Petrobras Cancels Bolivian Investments, Speeds Up LNG Import Plans

Brazil's federal energy company Petrobras (NYSE: PBR) has cancelled investment plans for the expansion of natural gas and oil production in Bolivia and will speed up studies on importing liquefied natural gas (LNG) to guarantee future supplies for Brazil's fast growing gas market, Petrobras CEO Jose Gabrielli told reporters in a press conference on Wednesday.

"I am announcing today that we are cancelling planned investment in the expansion of the Bolivia-Brazil natural gas pipeline [known as B2B], which means we will not be investing in the expansion of gas production in Bolivia," Gabrielli said.

Petrobras was planning to expand the capacity of the pipeline by 15 million cubic meters a day (Mm3/d) over the next four years, by 4Mm3/d by increasing pressure in the pipeline by 2008 and by building extra loops, which would add another 11Mm3/d by 2010.

The announcement was made a day after meetings between Gabrielli and Brazil's President Luiz Inacio Lula da Silva to appraise the May 1 decision by Bolivia's government to nationalize the country's oil and gas reserves.

Before the nationalization decree, Petrobras had been negotiating with the Bolivian government and its state-controlled oil company YPFB to jointly invest as much as US$5-6bn in five years in programs ranging from the expansion of production, and the construction of thermoelectric power plants to the training of personnel and expansion of Bolivia's domestic natural gas market.

"We had signed a memorandum of understanding but now this no longer has any value," Gabrielli said.


Since Petrobras maintains its double-digit growth forecast for the Brazilian gas market (to some 99Mm3/d in 2010 from the current 40Mm3/d), the company will have to increase supply in the domestic market.

"All the companies that signed long-term gas supply contracts with Petrobras will receive the gas written in the contracts," Petrobras gas and energy director Ildo Sauer said. "So we have to get the gas from somewhere."

The increase in supply was planned to come from the expansion of B2B starting in 2009 onwards, an increase in domestic production, including the output from large gas fields in the Santos basin, and the expansion of the country's natural gas transport network.

Petrobras' board has already approved preliminary LNG plans, Sauer said, without giving details on where the gas would be imported from or how much could be invested in the project.

Sauer expects investment plans to be concluded in two years and operations to start in five.

"There is no short-term solution," Sauer said.

Preliminary studies point to the necessity of building a 6Mm3/d LNG re-gasification terminal in the country's southeastern region and a 14Mm3/d terminal in the northeast, where there is large demand from thermo plants, Sauer said.

Sauer and Gabrielli also guaranteed there is no possibility of a gas shortage because the Petrobras measures are enough to keep up with growing demand.

"Any company that thinks demand will be higher [than our projection] can invest, the regulations are there and so is the market," said Gabrielli.

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