Comgas, Fiesp Call for Fast Mexilhao Development

Brazil's largest industry group Fiesp and the largest natural gas distribution company Comgas have called for fast track development of the 419 billion cubic meter Mexilhao natural gas field in the Santos basin, officials from Fiesp and Comgas told BNamericas.

The comments follow a decision by federal energy company Petrobras (NYSE: PBR) to cancel investments in the of 30 million cubic meter a day (Mm3/d) capacity expansion of the B2B Brazil-Bolivia gas pipeline that supplies 70% of gas demand in Sao Paulo state.

The decision was taken after Bolivia's nationalization of hydrocarbons on May 1.

"The Santo basin is a priority to guarantee supply expansion in the future," said Pedro Cauvilla, manager of the infrastructure department at Fiesp, which represents Sao Paulo state industry.

Natural gas has become an important fuel for industries in São Paulo, rising to 12% of industrialists' energy use in 2004, up from 1.5% in 1990, mainly because of the increase in supply with the start of B2B operations in 2001.

"Industries that have turned to gas cannot now turn back to other fuels," he said.

Comgas CFO Roberto Lage stressed the importance of developing Mexilhao fast. The company sells gas in 53 towns in the state of Sao Paulo including the city of the same name.

"Investments have to be made and since the amount of Bolivian gas will not be increased, Mexilhao is an alternative since it's 140km away from our market," Lage said in a teleconference on Thursday. "We have stressed the importance of Mexilhao to Petrobras and the Sao Paulo state government."

B2B is currently carrying some 24Mm3/d so it can meet the expansion in demand through 2008 or 2009, after which Brazil will have to tap new sources of gas.

Petrobras announced in January plans to invest US$18bn in the Santos basin in the next 10 years, mainly to develop Mexilhao.

On the same day Petrobras cancelled plans to expand the B2B, it also said it would both speed up Mexilhao development to start in 2008 and plans for liquefied natural gas (LNG) regasification terminals.

"An LNG regasification terminal on the Sao Paulo coast would also help guarantee gas supply in Sao Paulo," said Lage.

Petrobras is in talks to with Spanish oil company Repsol YPF (NYSE: REP) to develop Mexilhao.

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