Patient players – Japanese and Chinese suppliers in the Brazilian offshore oil sector

Over the past decade, East Asian companies have increasingly played an important albeit discreet role in Brazilian oil policy as suppliers of both capital and infrastructure for the development of offshore projects. In the early 2010s, for instance, Japanese companies were strategic partners in the Brazilian plan of revamping the domestic shipyard sector. Following incentives from their government, Japanese companies became partners in many of the newly created or refurbished shipyards along the Brazilian coast. These alliances, however, were short-lived due to the double shock caused by the corruption scandals involving Petrobras resulting from the Car Wash investigation and the abrupt readjustment of oil prices in the end of 2014. Despite these failures, Japanese suppliers have been awarded in recent years many contracts for building platforms Petrobras needs to explore the pre-salt oilfields. Led by Modec, a subsidiary of Mitsui & Co, and the Dutch company SBM Offshore, a pool of Japanese companies, banks and government institutionshave been awarded upwards of 20 contracts to build and operate FPSO vessels in the pre-salt with a total value of in excess of US$10 billion. In parallel, Chinese companies have been also gradually increasing their presence in the Brazilian oil sector. Beyond becoming important suppliers of infrastructure coupled to lavish financing, particularly vessel building (mainly FPSOs), both as direct sellers to Petrobrás or as sub-suppliers to MODEC and SBM Offshore , China’s presence goes beyond that of Japan, as Chinese oil companies have mainly acquired minority ownership in several important pre-salt fields in partnership with Petrobras and other majors. In this article, we argue that the interest of East Asian companies in Brazil’s oil sector is part of broader national strategies of both Japan and China. For both countries, securing oil resources is not the main goal, particularly for Japan. The Brazilian oil sector is an important market because of its high demand for large and complex engineering industrial projects. On the one hand, supplying FPSOs for Brazilian offshore projects is an important mechanism to keep industrial capacity and activity in shipyards inf both countries. On the other, it is a laboratory for the expanding andupgrading of naval construction capabilities and to develop a marine equipment supply chain (China) and developing of new technological solutions (Japan). In the case of Japan, the strengthening of shipping industries is part of a strategic plan to increase the country’s capability to explore marine-based resources (including rare metals critical to its electronics component industry). For China, developing its shipbuilding industry is also part of the larger Belt and Road national strategy of infrastructure development and trade integration with partners all over the globe as well part of a strategy for consolidating the competitiveness of its shipbuilding industry by pushing it into higher value-added segments with longer supply chains. In both cases, industrial policy becomes an important part of national development strategic plans. For Brazil, the increasing reliance on foreign shipyards as suppliers for its uniquely booming offshore infrastructure demand reduces drastically the possibilities for the development of local capabilities – particularly in light of weakening of local content policies. To demonstrate these points, this article combines a descriptive presentation of East Asian supplier activity in the Brazilian offshore oil sector in terms of types contracts awarded and their respective volume in combination with analysis of Japanese and Chinese government strategic plans and interviews with government and business representatives.