Development: On 7 May, the Uruguayan press reported that the state-owned oil company, Ancap, is looking into the possibility of participating in the regional gas market through an association with Brazil's Petrobras.

Significance: A partnership between the two state companies would close the gap in the regional gas supply and distribution markets and lead to greater regional energy integration. The plans would tie in with a Uruguayan and Argentine bi-national investment project to develop a floating re-gasification plant on the River Plate that would distribute gas to both countries.

Key points:

• Entering into the gas distribution market has been identified as Ancap's main development strategy. The move comes as the Uruguayan government is intent on adopting strategies that will enable it to coordinate the country's energy policies.

• Petrobras has presence in Uruguay's gas market through its 66% stake in Montevideo Gas, which supplies 200,000 cubic metres of natural gas to 45,000 customers in the Montevideo area. Moreover, Petrobras is believed to have recently agreed the purchase of the remaining 34% from Pan American Energy, an Argentine firm.

• Ancap's interest in establishing the partnership is to help run the local gas company and work with the Brazilian giant to build gas distribution pipelines, presumably from Brazil, that would connect to the planned re-gasification plant to ensure its supply. Ancap's president, Raúl Fernando Sendic, has revealed that both companies signed a confidentiality agreement on 3 May to analyse Montevideo Gas's business development plans.

• The president of Petrobras, José Sergio Gabrielli de Azevedo, attended the regional hydrocarbon and bio fuels' association meeting (Arpel) in Punta del Este, Uruguay, in March and it is believed he informally proposed the partnership to President Mujica on that occasion. It is rumoured President Mujica approved of it as long as Petrobras ensured that the troubled Montevideo Gas doesn't face bankruptcy.       

• Uruguay expects that with the construction of the re-gasification plant, local gas consumption will triple. Uruguay's national energy director, Ramón Méndez, has already declared that adjudication of the re-gasification plant construction and its management contract to a private sector partner and the establishment of a formal partnership with Petrobras could be announced by year's end.