New Find Sparks Brazil's Latest Burst of Oil Fever

Excitement about the potential of Brazil as a massive new source of oil and gas has intensified after a senior energy ministry official declared the newly-found Carioca field could contain 33bn barrels.

Haroldo Lima, head of Brazil's National Petroleum Agency, said the country was harboring an oil find that vied with the largest in Saudi Arabia and Kuwait. As a result, the price of shares in BG, the UK exploration company, soared 8% and helped lift the wider London stock market.

Lima told an industry conference that Petrobras, the national oil company partnered by BG, "may have discovered a huge petroleum field that could contain reserves as large as 33bn barrels, amounting to the world's third largest reservoir."

Amid expressions of surprise and skepticism from industry experts, Lima's agency later issued a statement saying his comments were based on a recent report in a world oil magazine. Other ministers said it was better to wait for official estimates from Petrobras itself.

But industry analysts said it was possible Lima was adding together the reserves of nearby fields in the wider Carioca area off Rio Janeiro.

Dieter Helm, professor of energy policy at Oxford University and a British government energy adviser, said: "It does not surprise me that these kind of numbers are out there. Whether it is attributed to Carioca itself or elsewhere, it should not distract from the point that there is plenty of oil around."

BG declined to comment but sources close to the business - formerly a part of state-owned British Gas - said it was too early to make estimates of how much oil or gas was contained within the Carioca reservoir. "More evaluation (by drilling) is needed," said one well-informed source.

Matthew Shaw, the Latin American energy analyst with Edinburgh-based oil consultant Wood Mackenzie, said the 33bn-barrel claim was not credible. "This is an unfortunate slip of the tongue by a senior member of the NPA," he said. "It is likely to be a fairly modest discovery with a few hundred million barrels in place."

But Shaw said the comments were symptomatic of the "oil fever" that was sweeping Brazil in the aftermath of recent - and confirmed - discoveries such as Tupi, another field where BG has a stake and which has got 5bn-8bn barrels of recoverable reserves.

Those figures are 10 to 16 times higher than BG's Buzzard discovery in the North Sea which caused new optimism about the UK's own offshore potential and helped revive drilling interest in the area at a time when local crude prices have been hitting new highs.

Ironically, Brazil is at the center of the current biofuels revolution because the government encouraged motorists to switch to crop-based fuels such as ethanol before anyone else - at a time when the country was trying to cut its oil import bills because it had no indigenous supplies.

But while corn-based ethanol is now being exported from Brazil all over the world, the country is beginning to believe that it could become one of the world's great crude oil exporters and might join the OPEC oil cartel.

Petrobras has just spent more than $8bn ($4.05bn) signing up new rigs to go and explore in the very deep waters off Brazil.

While the potential of the latest find in Brazil could add significant supplies to a global oil market that has seen prices reach record levels on the basis that supplies are very tight, it would take the best part of a decade before Carioca is ready for production.

BG has increasingly targeted Brazil as an important area, having bought a 51% stake in the downstream gas distribution business, Comgas. It has an estimated 8,000 sq kms of offshore acreage to explore and holds a 25% stake in the Tupi find and a 30% holding in Carioca.

Brazil has traditionally been overlooked as an energy provider because other Latin American producers such as Venezuela and Mexico are much more significant.

The president of Brazil, Luiz Inacio Lula da Silva, was once seen as a left-wing firebrand in the mould of Hugo Chavez, his counterpart in Venezuela. Although he has since proved himself to be more pragmatic he is currently considering whether to toughen up conditions under which foreign oil companies operate in his country