- The Washington Times - Sunday, March 20, 2011

RIO DE JANEIRO | In 2007, former President George W. Bush punctuated a trip to Brazil with a visit to a biofuels plant, highlighting the country’s new energy independence and expanding ethanol market as a model for the U.S. to kick its addiction to oil.

Four years later, though, Brazil has made major oil discoveries and drilling advocates say the Latin American nation should be a model for more drilling in the U.S. at a time when oil costs have surged beyond $100 a barrel.

Government officials here have said the Libra oil field, about 140 miles off the coast of Rio de Janeiro, could hold reserves of as much as 15 billion barrels of oil — an estimate that, if true, would more than double Brazil’s oil reserves of 14 billion barrels and make it the most significant oil discovery in Latin America in more than 30 years.

Together, Libra and other recent oil finds could eclipse 123 billion barrels, according to some researchers, and catapult Brazil from the world’s 15th-largest oil producer to a member of the coveted top 10.

Brazil’s ascent as a major oil power clearly underscores the importance of deepening U.S. ties with Latin America’s biggest economy — something President Obama tried to accomplish with his two-day visit — but advocates say it also shows what might be possible if the U.S. had a more aggressive drilling policy.



“I would argue there is a lesson here for the United States,” said Dan Kish, senior vice president of policy at the Institute for Energy Research, an industry-backed think tank. “The president loves to talk about us only having 2 percent of the world’s supply [of oil] but, well, if you’re never going to look, you’re never going to find it.”

Brazil has been an energy self-sufficient country for several years now, exporting more than it imports. That means most of the oil discoveries, which have been made deep beneath a layer of salt in the Campos and Santos Basins, likely will be sold overseas.

That Brazil is now awash in oil is somewhat ironic given the fact that the military dictatorship in charge in 1975 instituted an ambitious ethanol program out of fear that the country was too dependent on foreign oil, doling out subsidies to sugar-cane farmers and requiring gas stations to install ethanol pumps. Decades later, 40 percent of the nation’s fuel supply comes from ethanol.

As a result, ethanol has the status of a veritable miracle drug. Foreign leaders, especially from the U.S. — which ranks just ahead of Brazil as the world’s top ethanol producer — hold it up as an energy solution they would like to emulate back home.

During his 2007 visit, Mr. Bush struck an agreement with Brazilian President Luiz Inacio Lula da Silva to expand ethanol production and use in Latin America and the Caribbean. Mr. Bush noted that “good ethanol policy and good alternative fuel policy actually leads to more jobs.”

Of course, there are key differences between Brazil, which has laid the groundwork for an ethanol distribution network and uses its abundant sugar-cane crop to produce ethanol, and the U.S., which relies on corn. Corn isn’t as efficiently processed into alcohol, requiring extra steps during production, and some critics warn that ethanol demand could cause a spike in food prices.

U.S. ethanol industry advocates dismiss the fears of food manipulation, pointing that the fuel uses only 3 percent of the world’s grain supply, and there’s a good deal of support among corn-belt lawmakers seeking to boost ethanol, which now accounts for 10 percent of the nation’s fuel supply, according to the Renewable Fuels Association.

“At a time when you’re looking at $104 for a barrel of oil, you ought to maximize the amount of ethanol being used to lower cost if at all possible,” said RFA President Bob Dinneen.

But ethanol advocates have clashed with skeptics, particularly conservatives, who oppose the Environmental Protection Agency’s efforts to raise federal standards of ethanol blends in gasoline from 10 percent to 15 percent.

Mr. Obama has made renewable energy a cornerstone of his energy policy, including a requirement that all new vehicles have flexible-fuel capability by the end of his first term. He also promised during the 2008 campaign that all cars purchased by the federal government would have flex-fuel capability, a pledge that the St. Petersburg Times’ Politifact website rates as “in the works.”

In Brazil, nine out of 10 new cars sold are flex-fuel vehicles capable of operating on 100 percent ethanol fuel as well as gasoline blends containing lower amounts, usually 20 percent or 25 percent ethanol.

Brazil itself would like to crack the U.S. ethanol market — a point President Dilma Rousseff made to Mr. Obama in their meetings.

“We seek more fairness and balanced trade relations. For us, it’s fundamental that we should break away from the barriers that have arisen against our products, like ethanol, beef, cotton, orange juice, airplanes, and so on and so forth,” she told reporters.

To protect domestic ethanol producers, the U.S. imposes a 54-cents-per-gallon tariff on imports of ethanol and provides a 45-cents-per-gallon tax credit for domestic ethanol blenders.

The sugar-cane ethanol industry in Brazil has called on the U.S. to remove the tariff and the subsidy, which cost the federal government about $6 billion a year.

“The fiscal situation in the U.S. recommends that the government stops spending public money it does not have to support and industry that does not need support,” said Paulo Sotero, director of the Wilson International Center’s Brazil Institute. “This new situation creates a natural expectation both here and in Brazil that the U.S. support to the corn ethanol has reached a limit and will have to be revised, if not eliminated.”

But in a sign that doing so wasn’t even on the table, Mr. Obama made no mention of the subsidy during his remarks Saturday after a bilateral meeting with Ms. Rousseff. Instead, he touted Brazil’s recent oil discoveries.

“With the new oil finds off Brazil, President Rousseff has said that Brazil wants to be a major supplier of new stable sources of energy, and I’ve told her that the United States wants to be a major customer, which would be a win-win for both our countries,” he said.

But that could mean the U.S. becomes more, not less, dependent on foreign oil. Back home, many members of Congress want to see domestic production boosted.

In the wake of last April’s catastrophic BP oil spill off the coast of Louisiana, his administration imposed a moratorium on deep-water drilling. The ban resulted in the loss of 12,000 jobs in the region, according to government estimates.

Although the moratorium was technically lifted in October, the Interior Department has approved just three new deep-water drilling permits. Mr. Obama has defended that pace, saying his government supports exploration but wants to ensure it’s done responsibly in the wake of the Gulf of Mexico spill, which ranks as the worst environmental disaster in the nation’s history.

Still, the slow process — described by critics as a “permatorium” — has led at least one rig, the Noble Clyde Boudreaux, to pack its bags and move to Brazil.

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