Why O&G company Galp is betting on Brazil's renewable energy market

Bnamericas Published: Friday, September 30, 2022
Why O&G company Galp is betting on Brazil's renewable energy market

Portugal’s Galp will invest US$5bn in Brazil in the next 10-15 years, with 50% of the capex for oil and gas and the other half for renewable energy.  

While developing a 5GW portfolio of wind and solar energy, the company is expanding its natural gas sales in the country, where it supplies the fuel to 30 customers. 

Petrogal Brasil's CEO and Galp's country chair, Daniel Elias, talks to BNamericas about the local projects.

BNamericas: How do you evaluate Brazil’s natural gas market, given the ongoing regulatory changes and transformations?

Elias: We see the gas market very positively. The opening of the market is perfectly in line with our positioning here in Brazil, which is based on fundamental principles such as competitiveness, regulatory stability and diversification, so that opportunities are created for several players. 

We've expanded our position in Brazil in terms of gas portfolio with part of Repsol gas, which we’re commercializing. And, during this period, we pioneered the use of gas pipelines and processing units through a contract with Petrobras

BNamericas: … giving you integrated access to Petrobras infrastructure. 

Elias: Based on this opening, we’ve expanded our client portfolio, with more than 30 contracts signed with distributors and other types of companies. 

So, this is a very positive moment and one that we should encourage because gas is a fundamental component for the energy transition, and this opening in Brazil will induce greater competitiveness and resilience in the sector.

When we talk about competitiveness, we’re not just referring to the number of players, but to the competitiveness in the contract models used. With the opening of the market, we’re customizing the contracts according to the needs of the clients and our portfolio. This allows the system to grow in a competitive and resilient way. 

BNamericas: Has the access to the Petrobras gas flow and processing infrastructure worked well?

Elias: Yes, we should praise the role of Petrobras, because it’s always a challenge to make this transition, and Petrobras has been a very positive agent. 

BNamericas: And how is Galp accessing the transportation network before reaching the final client? 

Elias: We have contracts with the three main transporters in the country. We’re the first company to be in this condition, that is, to have a processing contract and a transportation contract with the three main transporters. 

BNamericas: Which would be TAG, NTS, and TBG?

Elias: Exactly. 

BNamericas: Are you planning to increase production in oil fields where you’re partners, such as Tupi, and eventually reduce gas reinjection to sell more to the market? 

Elias: We’ve been asked this question repeatedly. When we make the investment decisions in giant fields, such as the Tupi, Bacalhau, or the Berbigão, Atapu, and Sépia fields, we have the privilege of having fields that are highly competitive, but we also have the focus of not opting for solutions that could be value-destroying.

This is nothing more than fulfilling our obligations in the concession contracts. So, when we made the investment decision for the Tupi/Iracema field, we aimed at maximizing the project's value, which involves reinjecting gas to recover oil, under an economic model that represents the best solution for all, both for investors and the Brazilian state.

In 20 years, Galp has invested US$5bn in Brazil, and we have already paid more than US$3bn in taxes. When we put this model into practice, the gas [flow] continues in the country, it has not disappeared. And we produce the product that generates the best profitability for everyone. 

The example you give is a possible one for Brazil. In December 2021, Galp and Petrobras submitted a proposal to review the development plan for Tupi and Iracema, with the objective of finding ways to maximize the recovery of their hydrocarbons, with new investments and, eventually, new production units.

It’s important that all players accept that this may imply gas reinjection. In the case of the first phase of development of the Bacalhau field, we considered all the options that maximized value and came to the conclusion that reinjection of gas was the best option. In the future, this gas will remain in Brazil and may have a different use than today. 

BNamericas: Much of the US$5bn investment Galp announced for Brazil for the next 10-15 years will go toward renewable energy. How does this approach fit with the traditional E&P business?

Elias: It fits very well. We’ve been in Brazil for 20 years and have great confidence in the regulatory agents, knowing that there is respect for contracts, predictability and improvement in the competitiveness of the energy sector. All of this is fundamental for us to see Brazil as a very attractive geography. 

Last year we managed to increase our renewable energy portfolio to 5.2GW of projects to be executed in several Brazilian states, including solar and wind power. Our team that is building this portfolio communicates very well with the team from the oil and gas business. 

