Petrobras likely to miss government’s target on gas prices amid high extraction costs

According to insiders familiar with the matter, Petrobras, Brazil’s state oil giant, is likely to miss the government’s target of reducing natural gas prices by 40%.

The main reason cited is the high cost of extracting gas from ultra-deep waters, which significantly exceeds the production expenses of onshore shale gas drillers in other countries.

Petrobras officials believe achieving such a substantial price reduction is not feasible given their offshore operations, which are 300 kilometers (187 miles) from the coast.

The pressure on Petrobras to lower energy prices has intensified as President Luiz Inacio Lula da Silva aims to steer the economy in a more populist direction.

This has raised concerns among market observers regarding potential political interference.

President Lula seeks to revitalize Brazil’s industrial activity, which relies heavily on affordable power generation fuel.

The Ministry of Mines and Energy suggests that Petrobras could reduce the gas price to US$7-8 per MMBtu (unit of measurement) from the current US$12 by managing the resource differently, as a significant amount of gas is used to support oil production.

However, Petrobras contends that using the gas to increase well pressure is essential for maximizing oil recovery from pre-salt reserves by up to 30%.

The company argues against reducing gas injection, as producing less oil would decrease tax revenue for the government.

Petrobras expects gas supplies to increase by 50 million cubic meters per day by 2028 with the implementation of several projects.

Furthermore, the company aims to secure more long-term supply contracts, which could ultimately contribute to lower gas prices in the future.

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