A Well-Oiled Machine

Rio de Janeiro — Not far from this sultry port city, shipyard workers are hustling to complete the latest in a flotilla of vessels for the government-controlled oil firm. Financial statements show the company on pace for a year of record sales and earnings. In the cubicles of the organization's towering headquarters here, office workers have hung decorations celebrating Brazil's self-sufficiency in petroleum.

State ownership is synonymous with underachievement for much of Latin America's energy sector. But for Petroleo Brasileiro, known as Petrobras, the only thing rising faster than crude output is confidence.

While government-owned oil companies in Venezuela and Ecuador struggle with falling production, Petrobras has nearly doubled its output since the late 1990s. Production is about 1.9 million barrels a day and is projected to jump to nearly 2.8 million by 2011. Proven reserves are climbing at a healthy pace, up by nearly 50% between 2000 and 2005.

By comparison, reserves of Mexico's government oil monopoly, Petroleos Mexicanos, or Pemex, have slipped badly over the same period. Pemex is still Latin America's biggest oil producer, with an average output of 3.3 million barrels a day last year. But with its largest oil field in decline, Pemex could be overtaken by Petrobras within a few years, according to Mexico City-based energy analyst David Shields.

"That was something unthinkable even five years ago," said Shields, author of two books on Pemex. "Brazil is a country which until recently ... had a very serious deficit in oil."

No longer. Brazil this year celebrated its "oil independence" -- the first time that domestic production exceeded demand.

When Petrobras was founded in 1953, its initial output of just a few thousand barrels a day amounted to little more than an oil leak. But Brazil got serious about reducing its dependence on foreign crude after the 1970s oil shocks jolted its economy.

Bedeviled by meager onshore deposits, Petrobras transformed itself into an accomplished deep-water driller. It also worked with farmers to promote widespread use of sugar-cane ethanol, which today accounts for 40% of the fuel that Brazilians burn in their cars.

The former pipsqueak of Latin American oil companies is now looming large. Growing world demand for "green" energy has Petrobras working to boost exports of ethanol. And it is betting heavily on another plant-based fuel, biodiesel.