1. Natural gas utilization and flaring reduction in Brazil Petrobras Experience Carlos Augusto ARENTZ PEREIRA Petrobras - G&E/Energy Efficiency Denis Krambeck Dinelli Petrobras - E&P/Gas Production Planning

2. Agenda Natural Gas Consumption Gas Production Scenario and Forecast Energy Conservation Program Gas Recovery Gas Flaring Reduction Initiatives Opportunities Conclusions

3. Facts about natural gas usage in Brazil Natural gas – Source with greatest increasing rates on brazilian matrix; – Participation more than doubled in last 8 years: From 3.7% (1998) to 9.3% (2005) – It has been displacing many oil products.

4. Brazilian Energy Matrix 2005 HYDROPOWER 15% URANIUM 1% CRUDE OIL AND PRODUCTS 39% SUGAR CANE AND PRODUCTS 14% NATURAL GAS 9% COAL AND PRODUCTS 6% OTHER RENEWABLES 3% WOOD AND CHARCOAL 13%

5. Brazilian Energy Consumption CRUDE OIL AND PRODUCTS NATURAL GAS COAL AND PRODUCTS URANIUM HYDROPOWER WOOD AND CHARCOAL SUGAR CANE AND PRODUCTS OTHER RENEWABLES 0% 20% 40% 60% 80% 100% 1970197119721973197419751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000 20012002 200320042005

6. 16.3 15.8 16.1 17.7 18.9 21.7 25.5 30.1 30.4 33.3 32.8 34.9 37.3 36.7 5.3 6.1 7.5 8 7.8 7 6.3 7.8 9.410.4 10.9 11.3 0 5 10 15 20 25 30 35 40 45 50 19931994199519961997199819992000200120022003200420052006 NON ASSOCIATED ASSOCIATED Natural gas production evolution in Brazil (million m3/d) 7.3 % p.y. 4

7. Petrobras in numbers 16 Refineries with a capacity of 2,125 millions bpd Gross Revenue US$ 41.2 billions ethylene production: 2,4 millions ton/year gas sales: 52 million m 3 /day 9 thermopower stations 3,2 GW proven reserves: 11.8 billions of boe (SEC 2005) oil and gas production:* 2,20 million boe/day (SEC 2005) 6,933 gas stations in Brazil (34% retail market) 25% of retail market in Bolivia and 14% in Argentina 746 gas stations in Argentina 105 gas stations in Bolivia Pipelines: 30.318 km Natural Gas Petrochemicals Retailing E&P *Brazil and abroad Refining, Transportation, Trading Refining, Transportation, Trading 50 vessels fleet

8. Consequences of natural gas usage at Petrobras For many years Petrobras was the single biggest NG consumer: – Up to 58% of whole country consumption in 1990; – Became major energy source for Petrobras; – Displaced mainly fuel oils – specially on refineries; – This required major adaptation on furnaces and boilers; – Market development has increased in last 10 years: – Petrobras consumption was in 2005 only 30%. Natural gas source promoted: – Reducing emission on specific pollutants like sulphur oxides and particulates; – Reducing GHG emissions per energy equivalent consumption; – Cogeneration projects; – All these enhanced gas flaring reduction projects.

9. Fuel consumption Matrix – Petrobras - 2005 FUEL OIL 18% OTHER 1% DIESEL 3% NATURAL GAS 46% REFINERY GAS 17% RESIDUAL GAS 1% CAT CRACKING COKE 14%

10. Fuels consumption at Petrobras (tPE/year) 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 1990199119921993199419951996199719981999200020012002200320042005 FUEL OILDIESELNATURAL GAS REFINERY GASRESIDUAL GASCAT CRACKING COKE OTHER

11. Energy conservation program Petrobras has an Energy Conservation Program since 1974 – PETROBRAS Energy Consumption in Brazil: aprox. 242,000 bpd; – From 1992 to 2005 this program allowed: savings of 2,800 bpd oil equivalent; Fuel oil, diesel, refinery gas, cat cracking coke, natural gas; – It has been reducing internal consumption by 1% per year; – Results at least US$ 220 million - Return rate of 30 % per year: equals 1.5 million tPE and 5 million t CO2 emissions avoided; Results equal one year results of a 170,000 bpd refinery; Helped company achieve Dow Jones Sustainability Index

12. Case – Gas flaring utilization Gas flaring used to generate power at Sergipe since 2002 – Due to distance from market gas was flared at one production field – Atalaia 36,500 m³/d – Electrical Power purchased from local distributing company – Opportunity to generate and replace purchased power – Gas turbine 5.2 MW – supplied whole site demand – Investment US$ 2.5 million – NPV US$ 3.3 million - rate of return 41% per year – Reduced average energy production cost – Avoided flaring – Promoted better energy efficiency in whole site Improvements ahead

13. Increase on Energy Efficiency Petrobras - Brasil 0 50 000 100 000 150 000 200 000 250 000 300 000 350 000 1990199119921993199419951996199719981999200020012002200320042005 Energy equivalent bpd 500 000 700 000 900 000 1 100 000 1 300 000 1 500 000 1 700 000 1 900 000 2 100 000 Production/ Refinning bpd ENERGY CONSUMPTION CRUDE OIL REFINING OIL AND GAS PRODUCTION

14. Dow Jones Sustainability Index On this evaluation at Environmental Dimension Eco-efficiency criteria Petrobras has achieved 100%, best result on peer group. Acknowledgement to our efforts on Energy Conservation.

