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To recover from its economic crisis, federal energy giant Petrobras is leaving the natural gas market in Brazil, which has given the country a unique opportunity to reshape the way business is conducted. The Brazilian government has taken the lead and created a national program, called Gas to Grow (Gás para Crescer), to study the best way to open up the market.
Edmar Luiz de Almeida, one of the experts who contributed to the studies, spoke to BNamericas about some of the hot points that can change the course of Brazil's natural gas market.
BNamericas: One of the changes suggested by the government in the new national development program for natural gas is related to the pricing model of gas transport. Today, Petrobras charges the same rate for every gas network user. The proposal is to move to an entry/exit tariff model. What does this mean for the market?
Almeida: The purpose of changing the model is to reduce the transaction costs related to gas transport agreements. Besides, it's an international trend to adopt the entry/exit concept when the goal is to open the market to new players. In this model, instead of charging all costs of the natural gas carrier [the player that "rents" a percentage of the pipeline capacity to take its natural gas to another point of the network], two rates are charged: one to inject the gas into the pipeline network and another one to take it out. This means that whoever wants to receive natural gas, a thermal power plant, a free consumer, or even a gas distributor, will pay a flat rate per citygate. The natural gas supplier or whoever is putting gas into the network also pays a flat rate for entry, regardless of where the gas is going. Using this model, Brazil might be able to have a natural gas market in which any supplier can deliver gas to any player that wants to take it.
BNamericas: Brazil's gas transport network is limited and has barely seen any growth in recent years. If approved, can this model attract investments in the construction of new pipelines?
Almeida: This is one of the most important matters. More important than thinking about how the transport tariff will be charged is to analyze how this and other measures can have an influence on network planning and operation. For the past years, Brazil has opted for a decentralized operation, which means that each natural gas pipeline is operated individually. In other words, each pipeline had to be economically viable by itself.
It's clear to everybody that this method didn't work out, since Brazil was not able to bring a single new pipeline into its transport network. Therefore, it's crucial to seek new alternatives. Now, the Brazilian government and the entities involved [energy ministry, state-run research and planning company EPE and regulator ANP] are studying a new method, in which the gas pipelines are not individually operated, but together. In this scenario, the country would have a centralized operation and the planning considers the network as a whole. The centralized operation has its advantages and disadvantages, but, in my opinion, Brazil's current model is not working.
BNamericas: How about the next link of this chain, natural gas distribution? Brazil's new program talks a lot about how gas distribution is also highly concentrated in the hands of a few companies, which also makes it harder for free consumers. Does this affect market growth?
Almeida: Today, all market players agree on one thing: competition in gas supply is our main goal. That isn't wrong, but in practice Brazil also has a highly concentrated market in gas consumption. There are about 20 distributors operating, but many of them are headed by the same group. After all, if there's no competition in gas supply, there won't be any in demand either.
BNamericas: What should be done to open up Brazil's downstream market?
Almeida: The reform of the Brazilian gas industry is led by the federal government, but it would be very important to engage the states [which are responsible for granting the natural gas distribution licenses] in this process. The federal government cannot interfere in the decisions assigned to the states, but it could try to achieve voluntary participation.
BNamericas: Do you think that gas distribution utilities should be privatized?
Almeida: If the goal is promoting a competitive market, I think they should be privatized. Besides, some Brazilian states are still going through an economic context in which other matters should be prioritized. So many states have cities with such a dire sanitation situation that gas distribution shouldn't be [the main] concern. In addition to that, these companies could attract a lot of private investment and grow way faster than they do today.
About Edmar Luiz de Almeida
Edmar Luiz de Almeida has worked as a consultant for the Brazilian federal government's energy research and planning company EPE, for the World Bank and for other organizations. Almeida also leads, at Universidade Federal do Rio de Janeiro, a group of staff specialized in oil and gas, energy and government policy.