief executive, José Sergio Gabrielli said: "We are not validating any number."
Even so, Lula, who steps down as president next year, has talked up the project as historic. "The pre-salt is our passport to the future," he said at the announcement of the new oil rules. The oil reserves were "a gift from God", he added.
Political and diplomatic consequences are already resounding. Brazil's clout has surged. It has put flesh on its "good neighbour" policy by granting Paraguay significant concessions in the jointly run Itaipu hydro-electric power plant.
In May it lent Venezuela $4.3bn to cover a financial crunch, a sign of how Venezuela's troubled oil industry has curbed the financial power – and political leverage – of Chávez's government.
Last year the outspoken socialist leader, emboldened by high oil prices, trumpeted the Orinoco as one of the world's greatest reserves and announced Venezuela's first tender for more than a decade.
But since then oil prices have halved from their peak and investors have grown wary of the president's nationalisations and unpredictable style.
The energy minister, Rafael Ramirez, confirmed last month that the tender for seven blocks of the so-called Carabobo project had been postponed indefinitely. The project, which would cost $30bn – $50bn, had attracted interest from majors such as BP, Chevron, Eni and Shell as well as state oil companies from Brazil, China, India and Russia.
But doubts about Chávez have made investors hesitate, said Pietro Pitts, a Caracas-based oil analyst who publishes LatinPetroleum.com.
"The problem in Venezuela is there is no legal security." In addition to doubts about the terms and legal guarantees offered by Venezuela, investors are unnerved by the crisis in the state oil company, PDVSA. Laden by a bloated workforce and politicised mandate, it has struggled to pay $7.5bn owed to its suppliers, prompting shutdowns, lockouts and emergency state takeovers of support industries.
According to the International Energy Agency the company produces 2.36m barrels a day, down from 3.18m a decade ago. Venezuela's government claims production is 3.27m.Last year, flush with record oil revenues, Chávez extended his socialist revolution's influence with regional aid and trade deals worth by some estimates up to $79bn. He bought Argentine bonds, sent cheap oil to Caribbean allies and funded, or promised to fund, ambitious infrastructure projects.
That splurge has come to an abrupt halt. There have been few recent big-spending announcements. "PDVSA's poor performance inevitably limits Chávez's capacity to pursue his political project at home as well as his regional agenda," said Michael Shifter, vice-president of the Inter-American Dialogue thinktank.
The once mighty Venezuela's state energy firm, PdVSA now finds itself usurped by a Brazilian upstart.
"There is competition between the two companies and Petrobras is clearly winning," said Pitts. "It's scoring the biggest projects while the industry here in Venezuela is falling apart."
BG, a partner of Petrobras on Guara and Tupi, will not be too upset about that.
Copyright Speakers Corner 2016