Backup capacity auction will transform Brazil’s gas market, Petrobras says

The contracting of 15.2GW of gas-fired thermal power in Brazil’s second capacity reserve auction (LRCAP), held in March, will transform the domestic market, ensuring demand for different fuel supply sources. 

The assessment comes from the general manager of gas and energy commercialization at Petrobras, João Marcello Barreto.

"We're looking at a different gas market in the country, perhaps we haven't yet realized this," said Barreto during the Argus Rio Crude Conference on Wednesday (May 20) in Rio de Janeiro.

According to the executive, the auction creates conditions to expand the gas supply, including supply from Bolivia and liquefied natural gas (LNG) projects, as well as biomethane, reducing the country’s exposure to LNG spot contracts. 

As a reference, he estimates that if all the gas-fired power plants contracted in the auction are dispatched at the same time, their consumption could reach 90 million m3/d (Mm3/d). Today, national demand is on the order of 50Mm3/d. 

Although the chances of full activation are practically nil – since this is a capacity reserve – the possibility of each of these plants being activated within the contractual period, which ranges between ten and 15 years, requires long-term supply contracts and storage in regasification terminals or in underground reservoirs, as provided for in a project by Origem Energia, ensuring greater flexibility for the system.

Petrobras sold 2.2GW at the auction, with eight existing gas-fired power plants contracted, which represents a potential additional demand of 25 to 30Mm3/d.

The executive stated that Petrobras trusts in a solution for the certification of the auction result, which was taken to court, and warned of the risks of delay.

“We have the demand arising from the need for energy security. This LRCAP, for 2026, should have been done a few years ago, it was postponed. We are confident that we will have a positive result,” he said.

According to Barreto, the contracts sold for supply starting in 2027 need to begin being operationalized later this year.

“We expect the contracts to be awarded, ratified, and that, starting in August, the contracts that were sold from 2027 onward will already be in effect,” he said.

Barreto also stated that the increase in the national gas supply has reduced Brazil’s dependence on the international market. At the moment, Petrobras is assessing mechanisms to reduce the impact of the gas contract adjustments scheduled for August, including installment plans, price caps and floors, and combinations of indexers.

The commercial manager of Transportadora Associada de Gás (TAG), Henrique Amorim, advocated maintaining the LRCAP. 

"In terms of transportation, we are eager to meet the investments, but time is short," he said.

According to Amorim, the investments required in gas transportation infrastructure are significant and challenging given the schedule for the new thermal power plants planned for 2028.

The general trading manager at Eneva, Glauco Campos, warned about the risks of delays in the implementation of the plants contracted in the auction.

"It is necessary to think about what the impact will be in 2028, 2029, and 2030 if the thermal power plants are not brought online," he warned.

According to Campos, the company had been making investments even before the LRCAP was carried out, believing that there is robust demand for additional thermoelectric capacity in the country. 

Eneva had 3.6GW contracted in the LRCAP, with planned investments on the order of 18 billion reais. 

(The original version of this content was written in Portuguese)