Clashes as Brazil auctions oil licenses

RIO DE JANEIRO - Amid clashes between union workers and police, Brazil prepared Monday to auction oil production licenses in its giant Libra offshore field. More than 1,000 police were drafted to ward off protests outside the Rio hotel hosting the auction as 11 companies -- including two Chinese giants -- bid to bag a slice of a multibillion dollar cake. Analysts say the field holds potential reserves of up to 12 billion barrels, or nearly a million barrels a day for five years, according to Brazil's National Petroleum Agency. To put that into context, Brazil currently has 15.3 billion barrels of proven reserves, the second-largest in South America after Venezuela. A further spinoff could come in the form of a doubling of Brazilian gas reserves, currently 459.3 billion cubic meters. The reserves are what are known as pre-salt -- that is, they lie beneath a layer of salt deep below the Atlantic Ocean. With Libra hosting the equivalent of around three years worth of ever rising Chinese consumption, China's state firms are seeking to work alongside Brazilian state giant Petrobras. China National Petroleum Corporation (CNPC), the world's second biggest oil company by market capitalization, and China National Offshore Oil Corporation (CNOOC) are at the forefront of the battle. Also in the hunt, which was due to get under way from 1600 GMT, are fellow big-hitters Anglo-Dutch Shell, France's Total and Spain's Repsol. US giants are sitting the sale out. Completing the line up were Petronas of Malaysia, Japan's Mitsui & Co, Portugal's Petrogal, Colombia's Ecopetrol and ONGC Videsh of India. Buried under layers of salt, the deposits cover 149,000 square kilometers (58,000 square miles) and Libra lies 183 kilometers (112 miles) off the coast. Currently, Brazil produces two million barrels a day but hopes to boost output to 4.3 million a day by 2020, thanks in large part to the pre-salt reserves. But US majors have stayed away for fears that myriad state strings attached will hit potential returns from the field, covering 1,548 square kilometers (597.3 square miles). That equates to around ten percent of Brazil's overall pre-salt deposits. A further concern is the creation of a new state company, PPSA to oversee offshore exploration, while Petrobras has sole operator status. The state behemoth is guaranteed a 30 percent stake under a 2010 law. The winner of the auction will be the firm or consortium which offers the Brazilian state the most oil -- at least 41.6 percent -- and hence the best return. The 2010 law, passed by former president Luiz Inacio Lula da Silva, provides for oil revenues being poured into education and health. But unions fear the auction constitutes a sell off of national assets and last week Petrobras workers went on strike in protest. Adding his voice to the protests last week was former Petrobras director Ildo Sauer, who said he believed it was "not in the country's interests" to bring in foreign firms. Even so, analysts estimate the deal could boost employment and raise Brazilian GDP by $1.7 trillion over 30 years, O Globo daily Sunday quoted the Getulio Vargas Foundation as saying. Energy Minister Edison Lobao says he will grant the winning consortium "the largest oil exploitation zone in the world." Experts see the auction for an operation set to bring in an estimated $180 billion of investment over three decades as a test case for pre-salt reserves. "Markets expect Asian companies will be the stars of these auctions as the US majors are not at the table and will merely sit back," Carlos Assis, head of Ernst&Young's Americas oil and gas unit, told AFP last week. As the clock wound down, Brazil's Federation of Oil Workers called for protests to counter "risks to sovereignty and the losses the Brazilian nation will suffer if multinational oil firms expropriate Libra". Some 200 protesters attempted to force their way through a police cordon but were met with tear gas and rubber bullets after gathering mid-morning outside the auction venue. Lobao strongly rejects the labor union's thesis. "We are not privatizing pre-salt oil. On the contrary, we are harnessing these immense riches lying undersea and in the ground," Lobao said Saturday. — Agence France-Presse