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RUEHAC/AMEMBASSY ASUNCION 0311
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RUEHLP/AMEMBASSY LA PAZ 0294
RUEHCV/AMEMBASSY CARACAS 0305
RUEHBO/AMEMBASSY BOGOTA 0135
RUEATRS/DEPT OF TREASURY WASHDC
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UNCLAS SECTION 01 OF 02 RIO DE JANEIRO 000446 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USAID FOR LAC 
STATE PASS OPIC 
NSC FOR FEARS 
TREASURY FOR OASIA - J.HOEK 
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA 
DOE FOR WARD/LADISLAW 
 
E.O. 12958: N/A 
TAGS: EPET PGOV PREL EINV BR
SUBJECT: AMBASSADOR'S BRAZIL-BOLIVIA-VENEZUELA GAS DISCUSSIONS IN 
RIO 
 
REF: A) Rio de Janeiro 00234 B) La Paz 02216 
 
This cable is sensitive but unclassified, please protect 
accordingly. 
 
¶1. (SBU) Summary: Petrobras CEO Sergio Gabrielli and Shell Brazil 
CEO Vasco Dias told Ambassador Sobel in meetings on August 22 that 
Brazil's priority in upcoming negotiations over gas supplies from 
Bolivia was to ensure continuity of supply.  Despite its unhelpful 
role in Bolivia, the CEOs did not see Venezuela's PDVSA as a true 
threat.  While Shell's Dias discounted the commercial viability of 
Venezuela's proposed South America gas pipeline, Gabrielli, who is 
appointed by the GoB, stuck to the party line and said the project 
might be profitable in the longer term.  Despite Gabrielli's 
statement, most experts would question the assertion that Petrobras 
is really convinced of the project's viability.  End Summary. 
 
¶2. (U) Background: Ambassador Sobel visited Rio de Janeiro August 
21-22 and had three separate meetings with energy companies 
headquartered here. First he met with Shell Brazil CEO Vasco Dias 
followed by a roundtable on investment issues with U.S. energy 
companies.  Finally, he met with Petrobras CEO Sergio Gabrielli. 
This cable focuses on these interlocutors' comments on Bolivia and 
Venezuela gas. Septel addresses bio-fuels, Petrobras and the 
investment climate in the oil and gas sector. 
 
¶3. (SBU) Shell Brazil CEO Dias related to the Ambassador in an 
August 21 meeting that President Lula's Chief of Staff, Dilma 
Rousseff, has told him the GoB recently sent a message to Bolivia 
that its nationalization of Petrobras assets and unilateral threats 
to increase gas prices had gone too far.  In reality, Dias 
continued, despite Venezuela's offer of assistance, Bolivia lacks 
the technology and know-how to process their gas.  Brazil is 
concerned, he stated, about a potential gas shortfall in the near 
future, since bringing additional domestic gas production online 
will be a lengthy, complex and expensive process.  In an August 22 
meeting, Petrobras President Gabrielli explained to the Ambassador 
that there are four different Brazilian/Bolivian teams currently 
discussing gas prices, production, and operations, and that a new 
meeting with the Bolivian government is scheduled for September 14. 
He was somewhat confident that a solution for the gas impasse could 
be reached by December. 
 
¶4. (SBU) Gabrielli noted that the GoB is playing an important role 
in the negotiations by creating an environment for Petrobras to 
negotiate with Bolivia on technical grounds.  He stated that 
Petrobras is most concerned with maintaining a daily flow of gas of 
up to 30 million cubic meters.  Both sides are negotiating the new 
price for future volumes for Bolivian gas exports to Brazil.  In the 
meantime, Brazil is moving forward with increased investments in the 
domestic gas market.  Soon there will be an open gas tender to 
attract FDI to open additional exploration in Brazil.  Petrobras 
also plans to build two liquefied natural gas (LNG) plants in 
northeastern Brazil using floating storage re-gasification units to 
guarantee gas in the event its thermal power plants need to dispatch 
power. 
 
Venezuela's role: Petrobras vs. PDVSA 
------------------------------------- 
 
¶5. (SBU) During the August 21 roundtable discussion, 
representatives of several U.S. energy companies noted to the 
Ambassador that the Venezuelan presence in Bolivia is not considered 
a threat by the Brazilians because they do not consider PDVSA to be 
in the same class as Petrobras.  While both companies are 
 
RIO DE JAN 00000446  002 OF 002 
 
 
state-owned, Petrobras is regarded as a top-notch, professionally 
managed, company, they said, while PDVSA is not.  The relationship 
between the two companies is kept publicly friendly for political 
reasons, but the private relationship is reportedly less amicable. 
Petrobras CEO Gabrielli noted that Venezuela's rhetoric outpaces its 
ability to perform. 
 
¶6. (SBU) Shell's Dias said that President Chavez's proposal to 
create a regional state-owned energy conglomerate, Petrosul, and to 
construct a gas pipeline from Venezuela to Brazil and Argentina was 
more for political propaganda than a realistic proposal.  There was 
not much buy in on the Brazilian side, Dias said.  By contrast, and 
despite the bad blood between Petrobras and PDVSA, Petrobras 
President Gabrielli told the Ambassador he believes that the 
proposed $20 billion Venezuela-Argentina-Brazil pipeline makes sense 
when looked at in terms of long-term returns.  He pointed out that 
South America could become a large gas exporter in the future, and 
an alternative means of gas distribution would have to be developed 
given that the market for gas in Brazil alone is growing 17 percent 
each year.  Various obstacles need to be overcome to make it happen, 
however, including: a complex regulatory environment, the pricing 
system, technological and environmental issues, and border issues. 
Also, the various stakeholders will need to decide who will invest, 
and who will be responsible for each part of the project, which will 
take two to three years to design and 10 to 15 years to build. 
 
¶7. (SBU) Comment:  We believe Gabrielli, who is appointed by the 
GoB, was simply echoing the party line on the Venezuela gas 
pipeline.  Other contacts with Petrobras (ref A) suggest there 
remain significant doubts as to its viability.  While Gabrielli and 
Dias' comments do not break new ground, it is interesting that the 
Brazilians do not seem to believe that PDVSA has the capacity to 
fill the void left by Petrobras in Bolivia.  It is as yet unclear 
whether or not this judgment is clouded by hubris. End Comment 
 
¶8. (U) This cable was cleared by Ambassador Sobel and Embassy 
Brasilia. 
 
MARTINEZ