Brazil's Sergipe state, Petrobras agree to develop natural gas market

Brazil's Sergipe state government and Petrobras signed a letter of intent to develop a market for natural gas that will be produced by the company's Sergipe-Alagoas Deep Water project, which is expected to start production in 2026.

"The Sergipe Deep Water project is a new development frontier for oil and, primarily, natural gas," Rodrigo Costa Lima e Silva, Petrobras director for gas and energy, said in a statement June 13. "With this letter of intent, Petrobras hopes to contribute to the population of Sergipe so that the state can take advantage of the opportunities created by the natural gas market."

The gas produced from the project could be used as industrial feedgas or as a source of heat and energy, Petrobras said.

The letter of intent represented the latest advance in the ongoing opening of Brazil's natural gas sector under the New Gas Market regulatory regime that was passed in April 2021. The new rules and regulations ended Petrobras' monopoly in the country's gas sector with the aim of increasing natural gas production, creating greater competition, and lowering prices.

Sergipe could enjoy a privileged position in development of the New Gas Market as Petrobras develops the much-anticipated Sergipe Deep Water project, which opened a new exploration and production frontier along Brazil's Atlantic Ocean coast. Petrobras made more than a dozen separate oil and natural gas discoveries across four concession blocks off the coast of Sergipe and Alagoas states in the early 2010s.

Commercially viable

The discoveries were largely kept on hold as Petrobras focused on development of larger, more-prolific deposits in the subsalt region of the offshore Campos and Santos basins off the coast of Rio de Janeiro and Sao Paulo states. The Sergipe-Alagoas Basin contains onshore and shallow-water production assets but lacks deepwater infrastructure to facilitate development.

Petrobras finally included the Sergipe Deep Water project in its 2022-2026 investment plan and declared seven separate oil and gas deposits commercially viable for development in December 2021.

The plan includes installation of two floating production, storage and offloading vessels, or FPSOs, to develop reservoirs spread across the BM-SEAL-4, BM-SEAL-4A, BM-SEAL-10 and BM-SEAL-11 blocks. The FPSO P-81, also known as known as SEAP-1, has installed capacity to produce 120,000 b/d and process up to 8 million cu m/d. The second FPSO is still in planning, but will likely have similar capacity, according to Petrobras.

The project also includes an offshore gas-export pipeline capable of transporting about 18 million cu m/d, according to Petrobras.

The FPSO P-81 is expected to pump first oil in 2026.

While Petrobras has declined to provide a volume estimate, market analysts have said the region contains about 1.2 billion barrels of recoverable oil and gas. Sergipe state government officials expect the field to pump about 20 million cu m/d at full capacity.

New industries

The volume of resources available "puts Sergipe in a very competitive position to attract new industries," said Marcio Felix, executive secretary at the State Oil and Gas Forum and a former official at Brazil's Mines and Energy Ministry. "This is a development that is here to stay and will generate opportunities that are starting to be planned now."

The development has also attracted the attention of global oil companies, with ExxonMobil teaming with Brazilian independent Enauta and Murphy Oil to explore nine adjacent exploration and production concession blocks. The group drilled its first well in the region in February, but the Cutthroat-1 prospect was a dry well, the companies said in March.

ExxonMobil holds a 50% operating stake in the blocks, while Enauta retains 30% and Murphy Oil owns 20%.

Petrobras' Sergipe Deep Water project and the ExxonMobil-led drilling campaign "bring enormous opportunities for new business to the state, representing an important factor to attract enterprises intensive in gas consumption, such as thermal power plants, fertilizer production, glass, ceramics and petrochemicals," Sergipe state government said in a statement.