How Brazil’s gas market has evolved in the year after the new law

Brazil has achieved several key milestones in opening up its natural gas market since the approval of the new gas law in April 2021. However, the transition from a practical monopoly to a liberalized environment is something that will only be fully successful in the medium term. 

In the first year of the new legal framework, several private gas producers, such as Equinor, Shell, Galp, PetroRecôncavo and Origem Energia, signed contracts with state distributors that, until then, had basically relied on Petrobras’ supply and price conditions.  

As a consequence, these new suppliers have secured natural gas transport capacity in a network that is gradually becoming private: after divesting Transportadora Associada de Gás (TAG) and Nova Transportadora do Sudeste (NTS), Petrobras is now selling Transportadora Brasileira Gasoduto Bolívia-Brasil (TBG) and Transportadora Sulbrasileira de Gás (TSB). 

Meanwhile, the state-run firm is in the process of concluding the sale of its controlling stake in Gaspetro, which owns equity stakes in 18 piped gas distributors that operate in various Brazilian states. 

Despite the advances, Petrobras’ market dominance is expected to linger in the coming years as new gas production projects demand large structural investments for the development of new reserves, outflow pipelines and gas processing units (UPGNs) 

“When we look at the next two or three years, we’ll hardly see private sales growing in Brazil, considering the projects we already know about, while Petrobras continues to have a very robust portfolio. This, on the one hand, is positive, because it provides supply security in the country, but, on the other hand, it may inhibit competition and market growth,” Gas Energy CEO Rivaldo Moreira Neto told BNamericas.

In his view, local oil and gas watchdog ANP and antitrust authority Cade will have to resort to the device of “gas release”, which is outlined in the new law, in order to accelerate the market opening. 

“With this, the regulator establishes that the dominant agent delivers liquidity in the market so that the concentration will decrease more rapidly,” Moreira said. 

But private gas output will not grow if there is not clear and solid demand for the fuel in the market, which, in turn, expects producers to guarantee there will be supply, in a kind of catch-22 situation. 

“Today there are several fields that are under evaluation, with their operators calculating whether it is worth reinjecting the gas or taking it to market, so this is a great time for associations representing consumers to raise the flag that they want gas,” Sylvie D'Apote, executive director of natural gas at Brazilian petroleum and gas institute IBP, told BNamericas.

Marcelo Mendonça, the strategy and markets director of local piped gas distributor association Abegás, the new gas law has not enabled significant insertion of private gas in the market as yet, because Petrobras still accounts for over 90% of gas sales. 

“We’ll only see the market effectively open when we develop the supply, but Brazil has a serious infrastructure gap to make the gas market viable,” he told BNamericas. 

Adrianno Lorenzon, natural gas director of large energy consumer association Abrace, acknowledges that there have been breakthroughs in the first year of the new gas law, such as cheaper gas contracts inked with private producers and their access to Petrobras’ outflow pipelines and gas processing units. 

But he emphasized that free consumers have not yet taken off and the ANP’s regulatory agenda is delayed, while NTS and TBG have not offered transport capacity for suppliers other than Petrobras. 

“We need to study efficient instruments that will lead to the deconcentration of this supply, currently in the hands of Petrobras, a situation that won't change with the start of operations of the Rota 3 pipeline,” Lorenzon told BNamericas. 

Brazil's pipeline gas association ATGás pointed out that one of the breakthroughs has been the resumption of investments in the segment, with TBG, NTS and TAG developing projects for connection to LNG regasification terminals in Santa Catarina, Rio de Janeiro and Sergipe states.

“These are projects of a strategic nature both for connecting new sources of supply to the transportation system and for ensuring greater competitiveness and reliability for thermoelectric plants connected to these terminals,” a spokesperson for the association told BNamericas. 

In addition, there are pipeline undertakings underway, such as Gasig, which will have capacity of 18.2Mm3/d to take gas from Rota 3 to the transport network, and the 83km Gasfor II line. 

And, last week, the ANP approved the expansion of compression capacity at the end of the southern section of the Gasbol pipeline.

According to ATGás, in this first year, it was also made possible for new agents to access gas pipelines, with the offer of firm transport capacity. More than 30 new contracts were signed and nine new shippers entered the transport system, including the contracting of a daily amount of transport capacity for thermoelectric power stations on the Gasbol Bolivia-Brazil pipeline.

