BG Group and Petrobras Look to Develop FLNG in Brazil

Brazil could become a new centre for floating liquefied natural gas (FLNG) projects after BG Group and Petrobras recently signed a contract for joint development of the Santos Basin's pre-salt layers off the coast of Sao Paulo.

The firms signed a joint venture agreement that will see them work on developing FLNG projects as an additional option to commercialise the material associated with natural gas reserves in the area.

Recent Developments

Brazil has seen a huge amount of activity in terms of both oil and gas reserves over the last year.

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The first oil was extracted from the Santos Basin on May 1st this year from the pre-salt layer in the Tupi field. It marked the beginning of a 15-month-duration test conducted by the Petrobras platform vessel Cidade de Sao Vicente, which will see information on the reserves in the pre-salt layer being gathered.

It is estimated that the Tupi field contains between five and eight billion barrels of oil and natural gas, which would significantly increase Brazil's total energy reserves.

Petrobras holds a 65 percent stake in the field, while BG Group has a 25 percent interest and Petrogal owns a 10 percent stake. The companies have continued to make discoveries in the Santos Basin, while the Campos Basin off the coast of Rio de Janeiro has also been yielding good results.

The Tupi field has been the focus of much of the attention, but other areas within the Santos Basin may also be commercially viable. BG Group (30 percent) and partners Petrobras (45 percent) and Repsol (25 percent) recently discovered the presence of an accumulation of oil and natural gas in the BM-S-9 concession area of the Abare West field.

FLNG Activity

While oil commercialisation has so far dominated the Brazilian headlines, natural gas could prove just as lucrative. Under the new agreement between BG Group and Petrobras, front-end engineering and design (FEED) contracts will be awarded for a new FLNG vessel.

This will operate close to the planned floating production, storage and offloading (FPSO) vessels in Santos basin. The FLNG facility will process and liquefy the natural gas from the pre-salt fields before offloading to LNG ships.

It is expected that the FLNG processing capacity will be up to 14 million cubic metres of associated gas. The 3 million tonnes of LNG produced each year would then be shipped to Petrobras-operated regasification terminals at Pecêm and Guanabara Bay to supply the Brazilian domestic market or would be exported to other global customers.

"We are delighted to extend our already close working relationship with Petrobras as we jointly consider options to develop the very material associated natural gas potential of the Santos Basin pre-salt," said Frank Chapman, chief executive of BG Group.

"This agreement draws on a range of strengths within each company, combining Petrobras' expertise in ultra-deepwater exploration and development with BG Group's proven skills at all points of the global gas value chain," he added.

Moving Forward

The two companies hope that the FLNG project will get off the ground in 2011. They issued the tender for development of the FLNG FEED contracts in August this year and in October they invited several consortia comprising international suppliers with liquefaction and FPSO construction experience to put forward their initial proposals.

BG Group and Petrobras expect to award the contracts to as many as three of the conglomerates invited to bid and have decided to separate the projects in parallel so that this fosters competition between the businesses. They believe this will reduce the overall cost of the FLNG vessel.

The successful bidders will prepare proposals in 2010 and the two firms expect to make the final investment decision (FID) in 2011, basing this on the technical and economic feasibility studies presented by the consortia for each of the FLNG FEED projects.

Petrobras and BG Group's FID will also consider an assessment of how viable alternative development options are, such as installing new subsea pipelines, which would link the Santos Basin pre-salt resources to onshore gas processing facilities.