We already had, from a legal, tax, and financial point of view, a capacity that allowed us to accelerate our presence in the renewable energy area.

BNamericas: Will you sell the energy in the free or regulated market, or both?

Elias: What we seek is competitiveness and diversification, and, with time, the opportunities will arise and will have to be faced in a customized way, according to the projects that we’ll be developing. We see our growth in this sector always in a very agile and dynamic way to capture opportunities at all times. 

BNamericas: Have you started to generate renewable energy in Brazil?

Elias: Not yet. 

BNamericas: Is there a forecast for the start?

Elias: We anticipate having about 4GW operating by 2025. 

BNamericas: Is Galp studying the possibility of developing gas-to-wire projects?

Elias: I don't like to exclude options. What I can say is that gas-to-wire is a solution that has always been studied, but at the moment it’s not being adopted.  

BNamericas: Is Galp also considering entering Brazil’s gradually emerging offshore wind sector?

Elias: At the moment, our projects are all onshore. We have a culture of doing a very careful analysis of the options and comparing competitiveness with existing ones. Right now, we want to expand our portfolio in Brazil in a robust, safe, and competitive way, and we found onshore the opportunities that are material, and that is where we are moving forward. 

BNamericas: Do you have any experience in offshore wind in Europe?

Elias: In Portugal, there should be an auction for offshore wind in 2023, and we’re looking in all geographies for this kind of opportunity. 

BNamericas: Does your investment plan for Brazil include biofuels?

Elias: This plan covers oil and gas and renewables, with electricity generation primarily. 

BNamericas: Something about hydrogen?

Elias: We are studying this area, which will be interesting depending on the competitiveness of our generation. We’re developing a green hydrogen project in Portugal at the Sines refinery to decarbonize an industrial facility. This is a first pillar for our presence in green hydrogen. 

In Brazil, with our competitive renewable energy portfolio, from the generation cost point of view, we’re evaluating if there are options to integrate, in this value chain, green hydrogen solutions. 

BNamericas: Galp once operated onshore oil assets in Brazil but currently you are only partner, right?

Elias: We sold our onshore assets, since the quality and scale of our non-operated offshore assets justify concentrating on this activity. 

BNamericas: Do you have plans to become an operator again?

Elias: Right now, we consider our upstream portfolio to be of high quality. We’re in Tupi/Iracema, Sépia, Atapu and Bacalhau, which have high potential to have a second phase of development. So, we see longevity in these assets, and this is our main focus.

BNamericas: So you don’t plan to acquire mature fields from Petrobras or assets via ANP auctions?

Elias: We’ve not ruled out options. One asset that I’ve not mentioned and that we’re working on to potentially materialize is the Jupiter project, in which we have a 20% stake and which, from a hydrocarbons point of view, is a very large asset, with the challenge of high CO2 content. In other words, we have plenty of options within our portfolio and we foresee, by 2025, a 30% growth in our production in Brazil, which today is about 110,000b/d of oil.  

BNamericas: The consortium will use subsea separation technology Hisep at Jupiter. But it has to be tested at Mero first?

Elias: This is a technology that, given the scale and context of Jupiter, makes perfect sense to consider for monetizing the oil in this asset. 

Beyond the current technological challenges, it’s important to be aware that the pre-salt exploratory frontier has matured a lot, so we need to open our frontiers beyond the pre-salt.

BNamericas: Like the equatorial margin.

Elias: Exactly. [This is necessary] to create opportunities, especially in this time of energy transition, for companies to find opportunities to execute their investment plans. 

BNamericas: Could a possible change of government negatively impact your operations?

Elias: Galp has been in Brazil for 20 years. We see the democratic cycle as something normal, and we have, over these decades, seen that there’s respect for contracts, regulatory predictability, and a positive dynamism to induce competitiveness in the sector. Based on this, we have confidence to continue to invest and announce the scale of investments that, at this moment, place Brazil as Galp’sreference geography. 

More than 50% of our assets are here. We have high-quality partnerships here and find a fantastic innovation and technology ecosystem in which we’ve already invested more than 500mn reais (US$93mn) since 2015. We want to invest another 500mn reais in innovation and technology by 2025. We’re present in more than 10 states in partnerships with more than 90 partners in this type of activity.  

The next two decades will be very interesting for Brazil's positioning in the world, and certainly very interesting for our presence in the country.

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