Energy and Brazil – United States Relations

Energy has often played a central role in Brazil-United States bilateral relations. In the first half of the twentieth century the United States based Good Roads Movement, fueled by the American Road Builders Association and the American Automobile Association, paved the way for U.S. oil companies and auto manufacturers to bring fossil fueled cars to Brazil (Downes 1992).  In the decades following World War II, the U.S. strategic petroleum reserve and the “Atoms for Peace” program pulled the largest nations of the Western hemisphere toward a close strategic orbit, including Brazil.  It was not until the first OPEC oil embargo in 1973 and the nuclear deal between Brazil and West Germany that bilateral relations slumped as Brazil placed its national energy security ahead of its special relationship with the U.S. (Gall 1976:155).  Since this critical juncture, Brazil has sworn off nuclear weapons, become a world leader in biofuels, discovered massive offshore “pre-salt” hydrocarbon reserves, and become a major international leader in climate change policy negotiations.

Throughout the engagement and turbulence of Brazil-U.S. relations, particular private sector interests and national foreign policies have swirled to elevate energy affairs toward the top of the bilateral agenda.  Both Brazil and the U.S. have called for greater cooperation on energy matters in the past several years and under different administrations.  In 2007 then Presidents Luiz Inácio Lula da Silva of Brazil and George W. Bush of the U.S. celebrated the biofuel boom by signing theMemorandum of Understanding between the United States and Brazil to Advance Cooperation on Biofuels to foment bilateral cooperation.  During the 2008 U.S. presidential campaign then candidate Barack Obama promised an “Energy Partnership of the Americas” to deliver up regional energy security in close cooperation with Brazil (Spencer 2009).  In April of 2009, the U.S. Export-Import Bank extended a $2 billion facility to enable Brazil’s nationally controlled energy company, Petrobras, to obtain favorable financing for the purchase of U.S. manufactured drilling equipment (United States Export-Import Bank 2011).  In May of 2011 the facility became operative and the Ex-Im Bank approved a request from JP Morgan Chase, acting as lender, to finance over $300 million in Petrobras’ purchases of U.S. manufactured products (Ibid.).

In March of 2011 Brazilian President Dilma Rousseff hosted U.S. President Obama to herald the establishment of a “strategy energy dialogue.”  Clearly, both Presidents Rousseff and Obama are keen on energy as a leading issue in bilateral affairs. This should come as no surprise since Dilma is the former Secretary of Energy for the state of Rio Grande do Sul, former Minister of Mines and Energy, and former Chair of Petrobras’ Board of Directors.  Obama has also emphasized the vital role of renewable energy and energy security in domestic and foreign affairs, both as candidate and as president.  Today, both nations’ foreign policymakers recognize the key role of energy as a bilateral and global issue of strategic importance; and the establishment of the bilateral Strategy Energy Dialogue makes energy a pivotal matter for some time to come.  This discussion paper examines this fundamental bilateral issue and evaluates the challenges and opportunities for deepening bilateral and bi-national cooperation through the current set consultative mechanisms, including the Strategic Energy Dialogue, across the subsectors of petroleum, ethanol, and electricity generation-transmission-distribution (GTD).