Why Pernambuco's gas distributor is fighting for a new LNG terminal

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Wednesday, March 8, 2017

Copergás, one of the five largest natural gas distributors in Brazil, spoke to BNamericas about the company's plans, which include further expanding its presence in the residential segment of the state it serves: Pernambuco. But, according to Décio Padilha, growth in gas consumption partly hinges on LNG availability, since natural gas transport infrastructure still constitutes a supply bottleneck. "Copergás is fighting for a new natural gas plant on the coast of Pernambuco, which would come with a regasification unit. Today, there are at least three projects that could bring this investment to the state," said Padilha.

BNamericas: Copergas is responsible for the distribution of natural gas in Pernambuco state, which is in the northeast of Brazil. How big is this market today?

Padilha: Today, the state of Pernambuco demands 5Mm3/d, and is one of the five largest markets in the country. The region is served by a gas pipeline that carries natural gas from Espírito Santo and Rio de Janeiro states to the northeast markets, gas that is produced by Petrobras. In order to complement the gas supply, Petrobras also uses imported LNG. In 2016, this scenario changed because there were several monthly natural gas production records. Last year's balance has not been released yet, but it seems that LNG, which accounted for more than 50% of Brazil's national supply in 2015, may have dropped to 40% by the end of 2016.

BNamericas: What is the fastest growing segment of the natural gas market in Pernambuco?

Padilha: We are betting on the expansion of the residential market. Copergás will spend 30mn reais [US$9.52] in the next two years, 2017 and 2018, just for residential supply. It is the biggest investment we have ever made in this segment. Our goal is to connect 6,000 new residential clients every year. To get an idea, today the company has 26,000 customers in all consumption segments. At the end of 2016, Copergás had 700km of gas pipelines in operation. More than 100km were installed last year, and, for our largest pipeline, the focus was the expansion of the residential market. The pipeline of 53km connected the cities of Caruaru and Belo Jardim and cost about 60mn reais.

BNamericas: Is a lack of infrastructure still the major challenge regarding the development of the natural gas market in the northeast states of Brazil?

Padilha: Yes, no doubt about that. Brazil has only 10,000km of gas transport pipelines and about 35,000km of gas distribution pipelines installed today. Distributors are in charge of the expansion of the distribution network, just as Petrobras is responsible for the transport network. However, these networks are not growing at the same pace.

BNamericas: Could this be the reason for the growing number of companies interested in installing new offshore regasification units [FSRU] in Brazil?

Padilha: Yes, I believe so. Copergás, for example, is fighting for a new natural gas plant o the coast of Pernambuco, which would come with a new regasification unit. Today, there are at least three projects that could bring this investment to the state. One of them is Bolognesi's, which is already known by the market. The project [called Novo Tempo] was contracted in Brazil's energy auction in 2014, but the company was not able to start construction because of some difficulties [which, according to Bolognesi, involved the devaluation of the Brazilian real]. Now, Bolognesi has, by August, to show Aneel [Brazil's energy regulator] installation licenses and LNG supply contracts, otherwise the company will not be authorized to postpone the plant's operation.

However, there are still two other projects in Pernambuco, which are subject to a confidentiality agreement. The companies involved are now waiting for new energy auctions. In all of these cases, the general idea is to install a 1,500MW thermal power plant in the port of Suape, and its natural gas consumption will be around 6Mm3/d. Petrobras does not intend to deliver this additional volume today, so the projects are based on an LNG terminal, which can be of great help for the expansion of the natural gas market in the region.