Brazil, Venezuela ink mega-pipeline deal

Jan. 22, 2007
Venezuela President Hugo Chavez and Brazil President Luiz Inácio Lula da Silva signed an accord Jan. 18 for construction of a 5,000 km gas pipeline linking Venezuela to Brazil through the Amazon.

Peter Howard Wertheim
OGJ Correspondent

RIO DE JANEIRO, Jan. 19-- Venezuela President Hugo Chavez and Brazil President Luiz Inácio Lula da Silva signed an accord Jan. 18 for construction of a 5,000 km gas pipeline linking Venezuela to Brazil through the Amazon.

The leaders signed the accord at the start of the 2-day Mercosur summit in Rio de Janeiro attended by officials from Brazil, Argentina, Venezuela, Ecuador, Chile, Colombia, and Peru.

The new accord is for the first segment of a 10,000 km transmission line spanning South America from Venezuela to Argentina, which Brazil, Venezuela, and Argentina ratified last year (OGJ, Jan. 9, 2006, p. 28).

The 5,000 km pipeline will transport half of the 17 million cu m/day production of Mariscal Sucre gas province in Venezuela, which Venezuela claims has reserves of 400 million cu m. Venezuelan state oil giant Petroleos de Venezuela (PDVSA) will hold a 65% stake in Mariscal Sucre, and Brazil's state-run oil company Petroleo Brasileiro SA (Petrobras) will have the remainder.

Officials say at full capacity, the pipeline will transport 50 million cu m/day of gas, including production from other Venezuelan gas fields.

This first section will supply Brazil's northern and northeastern states, starting at the city of Guria. After crossing the border, it will extend south to Manaus, capital of Amazon state, and east, through the northern state of Ceara, to Suape Port, near Recife, capital of Pernambuco state.

Petrobras and PDVSA will be responsible for the pipeline engineering and the financial feasibility study, expected to be completed by yearend.

Preliminary studies budgeted the gas line at $23 billion, which could increase because the agreement calls for changes and expansions of the initially proposed route. It will take 7 years to complete, said Petrobras Pres. Jose Gabrielli and Venezuela's Energy and Petroleum Minister Rafael Ramirez, who also is PDVSA president.

Controversial project
Energy experts in and outside Brazil have questioned the feasibility of the "Pharaonic" gas pipeline project. Environmental groups, worried that the megapipeline will cause environmental damage in the Amazon region, have harshly criticized it. The controversial line is designed to carry 150 million cu m/day of gas.

However, the project has attracted the interest of many energy companies, including Russian giant OAO Gazprom.

The pipeline is part of an energy integration effort that will carry gas from deposits in the southern Caribbean off Venezuela to the Rio de la Plata (Plate River) estuary between Argentina and Uruguay.

The route would link gas lines in Bolivia, Chile, Paraguay, Peru, and Uruguay.

Venezuela, with South America's largest gas reserves, produces 81 million cu m of gas/day, but it lacks the infrastructure to expand production.

Although the largest gas reserves are in the north of South America, 70% of the continent's 365 million people live in the south, where the most-developed pipeline infrastructure is located. Petrobras expects Brazilian gas consumption to grow at a rate of 12-15%/year. Even during economic lulls, such as that of last year, Brazilian consumption has grown at 10%, led by natural gas vehicles and industrial markets. Gas demand also is growing rapidly in other South American markets.

Analysts believe that in 10 years, when existing pipelines are interlinked, the network of pipelines would tap into South America's most important gas reserves in Venezuela (around 150 tcf), Bolivia (28.7 tcf), Argentina (23.4 tcf), Brazil (9 tcf), and Peru (6.8 tcf).

About two thirds of the pipeline will cross Brazilian territory. Brazil's Mines and Energy Minister said public institutions and private investors would be invited to participate in building the pipeline.

Other energy accords
Separately, Petrobras and PDVSA announced accords to create mixed companies. One will explore and produce at Carabobo-1 oilfield in Venezuela's Orinoco belt, with PDVSA holding a 60% stake and Petrobras 40%.

Another is a $ 4 billion refinery in Brazil, the Refinaria Abreu de Lima in Recife, capital of Pernambuco state. Petrobras (60%) and PDVSA would build it. Brazil needs more refining capacity for heavy crude to phase out imports of diesel oil and light crude in coming years. Construction has not yet begun on the refinery, which will process 200,000 b/d of oil after it opens in 2011. The refinery will process half its output with Venezuelan crude and the other half with Brazilian petroleum.