* First auction of shale gas blocks forecast for December * Environmental risks for explorers could be steep * Recent studies show potential of 500 trillion cubic feet By Leila Coimbra RIO DE JANEIRO, Jan 16 Brazil could offer exploration blocks that contain deposits of shale gas in as many as five separate basins in an auction planned for December, preliminary studies by the national oil agency (ANP) showed. Environmental and legal risks in Brazil may still preclude a boom in shale gas production like that seen in the United States over the past half decade, however. Olavo Colela, an ANP board spokesman, said the government wants to start developing natural gas from shale, also known as unconventional gas deposits, and include such blocks in an exploration auction forecast for December. "The gas is the same but the form of production and the reservoir are different. (Shale) is a more porous reservoir, as if it were a sponge, and you need to fracture it with water for the gas to escape," Colela told Reuters in an interview this week. Initial studies by the ANP show that the greatest potential for shale gas deposits in Brazil are located in the Parecis Basin in Mato Grosso state, the Parnaíba in Maranhão and Piauí states, the Recôncavo in Bahia state, Paraná in Paraná and Mato Grosso do Sul states and the São Francisco Basin in Minas Gerais and Bahia states. Basins with potential shale gas in the Amazon and off the coast will not be included in the auction, Colela said. Tight oil and shale gas production is almost nonexistent in Brazil. The only project of this type was done by the state-run oil company Petrobras in the state of Paraná, where it produces small quantities of oil through fracking. Energy production in the United States over the past few years with progress in technologies like horizontal drilling are transforming the world's largest importer of oil into a potential exporter in the coming years. The growth in production in North America in the past five years has driven down the price of natural gas and is stimulating energy intensive industries. The price of natural gas fell from between $10 to $13 per million British Thermal Unit (BTU) to nearly $2 per BTU. Colela dismissed prices falling to such levels in Brazil, however. "There has been an explosion in production in the United States ... This glut has toppled prices," he said. Colela said the production of tight oil and gas is controversial, however. Oil, gas and fracking chemicals could potentially seep into aquifers and environmentalists have expressed concern over the potential damage in one of the world's most biodiverse nations. Exploration companies interested in these shale deposits will first need to get approval from the local environmental agency Ibama, which has been notoriously slow and bureaucratic. Companies could also face massive lawsuits if any environmental damage is suspected. U.S. oil major Chevron and the world's largest oil drilling company Transocean were fined $20 billion about a year ago for the spill of just 3,000 barrels of offshore oil that never reached local beaches. "The environmental risk of extraction of unconventional gas is greater than conventional production offshore, considering the risk of a spill such as what happened in the Gulf of Mexico," he said, referring to BP's Deepwater Horizon incident. Brazil currently has natural gas reserves estimated at 32 trillion cubic feet. Director General of the ANP Magda Chambriard said recently that estimates of the shale deposits in the above-mentioned basins indicate potential reserves of up to 500 trillion cubic feet. Colela said environmental considerations would be paramount. "The contamination of the aquifers is closer to people's lives. It reaches household faucets," he said.
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