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New Rig Brings Brazil Oil Self-Sufficiency

By PETER MUELLO
The Associated Press
Friday, April 21, 2006; 8:25 PM

RIO DE JANEIRO, Brazil -- President Luiz Inacio Lula da Silva, dressed in an orange jump suit, drenched his hand in oil as he flipped the switch Friday on a new oil rig that will usher in overall independence from foreign oil.

The start of production at the P-50 rig off Brazil's south Atlantic coast puts Brazil on track to produce as much oil as it consumes.

Silva showed off his oily hand to a crowd on the rig, a gesture imitating President Getulio Vargas when he created the government-run oil company Petroleo Brasileiro SA, or Petrobras, in the early 1950s.

The production milestone _ coordinated to fall on a national holiday honoring 18th-century independence hero Tiradentes _ marked an end to decades of dependence on foreign oil and fuel bills that plunged Brazil into debt when oil prices soared in the 1970s.

"It's an extraordinary achievement, a privilege only a few countries have," Silva said in a ceremony Saturday evening in Rio de Janeiro.

Petrobras said the huge P-50 rig will boost national oil production to an average of 1.9 million barrels a day this year, more than average consumption of 1.85 million barrels a day.

"It's an important date for the country, and Petrobras has every right to be proud," said Luiz Broad, an oil analyst at the Agora Senior brokerage in Rio de Janeiro.

As more offshore rigs come online, Petrobras expects to join the world's net oil exporters, with production exceeding demand by nearly 300,000 barrels a day in 2010.

Brazil still has to import light crude oil for the refined products it needs. The country produces _ and exports _ mostly heavy crude oil, which has to be mixed with the light oil in refineries.

The net-exporter status will boost Brazil's trade surplus and help shield the country from oil-price shocks. Petrobras said it won't pass on the spikes in international oil prices to Brazilian consumers. Oil prices reached a record $73 a barrel on Tuesday

It's quite a change from the 1970s, when Brazil imported 85 percent of the oil it consumed, deepening a foreign debt that raised inflation to four digits and pushed the country to the brink of bankruptcy.

"We have the fastest-growing oil industry in the world," Petrobras Chief Executive Sergio Gabrielli said Thursday.

Brazil still depends on natural gas imported from Bolivia, on its own nuclear power and on hydroelectric dams to produce electricity, and on an abundance of ethanol, an alternative fuel made from Brazilian sugar cane.

Brazil produced only 2,700 barrels of oil a day when Petrobras was founded in 1953, and consumed 137,000 barrels a day. With the slogan "The oil is ours," the company set out to find oil in a country larger than the lower 48 U.S. states.

In 1968, the company began searching offshore in the Campos Basin near Macae, 110 miles east of Rio de Janeiro. The big break came six years later, with the discovery of the Garoupa field.

New discoveries followed, and Macae became an oil boomtown as the Campos Basin grew to become Brazil's top oil producer. Today, more than 80 percent of Brazil's oil comes from offshore fields.

Petrobras also became a world leader in deep-water drilling, developing state-of-the-art equipment and setting world records for deep-water drilling. It is Brazil's biggest and the 14th-largest oil company in the world, with operations in 15 countries.

After the government broke the company's oil monopoly in 1995, Petrobras remained a top player in the market. The company snapped up exploration zones that Brazil put up for auction to international bidders.

"The company did its homework, did what was possible," said Victor Martins, an oil analyst with Safra Bank.

Martins said Petrobras would have to raise oil output to keep pace with demand, which is growing despite the expansion of ethanol, and the rising sales of flex-fuel cars that run on both gasoline and ethanol.

"The important thing is the flexibility we have now," he said. "We can produce here or buy abroad, whichever is cheaper."

© 2006 The Associated Press