OREANDA-NEWS. February 10, 2017.  Brazil's second largest oil producer Shell expects ship-to-ship (STS) transfers in the country to continue to rise in the coming years, replacing more costly operations through Uruguay.

"Shell is assessing and developing new transshipment and ship to ship options that would reduce the overall costs and improve its oil evacuation capacity in [Brazil]," a company spokesperson tells Argus.

In August 2016, Shell's wholly owned subsidiary BG commenced transshipment of sub-salt crude at an offshore terminal at Acu in Rio de Janeiro state. The company has carried out 10 operations since, part of a 20-year, 200,000 b/d contract that BG signed in 2015.

The original contract included an option for an additional 120,000 b/d of capacity, which was not exercised, Prumo said.

Shell estimates it will carry out 37 operations at Acu this year, with more to follow as its production in Brazil doubles to more than 400,000 b/d of oil equivalent (boe/d) in 2020 from a current 200,000 boe/d.

Limited transshipment options in Brazil have forced Shell and other foreign producers such as Portugal's Galp to conduct STS operations of Lula, Iracema and Sapinho? sub-salt crude through a terminal in La Paloma, Uruguay. But weather conditions and the three-day journey heighten risks of costly bottlenecks.

Shell expects around 40pc of its Brazilian production to be transshipped in Uruguay in 2017, declining in the following years "as more transshipment options are available in Brazil."

Shell wants to see a level playing field in the rules that govern transshipment in Brazilian waters, company executives have said, arguing that current rules mainly favor state-controlled Petrobras.

Complex environmental regulations, monitored by federal agency Ibama, make obtaining permits for offshore transshipment notoriously difficult. Petrobras is one of the few firms authorized to carry out such operations in Brazilian waters, through private-sector terminals in the northern city of Vit?ria and southeastern city of Santos. Other challenges include a requirement to use dynamic positioning vessels and Brazilian flagged and crewed cabotage tankers.

The offshore oil terminal at Acu is licensed to handle up to 1.2mn b/d of crude and currently has capacity for Suezmax vessels. The company says the terminal will be able to receive VLCCs by early 2018.

Acu has been billed as a base to accommodate Brazil's rising sub-salt production. Shell remains the only firm with a transshipment agreement with Prumo, but the port's proximity to high-production offshore basins and the lack of alternatives makes it likely other firms will eventually follow suit.

In October 2013, US investment fund EIG paid 1.3bn real (\\$596mn) for the controlling stake in Prumo, then known as LLX.

LLX was part of Brazilian magnate Eike Batista's defunct EBX commodities empire.