Brazil Upsets Economists with Decision on In-House Drilling Rigs

Sep.15.09 | About: Petrobras - (PBR)

First Hotelling, and now Ricardo? Brazil’s new resource policy has already sent efficientarians into gruff, neo-classical orbit. They’re predictably irked that Brazil no longer intends to extract its oil as quickly as possible at current market prices! Now the South American giant has additional gravel to drop on the heads of economists: it’s decided to build all its future drilling rigs at home:

Asian yards miss out on Petrobras (NYSE:PBR) drillship contracts – Rio De Janeiro: Asian shipyards are to lose out on a lucrative offshore opportunity in light of the news that that Brazilian oil company Petrobras is to hand out around $9.8bn in chartering costs to offshore operators for expensive drillships – but only if they are built in Brazil. –SeaTrade Asia Online, 11 September 2009

Brazil sourced its previous (and current) rig building contract the old fashioned way: by making a global tender. But given the capacity of Brazilian shipyards, myriad other resources found in Brazil, and especially the ability to make the full range of specialty metals, why not build all the drill rigs and drillships at home? Fabricado em Brasil, in contrast to Ricardian comparative advantage, will make economists very unhappy. As Brazil intends to spend at least 175 billion over the next 5 years developing offshore oil, making western economists unhappy (who neither understand oil) is not such a bad thing.