BRAZIL - DEPUTY ENERGY MIN ZIMMERMAN OUTLINES EXCELLENT

UNCLAS SECTION 01 OF 02 BRASILIA 000862 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ENRG EINV SENV KGHG ETRD EINV EFIN PREL BR SUBJECT: BRAZIL - DEPUTY ENERGY MIN ZIMMERMAN OUTLINES EXCELLENT COOPERATION OPPORTUNITES FOR DEPUTY NATL SECURITY ADVISOR FROMAN BRASILIA 00000862 001.4 OF 002 (U) This message is sensitive but unclassified, please treat accordingly. ¶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' BRASILIA 00000862 002.4 OF 002 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