After Petrobras: reimagining Brazil’s gas market

If Brazil’s long-awaited gas sector reforms are accomplished, they could create a vibrant market with new offshore, midstream and LNG players. What’s more, successful liberalization could be significant for both Brazil’s economy and the regional energy system, write J Robinson and Ryan Ouwerkerk

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Last summer, historic market reforms in Brazil began opening the country’s natural gas trade to competition, but recent challenges have raised doubts about the pace and certainty of liberalization.

Brazil’s “New Gas Market” was inaugurated with decisive regulatory changes aimed at ending state-controlled oil company Petrobras’ monopoly in onshore markets – a move widely expected to increase private investment and lower the county’s historically high gas prices.

Over the past 12 months, Petrobras has announced sweeping divestments in the sector as part of a deal with antitrust regulators, including the sale of two key midstream gas transportation companies – Transportadora Asociada de Gas or TAG and Nova Transportadora do Sudeste or NTS.

Most important in principle, was the official opening of Brazil’s midstream market to competition from third-party shippers and distributors. With Petrobras effectively remaining Brazil’s only supplier of gas, though, the official change has had limited market impact – leaving monopoly conditions largely intact.

In August, Brazil’s National Petroleum Agency, or ANP, announced a sweeping plan to change that de facto reality with the launch of an open season on the country’s largest gas import system.

The majority of capacity on the 1.1 Bcf/d Bolivia-Brazil Gas Pipeline, or Gasbol – capable of delivering up to a quarter of the country’s domestic supply – would be made available to private shippers. With the potential to import vast quantities of competitively priced gas from Bolivia, the Gasbol open season promised to be Brazil’s single-most transformative near-term reform to the gas market.

Just two months later, though, the process was abruptly halted when regulator concerns emerged over irregularities to Petrobras’ involvement in the bidding process. In a subsequent ruling, ANP reauthorized the open season under new a regulatory framework, excluding the state-owned company.

Across the north and northeast, large territories and even entire states remain without access to natural gas from pipelines – infrastructure that may never be built in a country as vast as Brazil

In another twist of fate, though, the expedited open season – launched in March – fell victim to the coronavirus pandemic. Citing difficulties faced by potential shippers to participate in the bidding, ANP indefinitely postponed the process, delaying for a second time a foundational change that’s likely to become the cornerstone of Brazil’s gas market reform.

While no revised schedule for restarting the open season has yet been announced, other sectors of Brazil’s gas market have celebrated key milestones this year.

Most notable is Brazil’s private LNG import industry. A handful of smaller and mostly symbolic developments have also been announced in the onshore upstream sector.

Meanwhile, reforms and investments needed to end Petrobras’ monopoly in the offshore market – a potential game changer for competition – have received some attention from Brazil’s federal government this year, but largely remain a distant prospect for now.

LNG gathers momentum

Golar Power received the inaugural cargo in February at its Port of Sergipe (Barra dos Coqueiros) in northeast Brazil. While the company’s 1,500 MW combined-cycle power plant co-located there will consume most of the initial regasified cargo volumes, the company has announced big plans for the terminal’s future.

In partnership with Petrobras Distribuidora, Golar Power plans to expand the reach of its LNG supply to new vehicular, industrial and power generation markets in Brazil – particularly in regions like the Northeast that are currently underserved by gas pipelines.

Until recently, Brazil’s LNG import market has been controlled exclusively by Petrobras, which has funneled imported supply through its own FSRU terminals at Guanabara Bay, Bahia and Pecém.

Although government regulation had not expressly prohibited third-party imports, monopoly control of Brazil’s onshore transportation market by Petrobras had previously restricted other importers’ and distributors’ access to the country’s natural gas pipeline network.

Across the north and northeast, though, large territories and even entire states remain without access to natural gas from pipelines – infrastructure that may never be built in a country as vast as Brazil.

Golar Power’s plan to tap those latent markets has only become more ambitious too. In March, the company said it would move forward with a second import terminal – a joint venture, gas-to-power project located in the neighboring northeastern state of Pernambuco.

Along with another 1,500 MW combined cycle gas plant, Golar Power’s Port of Suape terminal envisions truck-mounted ISO-container fuel deliveries to cities within a 600-mile radius of the port, with transshipment to small-scale LNG carriers allowing for deliveries to other nearby coastal cities.

Over the near term, though, another of Brazil’s aspiring LNG import projects could have a more immediate market impact, potentially bringing excess imported supply to the country’s most extensive regional pipeline grid connecting states across the south and southeast.

In April, joint-venture developers Prumo Logistica, BP and Siemens closed a deal securing the purchase of an H-class gas turbine to be used in the construction of its 1,300 MW combined cycle power plant at the Port of Açu in Brazilian state of Rio de Janeiro.

On completion of the project’s planned first and second phases, the terminal could regasify up to 21 million cu m/d or 740 MMcf/d – potentially making a substantial quantity of surplus gas available for distribution to private shippers and end-users across Brazil’s southeast.

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