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Bloomberg: Bolivia-Brazil Gas Accord May Lead to New Petrobras Investment

By Jeb Blount and Luciana Magalhaes

Feb. 16 (Bloomberg) — Petroleo Brasileiro SA, Brazil’s state-controlled oil company, may soon be able to invest in expanded natural gas output in Bolivia, thanks to a gas-price agreement between the countries, Brazil’s energy minister said.

Brazil’s agreement yesterday to pay more for gas from Bolivia, the source of about half its supply, resolves the main issue in a dispute between Bolivian President Evo Morales and Petrobras, the biggest company operating in Bolivia, Silas Rondeau, Brazil’s energy minister, said in an interview.

By meeting Morales’s demand for greater control and higher prices for resources, Petrobras is closer to having clear rules for oil and gas investments, Rondeau said. With clear rules, Petrobras can then expand output from its San Antoino and San Alberto fields, increasing Brazil’s access to gas that is cheaper to produce than domestic offshore sources, he said.

“The most important victory for Brazil is that the agreement may lead to a clear regulatory environment in Bolivia,” Rondeau said in his office in Brasilia after the accords were signed yesterday. “This may allow Petrobras to expand output from San Alberto and San Antonio.”

The dispute over gas prices reached a peak May 1, when Morales sent the Army to seize the assets of Petrobras and other foreign oil companies in Bolivia, which has Latin America’s second-largest gas reserves after Venezuela.

Petrobras and other foreign oil companies have since signed new contracts that increase gas taxes and Bolivian say over how the fields are run. Petrobras, which refines all of Bolivia’s gasoline, aviation fuel and cooking gas and provides most of its diesel oil, must still resolve the price Bolivia will pay for a 51 percent stake in the Petrobras refining units, Rondeau said.

Two Contracts

The gas agreement involves two contracts. One is for about 1.2 million cubic meters a day of Bolivian gas to a 400-egawatt power plant owned by Royal Dutch Shell Plc. and Ashmore Investment Management Ltd. in Cuiaba, Brazil, near the Bolivian border. The other is for 24 million to 30 million cubic meters a day with Petrobras.

The increases should bring YPF Bolivianos, the state oil company, an additional $145 million a year in revenue based on prices and volumes sold in 2006 said Carlos Villegas, Bolivia’s hydrocarbons minister, at the signing ceremony.

Petrobras, which is responsible for about 10 percent of Bolivian gross domestic product, imported $1.26 billion of gas from the country in 2006, Rondeau said.

The Cuiaba plant will pay $4.20 per million British thermal unit starting April 15, a price that will be adjusted quarterly based on changes in the price of a basket of international fuels. The previous price, set in the 1990s when the plant was owned by Enron Corp., was 1.09 per million Btu.

“The old price was unreasonable,” Rondeau said. “It was below the cost of production and nobody can provide something at that price.”

Stripping Out Components

Brazil also agreed that Petrobras will start paying separately for gas components, such as ethane, butane, propane, liquid natural gas and natural gasoline that it receives under its current 20 year contract with Bolivia.

The Brazilian company will have to absorb extra costs associated with the components unless it strips them out and sells them separately, because under current contracts with distributors it cannot pass along the additional expense.

Petrobras imports about 24 million cubic meters a day from Bolivia and plans to increase that to 30 million. Under the new system, Petrobras will pay as much as 6 percent more for Bolivian gas, Rondeau said.

Bolivia, Brazil, Petrobras and Braskem SA, Latin America’s largest chemical company, will present a plan to Bolivia later this month for a $1.4 billion petrochemical plant in Bolivia near the border with Brazil, he said. Such a plant is a potential customer for the higher-cost gas components.

“We will have to find an entrepreneurial solution to this,” Jose Sergio Gabrielli, chief executive officer of Petrobras, told journalists in Rio de Janeiro yesterday. “A petrochemical plant is a possibility, if we’re paying for the components, we will want to use them, not burn them.”

To contact the reporters on this story: Jeb Blount in Rio de Janeiro at [email protected] ; Luciana Magalhaes in Brasilia at [email protected]

Last Updated: February 16, 2007 10:50 EST

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