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Cablegate: Brazilian National Oil Agency Welcomes Us Partnerships,

VZCZCXRO7681
RR RUEHRG
DE RUEHRI #0035/01 0571917
ZNR UUUUU ZZH
R 261917Z FEB 08
FM AMCONSUL RIO DE JANEIRO
TO RUEHC/SECSTATE WASHDC 4358
INFO RUEHBR/AMEMBASSY BRASILIA 0716
RUEHSO/AMCONSUL SAO PAULO 5131
RUEHRG/AMCONSUL RECIFE 3409

UNCLAS SECTION 01 OF 02 RIO DE JANEIRO 000035

SIPDIS

SIPDIS

NSC WASHDC
USDOC WASHDC

STATE FOR WHA/BSC, WHA/EPSC AND GREG MANUEL
EB/ESC JAMES EIGHMIE
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DRAMBO

E.O. 12958: N/A
TAGS: ENRG EET PREL BR
SUBJECT: BRAZILIAN NATIONAL OIL AGENCY WELCOMES US PARTNERSHIPS,
DISCUSSES NEXT STEPS IN SUSPENDED OIL ROUND

1. Summary: Ambassador Sobel met with Haroldo Lima, Director General
Florival Rodrigues de Carvalho, General Manager of Planning and
Research, and Durval Barrros, General Manager of Institutional
Communication of the National Oil Agency (ANP) on February 15, 2008.
They discussed potential synergies in the areas of biofuels,
research and development, and the regulation of oil exploration and
production. Both parties agreed to use the upcoming American VIP
visits as platforms to formalize partnerships in common areas of
interest. ANP's Lima also outlined steps being taken to resume the
next round of oil licensing.

BUILDING PARTNERSHIP THROUGH TECHNICAL EXCHANGES - ESPECIALLY ON
BIOFUELS
--------------------------------------------- --------

2. Ambassador Sobel highlighted the November 2007 USTDA-sponsored
technical orientation visit by Brazilian ANP gas specialists to the
United States to learn about Liquefied Natural Gas (LNG) regulations
and licenses. Given the similar challenges in pre-salt explorations
between the Tupi Field and the Gulf of Mexico, Ambassador Sobel
expressed his desire to see more technical exchanges.

3. Lima agreed that U.S. and Brazilian regulatory agencies have much
in common, and there is room for further understanding and growth on
the GOB's part. He also acknowledged problems with the regulatory
aspects of oil, gas and biofuels. The Ambassador highlighted an
opportunity to go beyond talks and to develop substantive
deliverables under the U.S.-Brazil Biofuels MOU. He noted the new
harmonized standard for biofuels as an important first step for
creating new markets for biofuels exports globally.

4. Ambassador Sobel raised his recent meeting with GE president for
Latin America, who said the co-generation aspect of biomass is more
interesting than the fuel itself. Noting that the United States
spends billions in loan guarantees to fund R&D projects to
commercialize the next generation of biofuels, he asked if there
were any Brazilian R&D projects that the U.S. could support. He
mentioned this could be the subject of an agreement signed by the
Foreign Minister and the Secretary.

5. Carvalho highlighted new studies on using sugarcane by-products
and enzymes and the possible conversion of paper pulp into alcohol.
Other studies are exploring the use of different raw materials from
oil plants. The U.S. is studying how to use micro-algae to develop
biofuels. Barrros added ANP specialized in regulating biofuels
based on sugar cane, but that new studies were underway on how to
use sugarcane by-products such as straw and gas to also generate
ethanol and reduce waste. He said that enzyme and cellulosic
conversion processes were of high interest to ANP, and that these
could be good areas of cooperation between Brazil and the United
States.

OIL LICENSING ROUNDS
--------------------

7. With regard to oil regulation, Lima called the existing model
evolving. There are new fields being discovered, including in the
pre-salt area with high potential and low exploratory risk. He said
the pre-salt formation is more than 800km long and up to 200km wide
in ultra-deep waters. This area has similarities to the Gulf of
Mexico and the North Sea.

8. The Ambassador asked when the ninth round of oil licensing might
be completed. Lima explained that the ninth round of oil
negotiations was abruptly halted one month before its conclusion
when Petrobras discovered the Tupi oil field. In a ministerial
meeting chaired by President Lula, the GOB decided to remove 41
blocks from the bidding process in order to examine next steps in
regulating exploration and production given the size of the
discovered field. ANP requested help from the U.S. in creating a
regulatory paradigm to develop concession contract models.

9. Lima underlined the need for expediency in formulating
regulations, given that the need to resume bidding for the
unfinished eighth round that was partially suspended and the new,
10th round, which could include the 41 blocks which were removed.
He also emphasized that ANP was interested in learning about royalty
payment collections in the United States, especially given the
increase to 12-16 percent in collections from companies exploring
for oil in the Gulf of Mexico. Additional revenues would strengthen
ANP as an agency and would be a key role in their administration of
the future blocks up for auction in upcoming licensing rounds. In

RIO DE JAN 00000035 002 OF 002


other words, ANP is looking to create a new E&P paradigm. In this
regard, US technical assistance would be much appreciated.

10. Ambassador Sobel offered to help facilitate technical exchanges
through either USTDA or directly through ANP's counterparts in the
United States (e.g. through the US Minerals and Management Service
- MMS) to get experts to advise on oil and gas royalty concession
concepts to maintain transparency in the oil field licensing
process. The Ambassador reiterated the importance of a partnership,
where both countries would learn from each other.

11. Lima agreed that the United States and Brazil have common
interests in the regulation of high-potential oil and gas basins
that have low exploratory risk. Although he acknowledged that the
GOB urgently needs to develop a contract model in the second half of
2008, Lima urged a multi-faceted expertise exchange, one that
includes biofuels regulations as well.

12. Lima noted that ANP also needs to finesse its plans for a better
regulatory approach. He mentioned an upcoming tender for bids to
select a consulting company to propose a regulatory framework for
high potential areas with low exploratory risk (e.g. pre-salt) as an
excellent opportunity for collaboration.

13. This message was cleared/coordinated with Embassy Brasilia.


MARTINEZ

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