Rio de Janeiro (Platts)--5Mar2013/401 pm EST/2101 GMT

Brazil's subsalt natural gas could be as expensive to produce as $9/MMBtu when it starts flowing in sizeable quantities, a leading oil industry executive said Tuesday.

"It is gas that is difficult to produce, a long way from consumer centers, that needs treatment," said Roberto Ramos, CEO of Odebrecht Oil & Gas, the service company arm of Brazilian construction and engineering giant Odebrecht.

Speaking on the sidelines of the Rio Gas Forum conference, Ramos said that with oil and gas fields situated up to 300 kilometers (186 miles) from the Brazilian coast, transport costs will be high, and much of the gas would either be reinjected or used to power subsalt platforms.

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"As the volumes are very big, the gas processing installations, the gas breakers and compressors, will be enormous. But only half of the gas will be made available," Ramos said. "The other half has to be re-injected and consumed by the platform. The CAPEX of the gas processing units is very high and only half of this gas will be sold."

While $9/MMBtu is a high production price, Brazil has at times recently paid double that for imported gas. The country went through a severe drought late last year that cut into hydropower output, which normally provides more than 80% of the country's power. To fuel gas-fired power generators, Brazil has paid as much as $18/MMBtu for gas imported as LNG, a price level needed in order to compete with demand from Japan, according to market sources.

Ramos said he was more optimistic about the onshore gas reserves Brazil has in areas such as the Sao Francisco Basin in Minas Gerais state -- where Petrobras, Petra Energia and Shell all have concessions.

The basin is relatively near major population and industrial centers such as Brasilia and Belo Horizonte, but lacks infrastructure to transport gas. "It will need to be constructed, but I think that an onshore gas line is much cheaper than an offshore gas line," Ramos said.

Odebrecht has extensive contracts with Petrobras and is preparing to enter into Brazil's onshore gas market as production begins to ramp up, Ramos said.

"We are waiting for competition to happen and the blocks be awarded, and when this happens we are going to offer our services to the companies," Ramos said. "We are preparing to enter the fracking market here and in Argentina."

Brazil is planning an onshore gas concessions bidding round for October this year.

Although optimism is high for the potential of the Sao Francisco Basin, no proven reserves figures have yet been issued. Brazil has 16 Tcf in proven onshore gas reserves, the National Petroleum Agency, ANP, says. But Olavo Colela Junior, an adviser to the ANP board, told Platts in November that Brazil could have as much as 226 Tcf in total onshore unconventional reserves.

Monica Cordeiro, deputy secretary for development for the state of Minas Gerais, said she expected stimulation tests would begin this year in the Sao Francisco basin and that the state is "very" optimistic about reserves in the basin and the potential for both industry and electricity generation. State gas distribution company Gasmig, part owned by Petrobras, already supplies more than 3 million cu m/d of gas in the state, Cordeiro said in an interview on the sidelines of the conference.

She said the state would work to expand the gas pipeline network and other needed infrastructure.

--Dom Phillips, newsdesk@platts.com --Mike Rieke, michael_rieke@platts.com
--Edited by Carla Bass, carla_bass@platts.com

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