On the other hand, given the significant change in the international gas market, as a consequence of the war in Europe that has reduced the supply of maritime sources of gas to Brazil, ATGás claims the country must connect new sources of pre-salt gas to the transportation grid. 

“Contributing in this direction, the new price level resulting from the global energy readjustment will favor an economic review of the pre-salt projects and the expansion of the supply of natural gas to the domestic market, to the detriment of reinjection,” the spokesperson added. 

Norway’s Equinor, for example, plans to reinject all of the gas produced in the first four years of life of the Bacalhau field while it studies future monetization options for the energy source. 

“This will be a fundamental year for the improvement of contracting of gas transport. The introduction of products that bring greater flexibility to the market is essential for agents to maximize the injection of gas into the grid,” a spokesperson for the company told BNamericas. 

In the last few months of 2021, Equinor focused on ensuring that new contracts along the chain were finalized and signed to enable its Roncador field gas to enter the market. 

It is now working on the operationalization of these contracts, as all the agents involved, including Petrobras, which is the operator of the asset, are dealing with new procedures and obligations.  

Equinor highlighted that there were obstacles to opening the market such as the impossibility of consumers deciding to migrate to the free contracting environment in certain states and the need to simplify the qualification process for gas traders. 

“The creation of new obligations, fees and taxes for commercialization activities in the states doesn’t make sense, since the body responsible for regulating the commercialization of gas is the ANP. We believe that these fees are only charged on gas to the final consumer,” the spokesperson said. 

Brazil’s PetroRecôncavo has signed contracts for the sale of 100% of its gas production and supply to the distributors Bahiagás, PBGás and Potigás, with total average delivery of about 800,000m3/d since January 2022. 

“For this purpose, we gained access to essential infrastructure, such as the Guamaré and Catu UPGNs, the latter through a swap contract that allowed us to monetize production from our fields in Bahia ahead of schedule,” João Vitor Moreira, director of new business and regulation for the company, told BNamericas. 

The executive emphasized that the creation of extraordinary transportation contracts was key to allow PetroRecôncavo to access the natural gas network from the injection points to the exit points of the state distributors. 

“In other words, in practice, that was the creation of the mechanisms that made it possible to put the new gas market into operation,” he said. 

But Moreira also listed various challenges ahead, such as regulatory requirements and environmental licensing and legal aspects related to the reality of mature gas fields, as well as excessive taxation and inflexible rules for new players in the market.

“I also can’t avoid mentioning the need for continuity and expansion of infrastructure-sharing so that we have more flexible tariffs than those at present, and the possibility of interruptible contracts with TAG, essential to avoid bottlenecks in the sector,” he added. 

Bruna Correia, a partner at law firm BMA Advogados, pointed out the ANP must certify that gas transporters have a certificate of independence, with no direct or indirect corporate relationship with exploration, production, processing and distribution activities. 

The regulator must also stipulate a tariff ceiling by type of pipeline, according to their technical specificities: outflow, transport, distribution and import. 

“This is very important to bring in investments for the construction of new pipelines,” she told BNamericas. 

Correia also believes there is a need for better regulation on gas sales in the free contracting environment and further convergence of federal and state legislation to increase competition, including in the distribution segment.

Another hurdle is related to the calculation of compensatory fees for third-party use of Petrobras' infrastructure. 

“It’s necessary to establish this reimbursement in the regulation, which is linked to the opening of the sector with lower prices for the final consumer,” she stressed. 

Alexandre Montoni and Eduardo Tranjan, partners at Villemor Amaral Advogados, pointed out that the private players that began supplying gas to distributors faced difficulties in the negotiations to use the state-run firm’s gas outflow and processing facilities, requiring swap contracts. 

This type of deal foresees that Petrobras will process the gas produced by the companies that will subsequently transport the fuel to their customers.

Meanwhile, given skyrocketing international gas prices and the continued concentration of the market in the hands of Petrobras, many distributors have ended up signing contracts with the federal company with approximately 30-40% higher gas prices. 

Several government and local consumer associations have therefore filed administrative and legal measures in an attempt to stop the hikes in gas prices by Petrobras, Motoni and Trajan highlighted. 

They added that regulatory rules are still required to develop the competitive environment and provide more legal security to pave the way for investors to act. 

An important step was taken by the federal government last April 7 with the publication of guidelines and improvements in public policies for the transition to a competitive natural gas market.