Rio state studies proposals for LNG/petrochemical complex

The state of Rio de Janeiro is studying proposals that could lead to development of a $ 5 bn LNG and petrochemical complex at a key port area. LNG and petrochemical exports from the complex would target the US. The complex would fed by natural gas-both the vast reserves recently discovered off the state and growing supplies imported from neighbouring Bolivia.
Rio de Janeiro State Energy, Shipbuilding, and Oil Sec. Wagner Victer told that there are advanced studies evaluating the construction of LNG plant and an industrial complex in an area of Sepetiba Port, south of the city of Rio de Janeiro.
"Around $ 2 bn has been allocated to start the LNG project; however, depending on the number of trains set for the liquefaction plant and the dimensions of the export terminal, plus other plants, costs will most probably increase to $ 5 bn."

Other investments envisaged involve units for gas processing/NGL recovery, ammonia-urea, and olefins (namely ethylene and propylene) with possible intermediates such as polyethylene, high-density polyethylene, and polypropylene also under consideration, Victer confirmed. The project will be financed by the National Economic and Social Development Bank (BNDES). The draught Sepetiba port is strategically located near the country's main consumer markets, Sao Paulo and Rio de Janeiro, and available infrastructure includes a Petroleos Brasileiro (Petrobras) pipeline network already in place.
"The Sepetiba port was included by the federal government in the export processing zone (ZPE), so it is entitled to fiscal benefits for exports. And furthermore the ICMS sales tax over assets usually charged by the state government will be scrapped for this project," Victer said. "Sepetiba is a developed port complex, and its geographical position is also privileged in relation to recent discoveries of estimated reserves of 420 bn cm of natural gas on the BS-400 block in the Santos basin by [Petrobras]. Furthermore, Petrobras owns land at the port for its PetroRio petrochemical hub, which was never developed."

According to Victer, this will help to expand the gas liquids-based olefins complex under construction in the same region, where plans call for production of 515,000 tpy of PE, an ammonia-urea plant, and a gas processing/NGL recovery unit.
"Besides exporting LNG, the gas available from Brazilian reserves and by the take-or-pay contract with Bolivia can be used to implement other petrochemical installation projects, such as a first-separation phase of ethane and the supply of the residential and automotive markets with natural gas, plus the generation of [electric power]."

The secretary confirmed that the natural market for exporting Brazilian LNG would be the US and his plans for the developing the project call for participation in a joint venture with multinational oil and gas companies. At the top of his list of multinationals are Houston-base El Paso and Norwegian state oil company Statoil. El Paso operates one of the largest natural gas pipeline systems in North America and is heavily involved in LNG import schemes. Statoil's US unit is a trading and marketing business that delivers 600,000 bpd of crude oil, gasoline, butane, and propane into the US.
Victer also said that other companies are welcome to participate. Jacob Sannes, director of Statoil in Brazil, told the project is "very interesting, but the company will not make a formal decision about the project before having more details and negotiating with Petrobras and the government."

Victer, formerly head of Petrobras's exploration and production division, also noted that "the goal of the joint venture is to take advantage of the estimated 420 bn cm of natural gas reserves recently discovered by Petrobras off the coast in the Santos basin. This great potential could add supplies to the domestic and foreign markets and boost the petrochemical sector."
The secretary also said the state's strategy is to back out imported petrochemical feedstocks such as LPG with domestic natural gas andto substitute in power generation schemes natural gas for low-value-added refined products such as fuel oil, which could be further refined into higher-value products. Another consideration would be the environmental benefits from the replacement of gasoline with vehicular natural gas.

Victer also noted that the project would contribute to the government's policy of generating more jobs and improving the trade balance, being negatively affected by Brazil's imports of natural gas from Bolivia under a take-or-pay contract paid in dollars.
The Brazilian government until recently had been negotiating with Bolivia for greater flexibility in the take-or-pay contract that calls for payment for a minimum of 14 mm cmpd even if actual volumes fall below that level. In 2004, this minimum will rise to 18 mm cmpd, but Brazil's consumption currently is only 13 mm cmpd, said the mines and energy ministry.

Negotiations were halted prior to the recent ouster of Bolivian President Gonzalo Sanchez de Lozada due to massive and bloody protests sparked by a project proposed to export Bolivian gas as LNG via Chile to Mexico and the US. Lozada was replaced as president by his vice-president, Carlos Mesa, who promised to call upon the Bolivian people to vote in a referendum as to whether they wanted this project to go ahead or not.
After Mesa took office, Marco Aurelio Garcia, an international aide to Brazilian president Luiz Inacio Lula da Silva, told that the referendum will probably also include the natural gas sales to Brazil. "I do not believe that Bolivia is hostile in relation to gas exports to Brazil, but the country is a historical enemy of Chile and Peru through which the natural gas would be exported to the US." Garcia was on an official mission in Bolivia to try to mediate the trade conflict before Lozada resigned.

The shortfall of Brazilian gas demand vs. Bolivia's takeaway capacity has been blamed on a projected flurry of gas-fired power plant construction in Brazil that has yet to materialize. But Victer says he does not believe that the gas-fired electric power plant boom projected for Brazil has failed yet.
"In my opinion market conditions did not correspond to the expectation, and this led to a contraction of these projects. Due to the [government's] new energy model, which is more attractive to private investors, and to adjustments in the natural gas market being proposed by the mines and energy ministry, a new impetus for the development of gas-fired thermoelectric plants may take place for joint [development] with other projects."

Victer said that the LNG export facility will probably come on stream within 4-5 years, depending upon environmental licensing and agreements with the market players that would concur in purchasing its output.
"Brazil's 20-year contract with Bolivia calls for eventually importing 30 mm cmpd of natural gas, and this figure is currently being used as a parameter for the LNG export project to the US.” However, the secretary stressed that this and the number of trains to be built for the project depend on how much firm interest is shown by foreign companies to import LNG from Rio de Janeiro. "The final project will be defined only by the first quarter of 2004," he added.