FocusBrazil’s new gas self-sufficiency

12 November 2007 18:49  [Source: ICIS news]

By John Waggoner

HOUSTON (ICIS news)--Brazil’s newly discovered offshore petroleum reserves will bring local production of natural gas in line with imports, making the country’s gas supply sufficient to meet domestic demand, President Luiz Inacio Lula da Silva said on Monday.

“We are working with the certainty that very soon, Brazil will also be independent in the question of natural gas production,” Lula said in a weekly radio address.

Brazil has already achieved its goal of raising local crude oil production to meet levels of imports through a series of exploration and production licensing rounds carried out over the past decade. Last week’s massive discovery of 5bn-8bn bbl of petroleum in the Tupi field of the Santos basin will likely remain in the hands of the federal government since it was discovered by state-run Petrobras.

It will also launch Brazil onto the list of the top ten oil producers in the world. The reserves, once developed, will put Brazil just ahead of Nigeria and just behind Venezuela, and potentially opening the doors to OPEC membership which would greatly expand Brazil’s regional and geo-political influence.

“It means we will become one of the largest oil producers in the world,” Lula said.

Given technological barriers to develop the discovery, Brazil will need from five to seven years before the reserves become commercially available.

Lula also said Brazil will continue to pursue expansion of ethanol and biodiesel production capacity in spite of the discovery of new reserves that would add up to some 60% to the nation’s oil and gas reserves, according to initial estimates.

“We are going to continue investing in bio-fuels,” he said.

Brazil is the world’s second largest ethanol producer and its largest exporter, with significant production of bio-diesel.

Local petrochemical producers are largely reliant on naphtha as petrochemical feedstock, but with the development of local gas reserves and imports from neighbouring Bolivia, Brazil has added natural gas feedstock to its petrochemical supply mix.

In the final days of October, the question of natural gas supply became an issue of public concern after Petrobras lowered deliveries of natural gas to industrial consumers - including a small number of chemical producers - in order to meet its state-mandated requirement to supply thermal power plants with fuel.

The situation has since normalised, chemical industry sources said.

However, given that Brazil is currently dependent on imports of gas from Bolivia, which also supplies Argentina, there are concerns that Bolivia could become overextended on its gas supply commitments, industry sources said.

“There are plans to invest $18bn [€12bn] in the chemical sector by 2012 and $15bn in the automotive sector, but these investments will require a firm supply of gas,” said a source at Abiquim, Brazil’s national chemical industry association. “The industry and society in general are worried.”

Responding to these concerns, Lula said that thermal power plants will continue to receive priority supply when Brazil’s hydroelectric complex - which is the number one source of electricity in the country - has low reservoir levels and thermal power is required to meet demand.

“Secondarily, Petrobras needs to meet its own necessities because it needs to re-inject gas to lift petroleum,” Lula said. “Afterwards, it can supply the industries, the automotive fuels markets, to whoever wants it.”

Brazil has also announced it will increase its investments in Bolivia. This investment is controversial because Bolivia in May last year seized hydrocarbon fields and other facilities run by Petrobras as part of its nationalisation programme.

“Brazil today depends on the gas from Bolivia, Argentina depends on the gas from Bolivia, and Chile depends of the gas from Bolivia, and we need to invest in Bolivia so that we can produce more in order to meet Bolivia’s local demand, the demand from Brazil, the demand from Argentina, and the demand from Chile,” Lula said in Portuguese.

($1.00 = €0.68)

 

By: John Waggoner
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