Brazil and China

Why Brazil-China energy relations may improve under Lula

Bnamericas Published: Monday, February 06, 2023
Why Brazil-China energy relations may improve under Lula

Energy sector relations between Brazil and China are likely to improve under Brazilian President Luiz Inácio Lula da Silva, local experts tell BNamericas. 

China is Brazil’s largest trading partner and diplomatic relations deteriorated during the administration of former president Jair Bolsonaro, who lost his reelection bid and ended his term in December. 

Being staunch supporters of ex-US president Donald Trump, Bolsonaro and his son senator Eduardo Bolsonaro, as well as former education minister Abraham Weintraub, publicly attacked China on several occasions for ideological reasons.

“The Chinese have not stopped investing in Brazil, even during the Bolsonaro government. What I see now is a possibility of improvement in this relationship, with Lula,” Décio Oddone, energy head of Brazil’s international relations center Cebri and a former general director at oil and gas regulator ANP, told BNamericas.

While seeking access to oil and gas reserves and profitability, China is expected to move forward with an integrated strategy in the electric power sector. 

“They started with transmission lines and are now investing in renewable sources. And, further down the road, they may migrate to green hydrogen,” said Oddone, who heads Brazilian oil and gas firm Enauta

Ticiana Alvares, a doctor in international political economy at Rio de Janeiro’s federal university (UFRJ), foresees a more proactive foreign policy of south-south cooperation under Lula, both in terms of regional integration and the strengthening of trading groups such as BRICS (Brazil, Russia, India, China and South Africa). 

“Thus, China will have an important place in this resumption [of south-south relations] since it’s the main trading partner of Brazil and other Latin American countries,” she told BNamericas.  

Alvares highlighted that there is large energy business potential within the BRICS, with Brazil and Russia being suppliers and China and India consumers. 

“Brazil is also a reference in renewable energy and China has important goals for diversifying its energy matrix, which increases this potential,” she added.

Chinese energy investments

Despite the ideological friction, Bolsonaro met in Beijing with Chinese President Xi Jinping (pictured) in October 2019 to sign a cooperation agreement for the development of renewable energy, bioenergy and energy efficiency projects. 

At the same meeting, Bolsonaro invited China to participate in a major oil and gas auction that was held by ANP the following month. 

China’s CNOOC and CNODC ended up partnering with Brazil’s national oil company Petrobras to acquire the Búzios field's surplus volumes for a signing bonus of approximately 70bn reais (US$13.5bn). 

Búzios is the country’s second largest oil and gas field, only trailing Tupi. Unlike the latter, Búzios has an ascending production curve as several new FPSOs are scheduled to come online there by 2026 and beyond. 

CNOOC and CNODC also hold stakes in the Mero field, in the giant Libra block, which is operated by Petrobras. 

Mero produces about 245,000boe/d through the Guanabara FPSO, which began operations in 2022.     

By 2025, another three floating platforms are planned to start producing in the pre-salt field: Sepetiba, Marechal Duque de Caxias and Alexandre de Gusmão, each capable of producing 180,000b/d of oil and 12Mm3/d (million cubic meters per day) of natural gas.

Other fronts of potential output growth for the Chinese groups are several exploration blocks in their portfolios, in the Espírito Santo (ES-M-592) and Santos (Peroba, Alto de Cabo Frio Oeste, Pau Brasil and Aram) basins.

State Grid Brazil Holding (SGBH), a company belonging to the State Grid Corporation of China group, has been in Brazil since 2010, operating in the transmission sector.

Today, it has more than 16,000km of transmission lines through 19 concessionaires and five other concessions via consortiums with a 51% interest in each. 

State Grid is the majority shareholder of CPFL Energia, which plans to invest around 5bn reais this year, of which 3.9bn reais will be for power distribution, 640mn reais for transmission and 520mn reais for generation.

Meanwhile, the Brazilian subsidiary of China’s State Power Investment Corporation (SPIC) aims to become one of the top three private power generation players in the country by 2025.

By that year, the company will have more than 5GW of installed capacity, including gas-fired thermal plants and wind farms.

Another key Chinese player in Brazil is ByD, whose planned investment for the next three years amounts to 10bn reais, with a focus on solar power and electric mobility. 

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