With urbanization and population growth trending upward, Brazil has increased its demand for energy, especially in the areas of oil, natural gas and electricity. On the supply side, oil and gas production has increased and there have been several well-publicized, large deepwater finds that have generated much excitement. These include the pre-salt reserves off the coast of Rio de Janeiro state where the potential reserves total over 50 billion barrels of oil. Brazil has only approximately 14 billion barrels of proven reserves, making these finds quite significant.

However, without foreign investment, Brazil will be unable to effectively and efficiently extract the potential oil and gas because of the size and complexity of the untapped reserves. Shale gas and shale oil present an added layer of complexity for development. Because the extraction of shale relies on horizontal drilling and hydraulic fracturing (“fracking”), only companies experienced in these sophisticated techniques are able to extract the shale gas.

To generate investment interest, the Ministéria de Minas e Energia (Ministry of Mines and Energy), in conjunction with the Agência Nacionaldo Petróleo, Gas Natural e Biocombustíveis (National Agency of Petroleum, Natural Gas and Biofuels—ANP), is publicizing the oil and gas bidding rounds that will take place this year. Interestingly, as part of its effort, the ANP has been looking to target small and medium-size oil producers with auctions either in mature basins or inactive fields where there still may be accumulations of oil and gas.

Earlier this week in Brazil, the price of ethanol rose above the price of sugar for the first time in nearly two years. What does this mean? Sugar mills, which dot Brazil’s landscape, will now opt to produce ethanol rather than sugar. This is a key development in a country that has been a leader in sugarcane ethanol for the past 40 years.

Since the 1970s, Brazil has led the way in producing alternative liquids as a part of the country’s energy matrix. Indeed, in 1975, Brazil initiated a gasoline substitution program called Pró-Álcool (The National Alcohol Program), which was developed in response to the world oil crisis at the time. Brazil could pivot its extensive sugar supply to produce ethanol, which could be used as an automotive fuel instead of relying on fossil fuels—which fluctuated in price—in large part due to the vagaries of the Organization of the Petroleum Exporting Countries (OPEC).

This approach resulted in a win-win: Brazil became the world’s second-largest producer of ethanol fuel and, until 2010, was the world’s largest exporter. The Brazilian government subsidized production of ethanol, mandated that fueling stations offer ethanol in addition to gasoline, and provided incentives to build cars that ran on ethanol alone. Later, Brazilian automakers began producing “flex-fuel” automobiles that gave drivers the option to fill up their tank with either pure ethanol, or an ethanol/gasoline blend, depending on what was cheaper on that particular day.