Big companies such as Shell and Eneva, and medium-sized ones such as MDC and EnP, are finding that to advance in Brazil's new natural gas market it helps to offer up a diverse portfolio of options.
The country's soon-to-be-open natural gas sector still lacks details on federal and state regulations as well as liquidity. So players with the most options regarding location, product, contract terms, shipping and indexation are leading the way into the new market.
With two months to go until the end of state controlled Petrobras' monopoly on buying gas at the wellhead, gas suppliers and sellers are looking for new contracts for 2022. Creativity is becoming an important factor in closing deals.
Deals being struck include mixing natural gas and biogas, combining gas production with power generation, investing in LNG, and transporting gas away from pipelines. Companies with an open mind — and more diverse portfolio or partnership options — are better positioned at this early stage in the market's opening.
Shell is among the first-movers in the soon-to-be open gas market. The company is seeking flexible solutions to meet the needs of a variety of clients, its Brazil sales and origination manager Carolina Bunting said. "Diversity increases the chances of making a deal," Bunting said. Shell is the biggest private natural gas producer in Brazil and includes LNG in its product portfolio.
Because Shell is a large company, its solid finances allow more risk-taking, signing contracts with shorter or longer terms, and offering a variety of contract indexation options, Bunting said. Another important advantage for Shell is pipeline transportation options, since midstream is possibly the sector most lacking clear rules of the road.
Eneva and New Fortress Energy are examples of how offering a variety of transportation options — and the willingness to take a chance on nontraditional options — can help companies advance in the soon-to-be-open market. Both companies are making deals by offering truck transportation to move compressed or liquefied gas where pipelines are not yet available.
Gas transportation is one of the biggest hurdles suppliers and buyers have yet to overcome in Brazil, according to MDC Energia chief executive Manuela Kayath and business development director Luciano Vilas Boas. The company, which has projects in natural gas, biogas and power generation from biomass, sees big opportunities for LNG in the country. LNG production has the potential to reach 100mn m³/d in the years to come, they said.
"Having more transportation possibilities for gas, by water and roads in addition to pipelines, can create a whole new market, expanding gas distribution to the interior of the country," Vilas Boas said.
Adding biogas to company offerings can help land deals, said Alessandro Gardemann, president of Brazil biogas association Abiogas. The environmentally friendly gas is exactly what some buyers are seeking with the market opening, as Raízen found in a deal with fertilizer producer Yara. And biogas is an off-pipeline supply option, as well as a way to mitigate financial and exchange-rate risks.
"Buyers can have a long-term contract, indexed to the Brazilian inflation rate," said Gardemann. "This is another great asset for biogas. This could be a great attribute for power generation."
Abiogás forecast as much as 30mn m³/d of biogas will be produced in Brazil by 2030, helping to decarbonize the energy sector alongside natural gas. "This used to be something considered 'nice to have'. Now, it is a core strategy," Gardemann said. "Biogas is a great way to decarbonize since it uses the same technology as natural gas."
Since many of the Brazilian gas market rules are still pending, portfolio diversification means sustainability, said Márcio Félix, chief executive of EnP Energy Platform. EnP integrates oil and gas exploration and production — both onshore and offshore — with gas storage, carbon capture, and blue hydrogen from natural gas, complemented by renewable power generation.
"In this transition period into the open gas market, it is very important that players try to occupy multiple positions on the field until they understand where they play best, especially by occupying empty spots on the field," he said. "Those who first cross the starting line will be better positioned to test the waters in this market and learn this new game, where the rules are yet to be developed and tested."
