Petrobras, TNG Clear Hurdles for Urucu Gas Pipelines

Brazil's federal energy company Petrobras (NYSE: PBR) and the TNG consortium last week moved closer to starting construction of a US$750mn, 920km natural gas pipeline which would allow for the commercial use of the 537 million barrels of oil equivalent of reserves at Urucu, deep in the Amazon.

While Petrobras obtained the environmental license (LI) for a 420km pipeline from Coari to Amazonas state capital Manaus, the TNG consortium signed an agreement with the public ministry to conclude the licensing process of a 550km pipeline from Urucu south to Porto Velho.

Petrobras owns 50% of TNG and US energy company El Paso and Brazilian engineering company CS Participações each have 25% stakes.

Because of Urucu's remote Amazonian location, development of the gas found there in the 1980s has faced licensing obstacles from environmental groups, licensing agencies and legal bodies alike. The only transport infrastructure built so far is a 280km line taking oil and gas from Urucu to Coari.

While the oil is taken to other cities down the Solimões and Amazon rivers by barge, most of the gas is burnt locally or is re-injected in Urucu.


On May 26, the Amazon state environment protection agency Ipaam gave the go-ahead for Petrobras to start construction of the US$350mn Coari-Manaus gas pipeline, Ipaam technical director Juscelino Batista told BNamericas.

"The company can start building the pipeline whenever it is ready," Batista said. "The license imposes environmental, social attenuation and compensatory measures which we will supervise and appraise during the pipeline's construction." The one-year license requires Petrobras to abide to 38 conditions, including monitoring processes to reduce forest destruction, controlling emissions and malaria-transmitting mosquitoes, fulfilling obligatory contracts to supply gas to all cities along the pipeline and to gas-fired power plants in Manaus, and delivering vehicular natural gas (VNG) by September 2004.

"We have to think about the economic and social impacts of the process - why should gas, a cleaner fuel than diesel, be burnt [flared]?" Batista said.

In Manaus, the gas will replace the diesel being used to generate electricity, supply industries and run vehicles and could supply Petrobras' 46,000 barrel-a-day Reman refinery there.


Development of this US$350mn line is running behind that of the Coari-Manaus line. Last week, the federal public ministry agreed to drop a suit which was blocking the line's licensing in exchange for more investments in environmental programs, including a 10.5mn-real (US$3.32mn) sustainable development program for the region around the gas line, a TNG spokesperson said.

That 10.5mn reais is in addition to the legal requirement that 0.5% of project costs be spent on environmental measures. "The agreement now puts the licensing process back on track," the spokesperson said.

TNG expects to start pipeline construction sometime between September and February. Construction will take 18-24 months, depending on the rains. The 14-inch diameter pipeline will have the capacity to transport 2.3 million cubic meters a day (mcm/d) to Porto Velho, Rondonia state capital. Some 1.3mcm/d will be used to run El Paso's TermoNorte I and TermoNorte II power plants, which together have 404MW installed capacity. The remainder of the gas would be used by industries and as VNG.

For national environmental body Ibama, the agreement is a chance to discuss energy policy in the region more fully. "The agreement takes the process out of courts and brings it back to the administrative level," the head of Ibama's environmental licensing department, Nilvo da Silva, told BNamericas.

"Ibama now hopes the discussion with society will move forward." The agreement needs to be ratified by the courts after the public ministry, da Silva said. "Now we will have the chance to have better social consensus around the project," da Silva said, declining to say how long it would take for Ibama to issue the full license. "What most concerns Ibama is that there are a lot of energy and power projects for the Amazon region that don't seem to be coordinated, and society needs to have a coherent energy program."

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