* Libra partners see re-injecting gas as most economical option
* Oil recovery rate could rise as high as 35 pct, partners say
* Libra group says can cut break even up to $10 to $35 a barrel (Adds comment from Petrobras total, more Libra production plans)
By Jeb Blount
RIO DE JANEIRO, Oct 27 (Reuters) - Brazil's state-controlled oil company Petróleo Brasileiro SA and partners will install the first of four commercial production systems in the giant Libra offshore oil area in 2020, adding one a year through 2023.
Each of the floating, production, storage and offloading (FPSO) vessels will have the capacity to produce 180,000 barrels of oil a day (bpd), Petrobras, as the company is known, said in a statement on Thursday.
Production is expected to be between 120,000 to 180,000 bpd with all the natural gas not used to power the production system likely to be re-injected. Re-injection currently seems to be the most economic solution for the field, said Fernando Borges, executive manager responsible for Libra.
At more than 200 kilometers (125 miles) from shore, building a pipeline would be very expensive. The gas also contains 45 percent carbon dioxide, which under environmental rules against greenhouse gases must return to the reservoir.
"Because of the carbon dioxide, the gas is very hard to treat," said Frederic Maubeuge, deputy manager for exploration and technical skills at Total, a partner in the venture. "The gas, though, is very good for increasing the recovery rate of oil, which is more valuable."
The Libra area holds an estimated 8 billion to 12 billion barrels of oil and equivalent natural gas reserves, according to Brazil's oil industry watchdog ANP. It is Brazil's first-ever lease under a production-sharing system with the government.
Petrobras, Libra's operator, owns 40 percent of the area. Royal Dutch Shell Plc and France's Total SA each own 20 percent. China's CNOOC and China National Petroleum Corp each own 10 percent.
Petrobras and partners estimate that 25 percent of Libra's total resources of 10 billion to 44 billion barrels of "oil in place", or total oil in the reservoir, can be recovered. That amount led to the ANP's estimate of reserves, or total recoverable oil.
Maubeuge, though, believes the recovery factor for Libra could be as high as 35 percent. That would be close to record highs for oil trapped in carbonate-type rocks, he said.
The first Libra pilot production system will produce oil from 17 wells, eight production wells and nine to re-inject water, natural gas and carbon dioxide into the reservoir, the Petrobras statement said.
Some of the later production vessels could be built to produce more than the 180,000 barrels a day expected of the first ship.
Petrobras and its partners are working to cut costs to $35 a barrel. Total said earlier this week that capital and operating costs in the area will be about $20 a barrel.
One major challenge will be keeping the project profitable while meeting national content rules that require Petrobras, Total, Shell, CNOOC and CNPC to buy as much as 70 percent of their goods and services in Brazil.
The first tender for the first production ship had to be scrapped because local bids were 40 percent over international benchmarks, Borges said.
The first long-term production test will start in Libra's north-west section in the middle of 2017 in the same area where the commercial systems will be placed.
The test is designed to better understand and calibrate the production systems that will start operating in 2020, Petrobras said.
The north-west section of Libra is expected to be declared commercial by the end of 2017, Borges said, allowing the group to proceed with production under Brazilian law. (Reporting by Jeb Blount; Editing by Chizu Nomiyama and Mary Milliken)