Brazil, Venezuela plan ambitious oil and gas partnerships

<a href=ogj.pennnet.com>Oil & Gas Journal By an OGJ correspondent

RIO DE JANEIRO, Apr. 28 -- Brazil's President Luiz Inácio Lula da Silva and Venezuela's President Hugo Chávez reported that negotiations have been renewed to establish wide-ranging partnerships between state-owned oil firms Petroleo Brasileiro SA (Petrobras) and Petroleos de Venezuela SA.

The former administration of President Fernando Henrique Cardoso had started more modest negotiations, but they were never formalized.

The announcement was made after a meeting between the two presidents Friday in Recife, the capital of Brazil's northeastern state of Pernambuco. Chávez's visit to Brazil was his third since Lula took office on Jan. 1, but was the first meeting specifically used to discuss business, and not politics.

For years, Brazil was little more than a customer for Venezuelan oil, but after the meeting, the presidents stated they had "interests in common in the oil sector" and they "intend to expand cooperation."

Commercial partnerships The commercial alliance ratified a mutual cooperation agreement between the two countries for the development of the petroleum industry. It was decided that the areas of cooperation would occur in refining and commercialization of heavy crude, exploration and production in Venezuela, technological exchange of ideas, and joint activities in the areas of petrochemicals and natural gas.

"We want to refine oil in or as close to Venezuela as possible in the Caribbean, in the Andes, or here in Brazil," Chávez said, adding, "We can refine all this oil here and sell gasoline not only in South America but also in the Caribbean and Africa."

Brazil's Foreign Relations Ministry said that under Lula's administration, negotiations took place in Caracas during Mar. 27-8. On Apr. 14, a Venezuelan mission headed by Venezuela's Mines and Energy Minister Rafael Ramirez, including PDVSA Pres. Alí Rodríguez Araque, met with Brazil Mines and Energy Minister Dilma Roussef and Nestor Cerveró, Petrobras's international director, and inked a protocol of intentions to expand business in the sector.

Representatives from PDVSA and Petrobras organized groups to carry the decisions made at the meeting. The exchange of ideas and information will enhance the potential and synergies already identified by the two companies, according to a Petrobras source.

New refineries Petrobras also announced the construction, either alone or in partnership with PDVSA, of a new refinery in northeast Brazil with an output of 150,000 b/d of oil. The refinery is expected to cost some $2 billion.

The refinery is a long-standing economic development idea to meet the needs of Brazil's north and northeast, a vast poverty-stricken region with a population of 40 million.

The refinery is expected to come on stream in 2007. According to Rogerio Manso, Petrobras director of supply, the refinery will be the first in Brazil to have the capacity to process heavy crude oil, which is currently being exported.

Eleven of the 13 refineries in Brazil are owned by Petrobras and were built at a time when Brazil imported most of its crude from the Middle East; most of the oil produced in Brazil is heavy.

Even before the construction of the refinery, Petrobras intends to increase its refining capacity by 200,000 b/d by 2007, with investments of some $5.5 billion to upgrade refineries already operating.

Brazil processes some 1.62 million b/d of crude oil and Petrobras is working to increase this figure to 1.82 million b/d of refined products by 2007. Petrobras is importing about 190,000 b/d of oil products.

Line of credit Brazil's National Economic and Social Development Bank (BNDES) has opened a 2-year, $1 billion line of credit for Venezuela to use to purchase from Brazil oil platforms, turbines, locomotives, machinery, engineering services, and irrigation technology, plus other equipment.

The BNDES had previously provided financing for construction works such as an Orinoco River bridge in Venezuela.

Last December Petrobras shipped 82 million l. of gasoline to Venezuela, as requested by the Venezuelan government, by outgoing President Cardoso, to ease the fuel's shortage caused by the months-long PDVSA strike.

Venezuela's economy has slipped into sharp recession after a year of political conflict between Chávez and opponents demanding early elections in the world's fifth largest oil exporter. The nation's economy contracted nearly 9% in 2002 and many economists are forecasting a double-digit contraction for this year after a grueling opposition strike disrupted the oil shipments that account for half of the government's revenues.

The BNDES loan is based upon a solid collateral: Venezuela's vast oil reserves, analysts reported.

The Venezuelan and Brazilian governments are negotiating other deals for the downstream sector. Either Petrobras purchases or associates itself with one of PDVSA's refineries in the US or PDVSA associates itself with a Brazilian refinery.

The state of Pernambuco itself has inked a protocol of intentions with PDVSA to build a $2 billion refinery with an output capacity of 200,000 b/d.

Sources close to Brazil's mines and energy ministry told OGJ that Venezuela is interested in closing partnerships worth some $3 billion within Brazil's petrochemical sector, which is on firmer ground than Venezuela's.

The two governments also are discussing the possibility of Venezuela transporting natural gas to Carajas in Brazil's northern state of Para. Brazil is one of the world's largest exporters of iron ore, most of which comes from Carajas through Cia. de Ferro Vale do Rio Doce.