Brazil betting on fertilizers to boost domestic natural gas market

Brazil’s plan to increase the production of fertilizers could play a key role in enhancing food security and further developing its natural gas sector. 

Given the country’s significant dependence on fertilizer imports, the federal government is working to stimulate local output. 

That could drive an increase in the use of domestic natural gas – an important raw material for the production of fertilizers but most of which is currently reinjected. 

Brazil’s main oil and gas producer, Petrobras, recently created a working group to discuss the reopening of its nitrogen fertilizer plant in Paraná (Fafen-PR) and the completion of Fafen Mato Grosso do Sul (Fafen-MS).  

The state-run firm is also discussing joint ventures with Unigel for opportunities in fertilizers. 

One of the main fertilizer producers in Brazil, Unigel is experiencing financial difficulties that have led it to halt its two plants leased from Petrobras in Sergipe and Bahia states. 

The company’s delicate situation stems from a combination of the relatively high prices of Brazilian gas and the sharp drop in the prices of urea and ammonia in the international market. 

In addition to Petrobras, Unigel has signed gas purchase contracts with Shell, Galp, PetroRecôncavo and Bahiagás.

Petrobras is being pressured by the mines and energy ministry (MME) to reduce gas reinjection, especially in offshore pre-salt fields, and make additional volumes available for consumption onshore. 

But the federal oil giant defends the reinjection rates, arguing that compromising oil production in favor of gas has a negative impact for the country in terms of tax revenues, royalties and foreign currency.

According to oil workers' union FUP, the current practices and levels of production and reinjection were defined in research and indicators approved by oil and gas watchdog ANP years ago and are difficult to change in the short term.

Ordered by FUP, a new study by petroleum studies institute Ineep pointed out that Brazil is an oil country, not a gas country. It has a low volume of natural gas reserves, about 12Tf3 (trillion cubic feet), when compared to the largest gas producers in the world: Russia (1,321Tf3), Qatar (870Tf3) and the US (400Tf3).

As Brazil's natural gas reserves are located offshore, in deep and ultradeep waters, the cost of extraction is higher than it is for the largest producers, where production is onshore.

In addition, in the pre-salt, natural gas is associated with oil, which requires separation – a high cost and complex operation. 

Ineep's research also called attention to the environmental aspects of the reinjection practice, used to increase well productivity but also to reduce greenhouse gas emissions.

Even so, Brazil is expected to more than double offshore natural gas supply to the domestic market in the next five years thanks to the Rota 3 pipeline and the BM-C-33 and Sergipe deepwater projects. 

AÇU PORT

Rio de Janeiro was the first Brazilian state to approve a plan to encourage the production and supply of fertilizers, aiming to establish a business environment favorable to attracting investors.

Located in the north of the state, Açu port announced last week a partnership with Toyo Setal to develop a nitrogen fertilizer production plant. 

The companies will work together on structuring, development, environmental licensing and the search for strategic investors for the project. 

It is estimated the plant will have capacity to produce 1.38Mt/y of urea and 781,500t/y of ammonia using natural gas.

"As the largest producer of natural gas in the country and a strategic location, our state is fully capable of assuming a leading role in Brazilian agribusiness, reversing Brazil's external dependence on fertilizers and attracting investments in the new energy frontier," said the president of the federation of industries of Rio de Janeiro (Firjan), Eduardo Vieira, in a release.