15. Petrobras: overview of domestic E&P Reserves (at December 31, 2005) – Proven reserves of 13.23 billion boe (SPE) – or 10.58 billion boe (SEC) – Reserve / Production Ratio of 19.7 years (SPE) and 15.7 (SEC) – Internal Reserve Replacement of 131.1% (SPE) and 101.3% (SEC) Production (2005) – 1,958 thousand boed (1,684 thousand bpd oil) – 5-year CAGR of 5.6% F&D Cost – US$ 3.45/boe (2003 – 2005) – SPE Lifting Cost – US$ 5.73/boe (2005) Exploratory Area (Nov/2005) – 157.7 thousand km 2 (Petrobras + Partners) – 153.4 thousand km 2 (other Companies) Total: 311.1 thousand km2

16. Natural gas utilization in Brazil – 2006 Till september E&P Internal Use 7.8 million m 3 /d Flare: 5.1 million m 3 /d Injection: 8.6 million m 3 /d Liquefied PG 1.6 million m 3 /d Imported: 24.7 million m 3 /d PB Refineries /Urea Plants: Consume: 7.2 million m 3 /d Liquefied: 1.9 million m 3 /d Market: 39.5 millionm 3 /d Production 48.0 million m 3 /d: - 36.5 million m 3 /d associated (78 %) - 11.5 million m 3 /d non-associated (22 %) 24.9 million m 3 /d

17. Associated gas production and flaring in Brazil

18. Associated gas utilization index Measures the percentage of the associated gas produced that's sold or utilized in Petrobras’ E&P internal processes. IUGA = Associated Gas Utilized Associated Gas Produced = (Associated Gas Produced – Flaring and Venting) Associated Gas Produced

19. Associated gas utilization evolution in Brazil (Million m 3 /d) 50% growth in associated gas production 3,3 million m 3 /d reduction in gas flaring 13% improvement in gas utilization - Beginning of production in two new platforms: P-50 and FPSO-Capixaba (Albacora Leste and Golfinho fields).

20. Associated gas utilization evolution : CAMPOS BASIN (Million m 3 /d) 22% improvement in gas utilization 3,5 million m 3 /d reduction in gas flaring. Result of the Campos Basin’s Gas Utilization Optimization Program (POAG)

21. Gas recovery initiatives From 1992 to 1997 many projects promoted gas flaring reduction: – Close to 1 million m3/d of gas flaring avoided – A series of studies were developed in parallel aiming at flaring reduction, analyzing main gas flaring causes At the same time, legislation over flaring avoidance became stricter The best options for flaring reduction were united in an Action Plan in 2001: Campos Basin’s Gas Utilization Optimization Program - POAG

22. Campos basin’s gas utilization optimization program (POAG) POAG consisted 93 actions determined to improve associated gas utilization in 24 platforms like: – installation and revamp of compressors – new gas pipelines – optimization of the processing plants Potential gain in gas utilization of 4.2 million m 3 /d Total investment of approximately US$ 200 million 91 actions concluded; the remaining two will be concluded until feb/07, providing a gas utilization improvement of 0.7 million m 3 /d

23. Campos basin’s gas utilization optimization program (POAG) Besides POAG, US$ 98 million have been invested in two gas injection projects: – up to 2.4 million m3/d of the associated gas can be stored in case of processing, transporting or marketing problems onshore Petrobras also invested in workforce’s training and qualification, in a partnerships with ANP – Brazilian Petroleum Agency - and the Federal Technological Center through courses and forums on best operational practices

24. Petrobras air emissions management system (SIGEA)

25. Interface Automatic data acquisition Inventory Data bank Reports E&P sources Protocol API ARPEL OGP Actions to manage emissions

26. Petrobras air emissions management system (SIGEA)

27. What’s the forecast for gas flaring in Brazil?

28. Associated gas utilization evolution in Brazil (Million m 3 /d) Utilization’s stabilization around 91% Beginning of production in new platforms: P-54, P-52, P-51, P-53, P-55 and P-56

29. Ghg cumulative emissions: Forecast GHG emitions in E&P activities (t) 0 5.000.000 10.000.000 15.000.000 20.000.000 25.000.000 30.000.000 2006200720082009201020112012201320142015 E&P TotalGHG emissions avoided Total GHG emissions avoided

30. Further improvement in gas utilization: Opportunities under evaluation All new projects are designed with better energy efficiency concepts and enhanced gas recovery: – challenges are related specially to logistics: scattered production and farther from seashore; Additional reductions on gas flaring beyond those achieved with POAG come up against technical and economical challenges; Two opportunities are currently under study in Petrobras’ Research Center (CENPES): – Compressed Natural Gas (CNG); – Liquefied Natural Gas (LNG).

31. Conclusions Since the 1990s Petrobras has been promoting significant gas flaring reduction based on energy conservatio Tangible improvement in associated gas utilization between 1999 and 2004 (75.7 % x 88.7%), due mainly to the investment made in Campos Basin aiming gas flaring reduction (POAG) Up to 2005 Petrobras has been avoiding at least 5 million m3/d natural gas flaring daily from 1993 On the long-term, stabilization of associated gas utilization around 91% Petrobras is still searching for better and improved means of raising its production altogether with minimum gas flaring

32. Challenge is Our Energy Keep the challenge Make energy last Use the right amount

33. Carlos Augusto Arentz Pereira Petrobras - G&E/Energy Efficiency caarentz@petrobras.com.br Denis Krambeck Dinelli Petrobras - E&P/Gas Production Planning dkdinelli@petrobras.com.br THANK YOU