Petrobras’ Doomsday Valuation Misses Persisting Oil Demand

Petrobras’ Doomsday Valuation Misses Persisting Oil Demand

MANUAS, BRAZIL JUNE 3: Petrobras oil storage tanks stand at an oil refinery on June 3, 2008 in ... [+] Manuas, Brazil. Petrobras is a semi-public Brazilian Energy Company that produces about 2 million barrels a day and covers most of domestic use in the country. The company recently discovered additional offshore finds of estimated 5-8 billions barrels of oil. (Photo by Per-Anders Pettersson/Getty Images) Despite the world's persistent reliance on fossil fuels, much of the energy industry is foregoing the capital investments needed to meet future energy demand. This state-controlled operator is unabashedly prepared to grow its crude oil production while others divest and ties executive compensation to ROIC. Petroleo Brasileiro (Petrobras) (PBR) is this week's Long Idea. Global Demand for Fossil Fuels Will Be Strong for Decades Fossil fuels provide enormous social and economic benefits that are not easily substitutable. Figure 1 shows the International Energy Agency's (IEA) global demand forecast of crude oil products if all countries included in the Paris Agreement meet their announced carbon-reducing climate pledges. I doubt these reduction targets will be met, as discussed in my recent report on Royal Dutch Shell (RDS. A), but even if they are, demand for crude oil