What lies beneath

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JUST how much oil is there off the coast of Brazil? Until recently, Brazil's oil reserves were thought to be relatively modest: about 12 billion barrels at the beginning of 2007, according to BP, or about 1% of the world's total. But last year, Petrobras, Brazil's partly state-owned oil firm, announced the world's biggest oil discovery since 2000: the Tupi field, which it hopes will produce between 5 billion and 8 billion barrels. Now the head of Brazil's National Petroleum Agency (ANP) says another nearby discovery might hold as much as 33 billion barrels, which would make it the third-largest field ever found. That alone would be enough to raise Brazil to eighth position in the global oil rankings—and there is talk of further big discoveries. But the peculiar way in which the information came to light is casting doubt on its significance.

The ANP, which regulates the oil industry in Brazil, was quick to distance itself from the remarks of its boss, Haroldo Lima. His comments were of a personal nature, it said, and were based on past reports in the media. It helpfully cited an article from a magazine, World Oil, that had mentioned the magic figure of 33 billion barrels in February. Petrobras and its partners in the field, BG of Britain and Repsol-YPF of Spain, said that they had not yet done enough tests to determine exactly how much oil it contained.

But no one dismissed the estimate as preposterous. That, plus the fact that a senior official had given any credence to such a dramatic number, caused the share prices of the three firms to jump, despite the fact that Mr Lima claims he does not even know where the stockmarket is, and certainly did not intend to influence it. At one point Repsol's was up by 14%. The shares of Hess, an American firm which is part of a consortium looking for oil nearby, posted their biggest gain since 1981.

Both Tupi and the field mentioned by Mr Lima, Carioca-Sugar Loaf, lie far below the seabed, beneath a thick layer of salt that is some 800km long and 200km wide. José Sérgio Gabrielli, Petrobras's boss, has hinted that there are vast reserves of oil to be found in this “pre-salt” formation. At any rate, Petrobras has struck oil every time it has drilled there. It is currently assessing the reserves of yet another nearby discovery, Jupiter, which appears to be very similar in scale to Tupi. The firm's head of exploration says “there is practically no exploratory risk” in the area. While this does not necessarily transform Brazil into an oil power on a par with Venezuela or Saudi Arabia, as Dilma Rousseff, the chairman of Petrobras's board and chief of staff to Brazil's president, has excitedly proclaimed, it suggests that the volumes of oil involved are very big.

Nonetheless, the immediate impact of the “pre-salt” discoveries will be small. It will be several years at least before any of the new oil comes to market. What is more, it will be expensive to produce. The fields are all far out at sea, deep under ground that is itself far below sea level. Simply drilling the first test well at Tupi cost $240m, and costs are likely to rise, thanks to fierce inflation throughout the oil industry. As if to underscore the point, the oil price hit a new record, of $114.41 a barrel, a couple of days after Mr Lima dropped his bombshell.

Even if there is an ocean of oil off Brazil's coast, it will not necessarily be of much benefit to big oil firms, which have struggled to gain access to promising territory for exploration of late, thanks to growing nationalism in oil-rich countries. Brazil had been a heartening exception. But after Petrobras announced the discovery at Tupi, the ANP cancelled a planned auction of rights to explore for oil in several adjacent areas. Mr Gabrielli, the boss of Petrobras, says that the state's relatively low share of the revenues from oil production in Brazil should be increased to reflect the decreasing risks and increasing profitability of exploration.

The discoveries do suggest that the gloomiest pundits are wrong to predict that the world will soon run out of oil. It is not that there are still lots of huge oil fields out there: the number of mammoth discoveries is declining, Tupi (and perhaps Carioca-Sugar Loaf and Jupiter) notwithstanding. But the new finds do illustrate how the technology with which oil firms hunt for, extract and process fossil fuels is constantly improving. Petrobras's recent success is only possible thanks to recent advancements in seismic surveys, drilling, and offshore platforms. Other technological developments are allowing a greater proportion of the oil found around the world to be recovered and are even expanding the definition of oil, as firms conjure liquid fuel from the solid tar-sands of Canada, for example, or from coal and natural gas. Indeed, among the shares that rose in the wake of Mr Lima's comments were those of the firms that supply Petrobras with all its clever kit.