Market Talks: The gas market opening in Brazil in 2022

Author Argus

The Brazilian natural gas market will have a new dynamic from January 2022 with its opening defined at the new gas law and Petrobras reducing its market share.

Join Camila Dias, Argus Brazil Bureau Chief, and Flávia Pierry, Brazil Natural Gas and Power Editor, as they talk about the expected changes at each part of the gas chain and the obstacles the industry might face.

Podcast episode is in English. Click here to listen in Portuguese.

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Camila: Hello, and welcome to Market Talks, a series of podcasts brought by Argus about the main events impacting the commodities and energy sectors in Brazil and around the world.

My name is Camila Dias, Argus Brazil Bureau Chief, and in today's episode I talk to Flávia Pierry, Natural Gas and Power editor, about the expectations around the opening of the natural gas market in Brazil in January 2022. Welcome, Flavia.

Flávia: Thank you, Camila.

Camila: Flávia, it is said that the opening of the gas market in Brazil, which is ongoing since 2016, will intensify in January 2022. Why?

Flávia: This date marks the deadline for Petrobras to deliver a list of actions the company committed to in an agreement signed with Brazilian competition watchdog, CADE, to enable more competitive practices in the gas industry in Brazil. Among such commitments is that as of January 1, 2022, Petrobras will not be able to buy new volumes of gas from other oil companies. This should pose challenges for producing companies to find buyers for around 14mn m³/d.

Another factor that places 2022 as an important year for natural gas in Brazil is the fact that the deadline for Petrobras to sell its transmission and distribution assets determined in the agreement ends on December 31, 2021.

Also: new important structures for gas flow and processing should come into operation next year or later this year, such as Route 3 to flow gas from the pre-salt areas gas and the LNG liquefaction unit in São Francisco do Sul, in Santa Catarina.

Camila: Let’s explore each of these aspects a little? Can we start by explaining which is Petrobras' commitment to CADE?

Flávia: Since 2016, the gas sector had expected Petrobras to reduce its share in this market. At the time, the government launched a program to bring together the entire gas sector to study and prepare proposals to maintain the proper functioning of the gas sector, with Petrobras no longer being the only player in this market. There were fears that if Petrobras' divestment process was not properly conducted, a state monopoly would be exchanged for a private one, which would be harmful to the sector and for gas consumers. In 2019, after investigating alleged anti-competitive conduct by Petrobras, such as abuse of dominant position and discrimination against competitors through differentiated pricing, CADE determined that Petrobras would have to agree to change them, by reducing its participation in the market.

Camila: Flavia, this commitment brought determinations to reduce Petrobras' participation in the entire gas chain, from the participation in gas exploration, passing through the flow and transport and reaching distribution, right?

Flávia: Exactly. Petrobras' commitment assumes that the company will allow others to compete in all segments of the gas sector. Since signing the agreement, the company has already completed a large part of the commitment. It is considered that 23 stages were completed, out of the total 41 planned. In other words, something close to 56pc of the agreement has already been completed. But this number is even bigger by now, since the company announced at the end of July that they found a buyer for the subsidiary for the gas distribution segment, Gaspetro.

Let's start by following the path of the gas from the exploration well and production and understand what was agreed:

In oil exploration and production, we already have some competition. Currently, in addition to Petrobras, companies such as Shell, Chevron, Repsol, Eneva, Equinor, just to name a few, are already exploring oil and gas fields in Brazil. However, as the pipelines for flowing gas production offshore — Route 1 and 2 of the pre-salt — and the transport pipelines belonged to Petrobras, these companies preferred to sell their gas to Petrobras so that the state-run company would take care of everything else thereafter.

This practice seems simple, but it eliminates competition: the price proposed by Petrobras to buy the gas volumes in this transaction ended up prevailing. On consumer side, at the other end of the chain, Petrobras was the only gas seller, restraining competition.

It is this scenario that CADE's TCC intends to reduce when it proposed that from January 2022 on Petrobras can no longer buy gas volumes from third parties. Results of this command are already beginning to be seen: Shell has already announced that in January 2022 it will start operating its Gas Trading Company.

Camila: What about the gas processing, Flávia?

Flávia: Following the gas chain, we arrive at the gas processing units, where the gas is treated to separate the liquids and let only the methane go to the gas pipelines. These are called “essential infrastructures”. The process of leasing a gas processing terminal in Bahia is also under way, which should have been completed this year and is underway.

The CADE commitment also determined that Petrobras will have to give “indiscriminate access” to these structures to other oil and gas companies, since Petrobras is the owner of the 14 Brazilian processing units. From January 2022 on, any company must be allowed to process their gas in these facilities upon payment of a tariff.

Camila: Flavia, let's go a little further in the gas chain — let's talk about how the transport will be.

Flavia: Camila, maybe this is the area that has developed the most in the divestment process, and gas carriers are already advanced in the process of opening the market, creating their systems for the sale of transport capacity contracts. Petrobras is no longer contracting all the capacity of these pipelines and allowing the transportation companies to open public calls for purpose so that both sellers and buyers of gas can say how much they will need to carry through the pipelines, and for what period. This is already happening.

Camila: What about the downstream, the distribution segment?

Flávia: The CADE-Petrobras agreement also brought commands to Petrobras in this part of the supply chain. According to the Brazilian Constitution, the concession for the distribution of piped natural gas is under the responsibility of the 26 states and the capitol. But Petrobras is also strong in this segment, being associated with the states’ administration in 19 of these distribution companies through its subsidiary Gaspetro, of which Petrobras owns 51pc. According to CADE, Petrobras should also exit this business, ceasing to be a distributor of natural gas in the states. And we have news on this issue: on 28 July, Petrobras announced that they signed an agreement with Compass Gas and Energy, a private company, to sell its participation in Gaspetro and thus leaving the gas distribution business.

Camila: A lot has happened, right, Flávia, but there's still a long way to go. And how is the regulatory issue for this whole scenario to materialize?

Flávia: Yeah, Camila. There is also great expectation from market agents for the National Agency for Petroleum, Natural Gas and Biofuels, ANP, to update or create new rules for the gas Transport and Sale rules. The ANP included in its agenda for this year the review of several acts that need to be updated amidst so many changes. They are committed to following the pace of the sector and providing the necessary regulatory responses, so that no part of the gas industry weighs more than the other in the business relations and to provide clarity, transparency and legality to the market movements.

Camila: Thank you so much, Flavia. We will continue to closely follow each step towards this market opening and, we hope, an increasingly liquid gas market.

This and other episodes of our podcast are available on the Argus website at Visit the page to follow the events that affect global commodity markets and understand their developments in Brazil and Latin America. We'll be back soon with another edition of Market Talks. See you soon!