Unless you've been in space over the last couple of weeks, you will have heard a great deal of breathless reporting about Brazil's discovery of two massive oil fields - containing up to 41 billion barrels of recoverable crude. In fact one analyst, Peter Zeihan said;

"The finds they've got so far are just the tip of the iceberg . . . Brazil is going to change the balance of the global oil markets, and Petrobras will become a geopolitical supermajor.''

Heady stuff indeed !

No question, these are very large finds and it does blow a small hole in the arguments of the Peak Oilers - that all the large oil fields have been found. Still, even 41 billion barrels of oil - another 3% - is not that significant compared to proven global oil reserves of 1.3 trillion. And various forecasts of demand for oil rising from around 86m barrels per day today, to something like 120 - 130 m are going to require a great deal more oil field discoveries than this.

Now back to the title of this blog - would a really siginificant oil find undermine Brazil's ethanol industry?

Three points;

Time - it takes 10 years between geological discovery of crude until bringing that oil to market. Ethanol from sugar cane ought therefore to be fairly immune to its mineral competitor over the next decade.
Price - how cheaply can the oil be extracted? If it has only just been found, that would suggest to me that it requires some pretty pricey technology to get it out. Meanwhile, according to Goldman Sachs, ethanol from sugar cane is profitable with oil from $35 per barrel.
Volume - clearly, if Brazil were to discover even more recoverable oil, say 250 billion barrels, that would be a huge change that would call into question Brazil's ethanol production. If only because they will almost certainly be able to sell oil abroad at a higher price per barrel than they ever could with ethanol.

All in all, Brazil's drive for ethanol is at least partly motivated by the vision that this could be the first country in the history of the world to industrialize on the back of its farming industry. But that depends on exports and as and until America reduces its ethanol import tarif, that vision will still remain a dream.