Gasmig, Petrobras Plan US$190mn, 500km Pipeline Expansion

Brazil's Minas Gerais state natural gas distributor Gasmig and its minority shareholder, federal energy company Petrobras (NYSE: PBR), plan to invest some US$190mn through 2008 to expand the state's natural gas network by 500km, Gasmig's new businesses manager Décio de Abreu told BNamericas.

The expansion was made possible after Minas Gerais state power company Cemig (NYSE: CIG), Gasmig's controller, sold a 40% stake in the distributor to Petrobras for 144mn reais last December, giving Gasmig the cash to carry out investments.

Under the sale agreement, Petrobras is responsible for building the new gas supply system by investing in the transport network, and Gasmig is responsible for increasing distribution, he said.

According to a previous BNamericas report, Gasmig and Petrobras plan to invest over US$460mn to expand the local gas network through 2010. "The master plan that anchors the agreement determines that by 2010 we will triple the gas market in the state," Abreu said. Gasmig currently sells 3 million cubic meters of gas a day (Mm3/d) in the state, half of which is used by two power plants, the 103MW Juiz de Fora and 690MW Ibirité plants, he said. The company plans to distribute 4.5Mm3/d to its clients by 2010, excluding power plants.

Gasmig is currently supplied with gas from the offshore Campos basin through a 357km pipeline linking Petrobras' Reduc refinery in neighboring Rio de Janeiro state to the Minas Gerais capital Belo Horizonte.

The Gasbel pipeline, as the connection from Rio de Janeiro is known, has 3.5Mm3/d capacity and Gasmig is operating very close to its limit. "We need to increase the gas supply to the state in 2007 because by end-2006 we expect to be using up the whole of the [Gasbel] pipeline's capacity," Abreu said.

To increase supply to the state, Petrobras is planning to double the Gasbel pipeline's capacity and build a connection linking Gasmig's network to the Brazil-Bolivia gas pipeline that cuts across neighboring São Paulo state, he said.

Gasbel's expansion is awaiting an environmental license from federal environmental protection agency Ibama. The expansion would cut across Minas Gerais state to the country's capital city Brasilia in the center west region. Around this pipeline, Gasmig would build a network to supply the industrial and agricultural region of Minas Gerais known as the Triangulo Mineiro. There is no date set for the start of this project since it depends on Petrobras and Ibama, Abreu said.


Meanwhile, Gasmig is moving ahead with two expansion projects that will meet demand and increase gas supply into the state.

Gasmig and Petrobras are carrying out technical studies for a US$120mn project to extend the existing network to transport gas to five towns in the southern region of Minas Gerais state from neighboring São Paulo state. The studies are in final stages, Abreu said.

The expansion should increase supplies in southern Minas Gerais by 1Mm3/d once Petrobras builds the US$60mn link to the Brazil-Bolivia gas pipeline, which is scheduled for completion by end-2007. Gasmig will invest another US$60mn to build a 200km distribution network in the southern region of Minas Gerais state around Petrobras' pipeline, he said. This will increase the company's current 300km gas pipeline distribution network and meet pent-up demand for the fuel, according to Abreu.

Before that happens, however, Gasmig will have to start selling compressed and/or liquefied natural gas (CNG and/or LNG) in the southern region to supply current demand there, he added.

The company is in talks with Brazilian industrial gas company White Martins, controlled by US-based industrial gas manufacturer Praxair (NYSE: PX), and Petrobras to participate in a project to distribute LNG by truck from a liquefaction plant in São Paulo state, Abreu said. "We will replace current industrial and commercial usage of fuel oil, liquefied petroleum gas (LPG) and, in some cases, wood, as well as allowing the development of vehicular natural gas (VNG) usage in the region," he said. "Gasmig is even considering bringing forward the start of the construction of a local distribution network linked to the regasification station." The LNG distribution project should be ready at the beginning of 2006.

Finally, Gasmig has already started the US$70mn Vale to Aço project to build an 18-inch diameter, 300km pipeline network to take natural gas to the metallurgy and mining companies in an industrial region of southern Minas Gerais state, he said.

Investment in the first phase of Vale do Aço started in January 2005, with the construction of a 40mn-real (US$14.4mn), 52km link that will start supplying natural gas to iron ore and mining conglomerate CVRD by August this year, Abreu said.

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