A system dynamics modeling approach for economic analysis of unconventional natural gas exploitation in Brazil - Ietec

A system dynamics modeling approach for economic analysis of unconventional natural gas exploitation in Brazil

Anderson Fleming de Souza

Natural gas is being considered as the transition energy to a low-carbon economy, once it emits less CO2 than other fuels. In Brazil, it contributes with 13.5% of the total energy matrix. Although consumption has tripled since 2009, production has only doubled, and 50% of current Brazilian demand is supplied by imports. Recent success in the exploration of hydrocarbons in unconventional reservoirs in the United States (shale oil & gas) aroused the interest of other countries in this type of resource. Brazil has the 10th largest shale gas reserve in the world, according to studies done by Energy Information Administration (EIA). Consequently, some institutions and companies have done studies to analyze the feasibility of natural gas production from unconventional reservoirs, adopting an econometric approach, which is quite adequate for the short term. However, in the long run, significant changes in price conditions, in the rate of resource discovery, in the demand, and so on, can occur. Therefore, this thesis aims to propose an economic analysis of the exploration and production of unconventional natural gas in Brazil, specifically for the state of Minas Gerais, with a modeling using Systems Dynamics. This approach allows considering the interactions of the main factors that influence the system in the long term, and which are not intuitively obvious. Besides, makes possible the representation of the complexity of natural gas exploration and production process. Thus, the proposed model interconnects the systems that represent the life cycle of well drilling, the evolution of the portfolio of resources and reserves of a production field, the composition of the demand for natural gas, and the economic aspects related to each activity. The model, which includes particularities of this industry in Brazil, used public geological data available for the São Francisco Sedimentary Basin. The results obtained for two scenarios indicate that the sale price for natural gas that makes this business feasible is between US$ 13.25 to 16.25/MMBTU, well above the current value (US$ 3.46 ~5.75). Sensitivity analysis obtained from 10,000 simulations shows that the possibility of a positive cash flow during the concession period is only 10%. Therefore, as a conclusion, this thesis presents the main causes of unfavorable results, including a set of public policy suggestions for the improvement of the business environment for natural gas exploration and production from unconventional reservoirs in Brazil.

Keywords: Unconventional natural gas. System dynamics. Economic feasibility.

Data: 29/08/2017

Banca avaliadora: Prof. Dr. Jersone Tasso Moreira da Silva - Fumec, Profa. Dra. Wanyr Romero Ferreira - Ietec , Prof. Dr. Mauri Fortis - Ietec

In the school, I would like to thank Professor Mauri Fortes and his team, for the unconditional support, confidence and teachings. Here, I include my classmates for the enriching experience exchanging and companionship. To the IETEC back office team, for the great attention and kindness