The Brazilian equation: study suggests ‘transforming’ Equatorial Margin oil into green assets

Nicolas Lippolis, a researcher at Columbia University’s Climate School, proposes using wealth from the new oil frontier to finance biofuels, green hydrogen and synthetic fuels

The approval of oil exploration in the Equatorial Margin ended a long debate over the risk of the country continuing to bet on fossil fuels as an energy source, at a time when the world is discussing ways to finance the energy transition in a global economy that increasingly values sustainable practices.

As most current forecasts indicate that global demand for oil and gas will peak by 2030, Brazil must decide which path to take. Investing in the exploration of the Equatorial Margin, for instance, may not be enough for the country to achieve a leap in per capita income in the medium term.

This is because Brazil’s economic dependence on the oil sector is limited: the sector is estimated to generate around 600,000 direct and indirect jobs, equivalent to less than 1% of the workforce. Furthermore, oil production in the Equatorial Margin is expected to scale up from 2030 onwards, when global demand will already be on a downward trajectory.

On the other hand, the country needs to use oil revenues to finance the energy transition, which is expected to open up a new value chain in the global economy, given that the national potential for biofuels and clean energy offers optimistic prospects.

The greatest risk, therefore, is that Brazil fails to seize the opportunities on offer — both from increased oil income and the decarbonisation of the global economy.

This dilemma is explored by Brazilian political scientist and economist Nicolas Lippolis, who authors a study released on Tuesday, 11 November, by Climate Strategies — an international non-profit organisation that brokers knowledge between researchers regarding climate policies.

A postdoctoral researcher at the Center on Global Energy Policy and the Climate School at Columbia University in New York, Lippolis is the founder and executive director of the Center for Energy, Finance and Development (CEFD).

In the study “Resilient but Not Yet Transformative: Brazil’s Oil and Gas Sector in a Decarbonising World”, the author highlights forecasts of a decline in global oil demand while Brazil opens up new exploration frontiers.

“Strengthening the management of oil revenues, improving policy coordination on sustainable fuels and financing innovation in clean energy technologies could transform Brazil’s oil wealth into a catalyst for a green economic transformation,” Lippolis suggests.

The expert notes that Brazil needs to accelerate its long-term vision for a sustainable economy – including the development of competitive low-carbon technologies to replace fossil fuels in their primary uses – in light of the fact that global oil and gas demand is expected to peak by 2030.

“Even with falling global demand, Brazil’s oil production will likely remain competitive, but the country is doing little to channel oil revenues into sectors that can thrive in a decarbonising world,” warns the study’s author.

Impacts

The paper shows that projections for the sector’s trajectory depend on decisions regarding the expansion of the Brazilian exploratory frontier. Oil production is expected to peak between 5.3 and 5.4 million barrels in 2029–2030 and, if new exploration areas are not opened, it should fall by 200,000 to 300,000 barrels per day each year thereafter. The replacement of these reserves will come mainly from the Equatorial Margin.

In an interview with NeoFeed in Belém, where he is participating in COP30, Lippolis states that it is pertinent to consider that, should such discoveries in the Equatorial Margin prove commercially viable, Petrobras would require significant investment to operationalise oil production in the region. This resource allocation could redirect investment, which is already limited, away from initiatives aimed at the energy transition.

“Therefore, the concern is justified, especially given the observed reduction, both at Petrobras and other oil companies, in energy transition investments in recent years,” says Lippolis.

Consequently, he observes, the effects of exploration in the Equatorial Margin on investments in the sustainability agenda depend, first and foremost, on the stance of Petrobras, which needs to be more proactive regarding the energy transition agenda.

Since last year, Petrobras has redirected its investments, prioritising the production of low-carbon fuels, especially biofuels, over solar and wind energy projects. Currently, the company shows greater interest in developing biofuels compared to other renewable energy sources.

Lippolis suggests dedicated planning — either by Petrobras or the state — to integrate renewable resources (biomass, green hydrogen) and hydrocarbon infrastructure (refineries, pipelines) to catalyse the development of low-carbon fuels, such as sustainable aviation fuel (SAF), advanced biofuels and synthetic fuels.

According to him, considering the biofuels ethanol, biodiesel and HVO (hydrotreated vegetable oil), ethanol represents an established and economically viable sector in Brazil, facilitating investment.

Biodiesel, in turn, is explored by Petrobras through Petrobras Biocombustíveis (Pbio), a company that has historically recorded negative financial results, suggesting less attractiveness for new investments.

Meanwhile, HVO, or green diesel, involves proprietary Petrobras technologies, such as co-processing. This area shows potential for investment, although HVO was not included in the “Fuel of the Future” Law, the main recent initiative to incentivise advanced biofuels and the sector as a whole.

“This situation reveals an apparent lack of coordination between government policies, in an area where Petrobras shows potential and Brazil could assume a position of global leadership,” says Lippolis.

The Brazilian state, according to him, must assume responsibility for these functions.

“Firstly, it is up to the state to define clear guidelines, especially those that provide private players in the sector with precise information on the demand for new technologies, green economy sectors and renewable energy policies; additionally, the state can act as an investment incentive provider through loans and financing,” states the expert.

Another strategy highlighted by him is the use of government procurement policies that stimulate green economy sectors, a practice already adopted in Brazil, alongside the necessary involvement of state-owned enterprises.

“While there is a widespread consensus on the need for private sector participation in the green transformation and sustainable industrialisation, the fundamental role of the state in coordination is recognised,” says Lippolis. “State coordination is essential and irreplaceable for the success of this transition.”