New Brazilian gas market (NORDIC LIGHT | July-December 2020)
By Juliana Pizzolato Senna and Carolina Fonseca,
Kincaid Mendes Vianna Advogados
The Brazilian natural gas market is currently changing from a model in which Petrobras is the predominant company to a more competitive system. At the same time, the natural gas production in Brazil is expected to double its current volumes by 2030. Those factors create a great opportunity for the development of local gas demands, but also require a new regulatory framework.
The New Gas Regulation (Bill No. 4,476/2020) is currently waiting to be voted by the Federal Senate* and has obtained consensus in most of its subjects, having as its main driver the creation of grounds for a more competitive market. To this end, we would like to highlight two points of the bill: (i) the authorization regime for the construction of new gas pipelines, (ii) the facilitation of access to existing and future infrastructure.
The replacement of the concession regime to the authorization regime provided in the bill aims to reduce bureaucracy and, thus, encourage the construction of new gas transportation pipelines, which are necessary to expand the current network from the coast to inland. However, the reduction of red tape would not be sufficient to motivate new, capital-intensive constructions if there is not a clear unattended demand that justifies the investment.
In this context, the development of gas demand by new and large-scale consumers, especially industries and power plants, is essential. To those buyers, guarantee of delivery is not negotiable and security could also be granted by a flexibility of suppliers.
Another proposal of the bill is the adoption of the input and output contracting model for the transportation pipelines. This model allows for buyers to purchase gas from sellers in different points of the pipeline and vice-versa, granting more flexibility to market and hopefully fostering the participation of more players. Even before the bill has passed, the “Transportadora Brasileira Gasoduto Bolívia-Brasil” (TBG) has taken the lead, suggesting this contractual model in its latest public offer.
In addition, the bill includes a provision for third party access to essential infrastructures, such as gas processing units, LNG terminals and storage facilities. Currently the sharing of some strategic infrastructure is a desire of the market players, as is exemplified by current agreement between Shell, Petrobras, Petrogal and Sinopec to jointly use production pipelines and processing units. However, the sharing of some infrastructure, such as LNG terminals, demands further legislative and regulatory improvements.
As shown, the New Gas Regulation aim to foster the competitiveness among agents by delivering a regulatory framework suitable to current market demands. This could be the starting point for a new gas market, unlocking the opportunities that our Country size and gas reserves offer.
*This article was written in November 2020