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Brazil's domestic natural gas market not benefiting from subsalt bonanza



By Daniel Rodriguez / Platts

Petroleumworld 05 23 2019

Despite exponential growth in deepwater subsalt gas production in Brazil over the last decade, the country's domestic market has not been able to fully benefit from this bonanza, market observers say.

Growing subsalt gas production helped to boost Brazil's total gas production by 90% from 2008-2018, according to the country's National Petroleum Agency, or ANP. But the sale of domestic gas increased only 50% as operators were unable to move gas onshore, instead reinjecting it into the deepwater fields, according to the ANP.

Brazil produced 3.88 Bcf/d of gas in 2018, half from subsalt fields. In 2017, the country's total domestic gas sales totaled 2.68 Bcf/d. Excluding imports, domestic production supplied only 1.65 Bcf/d to the market. Most of the gas produced in Brazil's subsalt fields was reinjected due to the inability to bring it onshore, said Jose Firmo, director of the Brazilian Petroleum Institute, the country's hydrocarbons industry association. ANP data also shows upstream gas reinjection in Brazil grew 176% to nearly 1 Bcf/d over the last decade.

"Further access to subsalt natural gas could help create an industrial revolution in Brazil like the one experienced in the US," Firmo said. "The US suffered from an industrial exodus to Asia in recent decades,. However, the US was able to increase industrial activity by 9% recently thanks to low-priced natural gas."

According to Firmo, US unconventional shale production increased increase gas production by 51% while cutting spot prices in the country by 64%.

"We see the US experiences as analogous for Brazil," he said. "However, it doesn't mean we will be able to cut our gas prices in half."

The administration of President Jair Bolsonaro created Monday a working government group to suggest a roadmap to increase gas supply into Brazil's domestic market and bring greater competition into the sector. The government would like to see an end to state-led Petrobras monopoly over the gas market. Petrbobras retains 100% of the capacity at several major trunk pipelines and ownership over state gas distribution companies.


John Padilla, managing director with energy consulting firm IPD Latin America, agrees with Firmo that there are similarities between shale gas production in the US, especially in the Permian Basin, and the Brazilian subsalt.

"In both regions, gas is an associated byproduct," Padilla said. "The question is what you do with it. The distance to bring gas to market from offshore and its economic value will be the first major obstacle Brazil will have to develop its natural gas market."

Brazil's pipeline network is limited. The country has one meter of pipeline per square kilometer, compared with six in Argentina and 65 in the US, according to Brazilian Petroleum Institute data. Most important, the pipeline capacity to bring subsalt gas onshore is limited.

There is the potential for Brazil's gas market to grow considerably, Padilla said. Gas' share of Brazil's total energy consumption is 11% participation rate versus 41% in Mexico and 55% in Argentina, according to the US Energy Information Administration. Petroleum-based fuels account for 46% of Brazil's energy consumption, followed by hydropower at 28%, renewables at 8%, coal at 6% and nuclear at 1%, according to the EIA.

Going forward, associated gas output in Brazil will grow exponentially as oil production there grows to 7.5 million b/d by 2030 from 2.58 million b/d today, according to ANP projections.

According to the ANP, Brazil currently reinjects a quarter of its total gas production into the subsalt. Allowing more associated gas to land onshore would encourage developing additional subsalt areas that have higher gas content.

"We opened the floodgate for exploration and production, and we will get a good amount of associated subsalt gas," Firmo said. "We have to decide what to do with it."



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Story by Daniel Rodriguez; Edited by Richard Rubin from Platts / SPGlobal.

- 05 16 2019

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