BRAZIL - DEPUTY ENERGY MIN ZIMMERMAN OUTLINES EXCELLENT

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SUBJECT: BRAZIL - DEPUTY ENERGY MIN ZIMMERMAN OUTLINES EXCELLENT
COOPERATION OPPORTUNITES FOR DEPUTY NATL SECURITY ADVISOR FROMAN

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1. (SBU) SUMMARY: At a June 18 meeting, Brazil's Deputy Minister
of Mines and Energy Marcio Zimmerman outlined for Deputy National
Security Advisor for International Economic Affairs Michael Froman
the areas of expansion and possible cooperation in the Brazilian
energy sector - hydropower, biofuels, nuclear, and oil and gas.
Zimmerman saw excellent possibilities for greater involvement for
U.S. firms, particularly in helping Brazil exploit its newly
discovered offshore oil and gas reserves. END SUMARY.


2. (SBU) During a June 18 meeting in Brasilia, Deputy National
Security Advisor for International Economic Affairs Michael Froman
received an extensive briefing from Deputy Minister of Mines and
Energy Marcio Zimmerman on Brazil's energy sector and prospects for
cooperation with the USG and the U.S. private sector. The
Ambassador and the Economic Counselor and ESTH Counselor accompanied
Froman. Chief of Staff Alexandre Peixoto and International Advisor
Rueben Barbosa joined Zimmerman.

GOOD PROSPECTS FOR INCREASED ENERGY COOPERATION


3. (SBU) Zimmerman observed that since he came to the ministry in
2005 he has seen a significant strengthening of ties to the Embassy
and the USG. He sees many opportunities for the bilateral
relationship, which he called a mature one between two similar
countries. Both are continental in size and have a range of
experiences in the energy fields of interest to the other.
Moreover, he pointed out the excellent relationship between
President Obama and President Lula, who discussed energy cooperation
in their March meeting. Zimmerman reported that following the
meeting with President Obama, President Lula instructed Energy
Minister Edson Lobao to follow up with U.S. counterparts with
increasing energy cooperation. Zimmerman said he was looking
forward to his July 6-7 trip to the United States, which will be
followed by Minister Lobao's visit there July 20-21. (Note: this
visit has since transpired and will be reported septel) Beyond
increasing bilateral energy ties, Zimmerman encouraged the USG to
consider working in conjunction with Brazil in South America. He
suggested that some countries in the region had greater maturity
than others and would be receptive to such trilateral energy
cooperation. Zimmerman offered the example of a possible
Brazil-United States-Argentina energy cooperative effort.

HYDROPOWER, BIOFUELS AND NUCLEAR


4. (SBU) Zimmerman noted that Brazil has developed a very clean
energy matrix based on its natural resources - powerful rivers and
ample sugarcane for ethanol. With hydropower, he said that both the
United States and Brazil had roughly the same quantity of generating
power from dams. Brazil confronts major challenges in developing
and maintaining the grid to connect its remote hydropower facilities
to faraway consumers. He noted they had transmission lines as long
as 4,500 kilometers. Zimmerman suggested that the USG work with
Brazil in responding with science to a study (he thought it was by
the International Energy Agency in 2007) that claimed that
hydropower plants with their large reservoirs emit as much
greenhouse gases as a fossil fuel plant. This study is a concern
for Brazil, he stated. In the area of biofuels, the USG and the
Brazilian government in 2007 launched a collaborative effort,
including scientific cooperation in developing the next generation
of biofuels.


5. (SBU) Nuclear power and coal generating plants are growing in
importance for Brazil because, Zimmerman said, environmental
concerns were preventing building more large hydropower facilities.
Therefore, he explained, Brazil would revive its nuclear energy
program next year. There will be ample opportunities for the United
States, he said. He added that Brazil began its nuclear program
with Westinghouse, which built the first of Brazil's two nuclear
power plants (Angra I). (NOTE: Brazil has already resumed
construction of its third nuclear power plant - Angra III - in May
2009, and plans to build four to eight more by 2030. END NOTE.)

OIL AND GAS


6. (SBU) Turning to oil, Zimmerman said, Brazil has discovered
substantial offshore reserves. While reaching these deep-water
reserves posed a technical challenge, he was confident that
Petrobras and others could meet it. He opined that this oil would
be economical at USD 35 per barrel. This opened the door for
further cooperation. The state-energy company Petrobras already has
ties with U.S. energy firms and now there are greater possibilities
for U.S. firms here. He regretted that Duke Energy had encountered
problems and then stopped, which put a damper on U.S. firms'

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activities in Brazil. Since then European companies (Spanish,
French, Belgian, Italian and Portuguese) have successfully entered
the Brazilian energy market. He urged U.S. firms to look again at
Brazil and get to know it. They have excellent opportunities here,
he assured.


7. (SBU) The Brazilian government seeks to put in place a new
regime to deal with these large finds. Zimmerman said that they
want a system that is balanced, which allows domestic companies to
participate and grow, yet invites in foreign firms. Brazil wants to
use the Norwegian model, which would allow Petrobras to continue to
grow. Further, he said, they don't want petroleum to destroy their
economy as has happened elsewhere.


8. (SBU) Brazil wants to be more than just a producer of crude in
the petroleum market. Zimmerman stressed that they wanted to do
more processing, which will generate additional good jobs. He
pointed to their plans for building refineries: one in Recife with
Venezuela's PDVSA (200,000 barrels per day); two in Fortaleza
(300,000 barrels per day); and one in Sao Luis (600,000 barrels per
day). The Recife project was meant to promote energy integration
with Venezuela, each would use 100,000 barrels per day. This hasn't
evolved as we expected, he lamented. Recognizing that even though
there aren't a lot of profits in refining, Zimmermann assessed that
such a structure would be better for the Brazilian economy in the
long term. He then noted an economic model he likes, which might be
applicable with refineries. The iron ore firm Vale recently took a
minority interest with a South Korean firm to produce steel in
Ceara. The benefit for Brazil is that it gains from the majority
partner's existing distribution network. When asked by the
Ambassador about working with U.S. firms in developing its refining
sector, Zimmerman said that it was a very interesting idea.


9. (SBU) Apart from oil, these new discoveries also include huge
quantities of natural gas, Zimmerman stated. The problem, however,
is that this gas is located up to 300 kilometers offshore. Brazil
intended to liquefy the gas on ships rather than try to build a
pipeline. The liquefaction on ships on the high seas presented a
technical challenge, he said. However, this process would be better
for Brazil because it could then be in a position to ship the
liquefied natural gas (LNG) to foreign markets. He did not expect
the Brazilian market to use much LNG, though on occasion there might
be times it would be used to supplement the power generated by the
hydropower plants.


10. (SBU)COMMENT: This meeting immediately preceded a visit Deputy
Minister Zimmermann made to the United States beginning July 6 and
ending July 10, and sets the stage well for the interests he pursued
during that visit (SEPTEL). These discussions, both in Brasilia and
in Washington, highlight many possible areas of cooperation between
Brazil and the U.S. both bilaterally, regionally, and globally. The
upcoming visit by Minister of Mines and Energy Edison Lobao to
Washington, tentatively set for July 20-21, offers an opportunity to
formalize and institutionalize these areas of cooperation as
explored during this meeting and the subsequent Zimmermann trip to
the United States. END COMMENT.

SOBEL