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Cablegate: Brazil: The Energy Ministry's International Agenda

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 BRASILIA 001503

SIPDIS

SENSITIVE

STATE FOR WHA/BSC
NSC FOR RENIGAR, BREIER, SHANNON
TREASURY FOR OASIA - DAS LEE AND FPARODI
DOE FOR SLADISLAW
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON

E.O. 12958: N/A
TAGS: ENRG EINV ECON PGOV BR
SUBJECT: BRAZIL: THE ENERGY MINISTRY'S INTERNATIONAL AGENDA

REFS: (A) Brasilia 1437, (B) Brasilia 0775, (C) Brasilia 1239

1. (SBU) SUMMARY. In a May 27 meeting, the Special Advisor to
the Brazilian Minister of Mines and Energy, Rubem Barbosa, spoke
to Brasilia EconOffs regarding some of the issues on the
ministry's international agenda. Barbosa voiced both concern
and a "wait and see" attitude about the impact that Bolivia's
instability may have on Brazil's natural gas supply. He
considered Argentina an "unreliable" supplier of natural gas,
and opined that the troubled US-Venezuela relationship has led
to improved Brazil-Venezuela relations. He considers GOB
engagement with Chavez, especially in the energy sector, as key.
Barbosa said the GOB is still considering a possible roadshow to
promote upcoming investments opportunities in the energy sector
(such as the Seventh Round of petroleum blocks and the
electricity energy auctions), but these plans have been shelved
for now. In light of Petrobras' continued increases in oil
production, Barbosa expressed hope that Brazil may achieve its
goal of oil self-sufficiency as early as December 2005. End
Summary.

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Natural Gas Supply: Bolivia vs. Argentina
-----------------------------------------

2. (SBU) In a May 27 meeting, Special Advisor to the Minister of
Mines and Energy, Rubem Antonio Correa Barbosa, told Brasilia
EconOffs that the GOB is "worried" about the reliability of its
natural gas supply from Bolivia, but it will have to make the
best of the situation as Brazil is dependent on Bolivia for the
short-term. Despite Brazil's discovery of large natural gas
reserves in the Santos Basin, he estimated that the soonest
Brazil could replace Bolivian gas would be by the end of 2008,
but more likely 2009. Putting the best face on a bad situation,
Barbosa expressed admiration that La Paz has continued to honor
its gas contracts with Brazil despite Bolivia's serious internal
turmoil.

3. (SBU) Barbosa confirmed that Bolivian officials were in
Brasilia the weekend of May 21-22 to discuss natural gas issues.
He said the GOB message was very clear on two points: the GOB is
not planning to leave Bolivia, but it will also not invest any
more money under the current conditions. Noting that Petrobras
had already invested US$1.5 billion in Bolivia, about 15% of
that country's GDP, he opined that Bolivia needed Brazil just as
much as Brazil needed Bolivia. Still, while Brasilia has
pursued regional energy cooperation and sought to support
Bolivia during this difficult time, he said the Bolivians had
reached the point of asking too much. He summarized the MME
policy towards Bolivia's natural gas supply as "wait and see."

4. (SBU) If the gas supply from Bolivia decreased and prices
soared, Barbosa admitted that Brazil would face a serious
problem. However, he did not think that such a situation would
lead to electricity shortages akin to the 2001 energy crisis.
He noted that new hydro projects were being built and the
country's national transmission network allowed authorities to
transfer electricity where it was needed. (This latter point is
one of the key reasons why the drought in Southern Brazil
earlier this year (Ref B) has not led to electricity
brownouts/blackouts.) In general, Barbosa saw Brazil as still
only a "modest" consumer of natural gas, adding that it will
take time and more investments for the sector to grow. Although
he considered it good that initiatives like natural gas use by
cars were moving forward, he admitted that the automobile sector
was only complementary; real growth in consumption would require
industry use of natural gas.

5. (SBU) Finally, Barbosa characterized Argentina as an
"unreliable" supplier of natural gas. Because of increased
consumption in Argentina, he said, Buenos Aires had reneged on
commitments to sell gas to Brazil. And while there have been
discussions of connecting the Bolivia gas pipeline to Argentina
and of constructing a pipeline that runs all the way to the
Brazilian Northeast, he considered these ideas to be only paper
dreams at this point.

Chavez: Bad for US Relations, Good for Brazil
---------------------------------------------

6. (SBU) Barbosa noted that while Venezuela has historically
always looked first to the US, that dynamic has changed with
Chavez in power, observing that this change has been good for
Brazil-Venezuela relations. He said that Venezuela now feels
more isolated and that Chavez is very much behind regional
integration, primarily in the energy sector. Despite Chavez's
"defects," Barbosa (strictly protect) said, increased regional
cooperation, including Petrosur (Ref A), could bear fruit.
Barbosa considers Venezuela a stable energy supplier and that
there could be more exchanges of energy between the two
countries, noting that the extreme north of Brazil already buys
energy from Venezuela.

Hit the Road? Outreach to Energy Industry
-----------------------------------------

7. (SBU) During World Bank and IMF meetings in Washington in
April, the Minister of Mines and Energy, Dilma Rousseff,
discussed with private sector officials the idea of an energy
"roadshow" to tout upcoming investment opportunities in Brazil.
Barbosa noted that the three places floated for the roadshow
were New York City, Washington DC, and somewhere in Texas
(probably Houston). The MME was planning the trip primarily to
promote the Seventh Round Auctions of Petroleum blocks
(scheduled for October 2005), he continued, but would also
consider including the electric energy auctions (likely to take
place towards the end of 2005, see Ref C) if the timing was
right. The MME had originally planned to do the roadshow by the
end of June, but Barbosa considered that unlikely. He said that
the roadshow idea in general has been put on hold because of the
Minister's busy schedule and the earliest it could be held was
September. A Council of the Americas invitation to host such a
presentation still stands, he added.

8. (SBU) In the meantime, Rousseff, Barbosa, and the MME
Secretary of Petroleum participated in an energy sector

SIPDIS
conference in La Jolla, California sponsored by the Institute of
the Americas. The energy ministers from Chile and Colombia were
also there, as well as the Secretary of Energy from Mexico and
many other government representatives from Latin America. On
the Sunday afternoon before the conference, Barbosa said
Minister Rousseff met with private sector representatives from
CERA (an energy sector consulting firm), El Paso (a private
energy company with investments in Brazil and an on-going
dispute with Petrobras), Schlumberger (an international oilfield
services company), Shell, and Exxon to discuss investment
possibilities and doing business issues.

Oil Self-Sufficiency Expected Soon
----------------------------------

9. (SBU) Barbosa reiterated Brazil's long-standing goal of
achieving oil self-sufficiency, and noted that Petrobras'
continued increases in production may make that goal a reality
sooner than later. On May 12, Petrobras pumped 1,819,604
barrels, surpassing its previous one-day production record.
Although the official goal is to reach self-sufficiency during
2006, Barbosa said he would not be surprised if Brazil met its
goal as early as December 2005. Barbosa observed that it had
taken years of hard work for Brazil to reach that one-day (i.e.,
May 12) of "self-sufficiency" (in the sense that its oil
production 100% met its consumption). Indeed, Petrobras'
monthly production has been picking up lately. In May,
Petrobras' average monthly production was 1,729,000 barrels per
day, a record-breaking amount and a 21.1% increase from May
2004. Although Brazil does not possess the known oil resources
of neighboring countries such as Argentina, Colombia, and
Venezuela, Barbosa opined that successful investment -- not just
in exploration and production, but in conservation (i.e.,
ethanol) as well -- had helped Brazil reduce its dependence on
imports.

DANILOVICH

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