Brazil gas prices ‘will be defined by the market’
After the approval of the new gas law, Brazil aims to harmonize federal and state legislations to advance the opening of the market and guarantee third-party access to NOC Petrobras' infrastructure.
“The government is not going to create new infrastructure – that will be up to private initiative. What we do is create a regulatory environment that is favorable to investment,” the head of the mines and energy ministry’s (MME)natural gas department, Aldo Barroso Junior, tells BNamericas.
In this interview, he also talks about natural gas imports from Bolivia and Argentina and Brazil’s capability of dealing with the record drought using gas-fired thermoelectric power.
BNamericas: What are the government’s main natural gas initiatives?
Barroso Junior: The gas sector is undergoing a very profound change. And this is happening in light of the new gas market, a government program that aims to create an open and competitive market.
The idea is to replace the de facto monopoly model, with Petrobras acting from end to end, with a competitive model, with prices defined based on gas-to-gas competition.
It has four pillars: promotion of competition, harmonization of state and federal regulations – in Brazil piped gas services are regulated at the state level – integration with the electrical and industrial sectors, which are the largest gas consumers, and removal of tax barriers.
We had CNPE resolution 16, of 2019, which brought a series of transition guidelines. Then, a TCC [conduct cessation term] was signed between Petrobras and [competition regulator] Cade in which Petrobras made commitments to allow the entry of new agents in the gas sector. These included selling transportation and distribution assets and giving access to flow and processing infrastructure and leasing out one of its three LNG terminals, in addition to reducing gas imports from Bolivia to allow other agents to also have access to Bolivian gas. Today we have 25 agents authorized to import gas from Bolivia alone.
Another measure was the creation of the monitoring committee for the opening of the natural gas sector. I cannot fail to mention the new gas law, published in April. It created a regulatory framework aligned to the new market and was followed by the publication of the decree to regulate the law, creating, for example, mechanisms for regulatory harmonization. This should be one of the main points we work on from now on.
BNamericas: What are the tax barriers whose removal is under study or already implemented?
Barroso Junior: There are some rules that hinder the implementation of this new gas market model. For example, the rule that applied to the taxation of gas transportation made it difficult to have more than one shipper moving gas in the Brazilian network. This was solved by adjusting a [finance] Confaz rule.
There was also difficulty in billing and collecting taxes on gas processing services in the case of infrastructure sharing. There was only one player [Petrobras], so we didn't even know this problem existed.
BNamericas: Access to infrastructure is particularly challenging. How does the government regard this issue?
Barroso Junior: The government is not going to create new infrastructure – that will be up to private initiative.
What we do is create a regulatory environment that is favorable to investment. The owner of the facility has priority access. This access, as established by law, will be negotiated. The idea is that there will be transparency for access conditions, and these conditions will be defined based on ANP's regulation.
What cannot happen is the use of these infrastructures as barriers to entry and competition. If there is idleness, there is no reason not to give access. But we have also seen agents talking about investing in new natural gas processing units. We had a first private one [Alvopetro’s plant in Bahia] and there are expectations that new ones will emerge.
BNamericas: What are the expected goals in terms of reducing the cost of gas?
Barroso Junior: The price will be defined by the market. What the new gas market program seeks to do is to create the conditions for this competition to be as great as possible. We are working on the entry-exit model, inspired by the European model, in which agents contract entry or exit in the transportation system and negotiate the gas in the commercialization hubs.
The intention is to favor a greater number of agents selling and buying at the hubs: on the supply side, allowing access to infrastructure, and on the demand side, working with states to liberalize the sector, with consumers being able to choose their supplier.
BNamericas: Considering increasing national gas production and more LNG terminals, will Bolivian gas remain relevant? Do you also consider gas from Argentina’s Vaca Muerta?
Barroso Junior: I think that Bolivia and Argentina are two potential sources of supply that will be able to compete in the Brazilian market. They will compete with national gas. The winner will be the one with the best price conditions.
BNamericas: Will Brazil have enough gas to meet the needs of the thermal plants that are dispatched to provide greater energy security amid the drought, set to become more common because of climate change?
Barroso Junior: We have a considerable thermal park. Today we face some challenges because of the lowest rainfall in the last 90 years, coinciding with the Mexilhão shutdown, which will take an important part of the national supply off the market.
But we have managed to dispatch a large volume of thermoelectric plants, including plants that had not been dispatching, that did not have a contract. And we have important thermal plants coming on stream in the short term, such as GNA I.
Next year we expect the connection of new LNG terminals, the leasing of the Petrobras terminal, so we believe that in the short term we will be able to meet the thermoelectric dispatch with more clearance.
BNamericas: Is the number of companies authorized to import natural gas increasing?
Barroso Junior: Between 2012 and 2018, we had 25 import authorizations published by the ministry. From 2019 to now, there have been 49, practically twice as many.
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