RIO DE JANEIRO (Dow Jones)–Brazil is hinging its economic future on crude oil, betting that huge fields discovered in recent years will create the basis for an industrial boom that could lead the country from emerging-market upstart to developed-nation powerhouse.
One of the key pillars is the rebirth of the once-massive shipbuilding industry. Brazil’s shipyards were once among the world’s largest before falling into decline in the 1990s. The renaissance, however, is encountering growing pains as old shipyards are restored and new ones are carved out of the country’s rugged coastline.
Brazil’s shipbuilding industry marked its return from a 14-year hiatus last month, delivering the first of what’s expected to be hundreds of supply ships, tankers, drilling rigs and oil platforms to federal oil company Petroleo Brasileiro (PBR, PETR4.BR). But there are concerns that current capacity won’t be able to meet demand, which could cause Brazil’s dream of turning into one of the world’s top four crude-oil producers to founder.
Petrobras, as the state-run energy giant is known, expects crude oil output to more than double from current levels to reach 4.9 million barrels a day by 2020. Not only is the scale daunting, but so is the complexity. About half the output will come from the “presalt,” an ultradeepwater region that could hold as much as 50 billion barrels of oil equivalent buried under a layer of salt more than four miles below the seabed.
“Given the sheer scale of these presalt developments and the current lack of shipyard capacity in Brazil, project delay is a very real risk,” said Ruaraidh Montgomery, senior analyst for Latin America upstream research at Wood Mackenzie. “We believe that the ramp-up in output will be slower than Petrobras anticipates.”
Shipbuilders such as Singapore’s Sembcorp Marine (S51.SG) and OSX Brasil (OSXB3.BR), of Brazilian billionaire Eike Batista, have plans to build new yards. And Carlos Rocha, an associate director at the Rio de Janeiro office of Cambridge Energy Research Associated, said they should be able to meet demand for large vessels such as tankers, drilling rigs and production platforms.
Even so, analysts said there are bound to be hitches as the shipyards get up to speed.
“This is not unexpected given that most of the shipbuilding facilities involved are brand new. It is quite common for first vessels to suffer long delays due to production problems being ironed out before a yard gets into its stride,” said Robert Wilmington, lead analyst on new construction at London-based IHS Fairplay, in an email.
One of the newest shipyards, Estaleiro Atlantico Sul, or EAS, began building its first ship, a tanker for Petrobras distribution unit Transpetro called “Joao Candido,” while it was building the yard itself.
The ship took 50 months to build and cost $180 million, nearly five times longer and three times more expensive than the international standard, according to Credit Suisse analyst Emerson Leite. The delay will likely push back all of EAS’s orders, which include 22 tankers, seven drilling rigs, the P-55 platform hull and top-side finishing for the P-62 platform.
“We think cost-overruns and delay implications for a wider range of units are more aggravated considering that oil tankers are inherently less complex than the P-55, P-62 and the seven drilling rigs also on EAS backlog,” Leite said in a recent note to clients. The result is a more difficult environment for Petrobras to meet its future production targets.
-By Jeff Fick, Dow Jones Newswires