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A push by Brazil President Luiz Inacio Lula da Silva for more and cheaper natural gas is generating concern that the government is turning to interventionist policies, which could discourage investments by oil majors including Petrobras (NYSE:PBR), Shell (SHEL) and Equinor (EQNR), Bloomberg reported Tuesday.
A newly published decree would allows Brazil’s ANP oil regulator to set the amount of natural gas that oil producers reinject into reservoirs, a “one-size-fits-all rule” that could “discourage investments and directly impact the volume of liquids produced in the country,” Andre Fagundes of Welligence Inc. told Bloomberg.
More than 90% of Brazil’s oil and gas production is at offshore fields, where it can cost billions to transport gas to shore through pipelines, resulting in more than 50% of gas production getting reinjected in a process that also increases reservoir pressure to help produce more oil.
Bloomberg says the new decree could divert more gas to the fuel market, bringing down prices for consumers, but having the regulator review how much natural gas oil producers reinject into offshore fields could make oil companies more cautious.
Shell (SHEL) and Equinor (EQNR) are both studying multi-billion-dollar offshore projects in Brazil, where the economics could be afffected if the companies are required to build gas pipelines and limit the amount of gas reinjection; Petrobras (PBR), of course, is Brazil’s biggest oil and gas producer.
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