Analysts: Market Needed to Develop New Gas Findings in Brazi

Brazil lacks a market for the new gas discoveries by state energy company Petrobras in the Santos Basin, off the cost of Sao Paulo, sector analysts told BNamericas. "There is not enough demand for gas. We still don't consume all the gas that we import from Bolivia," said Monica Araujo, an oil analyst for Portuguese bank BES.

In a statement, Petrobras said that over the last 12 months around 4 billion barrels (bb) of oil and 419 billion cubic meters (bcm) of natural gas - 2.6 billion barrels of oil equivalent (boe) -have been discovered in Brazil, representing a potentially recoverable total of 6.6 billion boe. The 419bcm of natural gas was discovered in the Santos basin, of which 70bcm had already been announced as potential reserves in April 2003. The recent discoveries triple the company's reserves to 750bcm. Acknowledging the importance of increasing Brazil's gas reserves, analysts cautioned that it is too early to determine the cost of developing and distributing the reserves. "A gas pipeline from the Santos Basin to the Sao Paulo could costs around US$1bn to construct, but then you have to determine the fees that you are going to charge for the transport and also the desired return," said Claudio Delbrueck, an analyst from BBVA. Market rumors that Santos Basin gas would be as cheap as 0.20 reais/cu. m., compared to 0.38 reais/cu. m. from Bolivia could not be confirmed. However, Emerson Leite, an analyst from Credit Suisse First Boston Garantia, said that the fact that the gas is not associated gas will reduce extraction costs since gas would not have be flared or pumped back. The increase in gas reserves, analysts say, will definitely affect contract negotiations importing gas from Bolivia. Bolivians "now have a big competitor that is closer to the main gas consuming market. If they want to be a long-term partner, they have to take this into consideration," Leite added.

However, Araujo cautioned that Brazil still needs Bolivian gas and that it could take years to develop the Santos Basin. "I don't think Petrobras will divert funds from other projects to develop gas off the Sao Paulo coast while the market itself remains undeveloped," she said. Petrobras said that oil discoveries include 150 million barrels (mb) of high-quality light oil (42 degrees API) in the Sergipe/Alagoas basin, 450mb of 40 degrees API crude in the Espirito Santo basin, and 435mb of light crude in the Santos Basin. In Araujo's view, the discovery of light crude is more important than the gas findings, but he added that further studies are required to confirm the findings. "The incremental 1bn barrels of recoverable reserves of light oil is a significant addition given the absence of significant additions of light oil in recent years. It could potentially translate into lower refining capex, as well as, of course, into future reduction of import costs for the light oil that is currently blended with domestically-produced heavy oil to be processed by local refineries," Leite added. The media excitement surrounding the discoveries caused Petrobras stock to jump 5.53% over the course of the week, to US$8.02 a share from US$7.60.

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