Brazil Upsets Economists with Decision on In-House Drilling Rigs

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 (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.

Comments

[Roger Knights:]

Yeah, but nationalism in oil extraction has a terrible track record.

Sep 15 08:23 AM

[Leftfield:]

The economists who slam Brazil probably normalize any number of practices that our unsustainable economic model festoons. The US is a people who vote for all manner of suits to handle everything despite track records almost universally wanting. Like, Americans who want their McMansion and SUV's, but they're green because they voted for carbon caps. And favor useless behavior generally: Makework for suits, like the Depts. of Energy and Education that have spent probably 1 $trillion since their inceptions to accomplish nothing towards their goals.
Useless make-work that enslaves others is financially and environmentally unsound, wasteful, damaging, unsustainable. All we have to do in this country is come to our senses and live within our means. The damage we do to the rest of the world that creates blowback, and hatred would diminish enormously.
I think Brazil appears to be on the right track in their enlightened self-interest. To develop their country in a sensible way that avoids the rampant exploitation that afflicts Mexico, Venezuela, the North Sea and probably most developed oilfields.

Sep 15 08:56 AM

[Mak:]

While it does not change the fact that the policy is unwise, the premise of this article is incorrect in that Brazil/Petrobras have always had local content rules in place for rig/ship tenders, and this is not a new policy. In fact -- and also contrary to the article -- some of the smarter Asian shipbuilders have already opened yards locally in Brazil. Chief amongst these is Singapore's Keppel Corp., which operates a major shipyard in Angra dos Reis in the State of Rio de Janeiro, which builds oil service ships and rigs in Brazil and has a massive order backlog at the moment. www.kfelsbrasil.com.br/

Sep 15 09:31 AM

[The Greates...:]

Good for them.

Sep 15 10:06 AM

[isaac the t...:]

BRF etf for me- (Brazil mid-small cap). What other foreign etf has as good a ten year prospect ?

Sep 15 10:34 AM

[William Dav...:]

Sevan Marine have 2 FPSO under construction in China looking for a buyer, its bit late now to switch to Brazil, they due for completion next year. Petrobras is very good customer to Sevan, surely they would take one more, could you put a word in Gregor.

Sep 15 12:00 PM

[Phillip Jain:]

THIS IS NOT Nationalism but simple ECONOMIC SENSE. Lets see .. Brazil gets to export its iron ore & oil to china and usa and use US drilling cos & then buy back its iron as converted into rigs at exhorbitant prices. And if PBR doesn't pay, then the oligopoly will decline to cut their prices!

One reason I did not invest in PBR is the cost of drilling DEEP wells is very high and requires $70-$90 oil prices just to break even.

Given $175b why shouldn't Brazil get some competition going and create some jobs. Similarly, China just flew its own civilian aircraft (maybe with Boeing/Lockheed ripped off technology :). Why should it continue to pay 100s of millions per aircraft to Airbus/Boeing.

Notice the nice way Brazil is doing this - ECONOMICALLY speaking. They will force economic price competition from their shipyards, yet retain the Intellectual property & discovery technology aspects of the oil drillers. Yet the message would be clear, hey if we have the oil AND the rigs (and the steel pipes,etc)... you drillers can't drill into Brazil's pocketbook

Sep 15 03:29 PM

[jarco:]

For long owners of NOV, this is great news. The ship/rig portion would have included substantial varco, etc. equipment regardless of hull sourcing but this confirms they are planning to move forward.

Sep 15 04:11 PM

[kertch:]

This is just a continuation of the current trend of economic nationalism. This is a very powerful move by Brazil, and there is really nothing that the rest of the world can do about it. I would venture to say that Mercantilism is the new economic paradigm and eventually almost all nations will be forced into it by thier trading partners and their workers at home by the current and continuing economic circumstances. "Jobs at home!" will be the cry. Nations will try to produce domestically everything that they can, importing only those products or raw materials they can't produce at home. Anyone who doesn't do this, like the U.S. for example, will find itself with a large current account deficit and a shortage of jobs. Global free trade occurs in cycles, this just happens to be a time when we are moving into down cycle of global trade.

Sep 15 04:22 PM