Brazil aiming to reduce gas reinjection

  • Market: Electricity, Natural gas
  • 10/05/21

In an attempt to reduce reinjections of natural gas back into wells at production sites, the Brazilian government has created new rules to facilitate the development of gas-fired power plants, with the start of dispatch set for 2026.

Natural gas reinjection takes place when producers inject gas back into the well in order to increase the flow of crude oil from the well, or else sequester gas that cannot be exported. The practice is common among oil producers in Brazil, as the country does not have sufficient natural gas transportation or processing capacity available, as well as little demand for gas-fired power.

But Brazil is now attempting to increase the utilize gas production in order to shore up its power generation portfolio, which is heavily dependent on hydroelectric generation.

The next long-term auction for power distribution companies in the country to secure generation will take place on 30 September. In that auction, gas fields that are not under commercial operation will be able to be offered as a guarantee of gas availability for thermal power generation.

This means new gas-fired power plants will be able to participate in the bidding round, presenting gas fields classified as "contingency resources" as a guarantee of gas supply. Gas producers will only have to declare the commercial purpose of those fields if a gas-fired power plant project wins the tender.

The rule changes were suggested by the Natural Gas Department at the Ministry of Mines and Energy in order to incentivize more gas production companies to pursue commercial sales. The measures are designed to create gas demand anchors through thermal generation.

Contingency resources of natural gas could add 84mn m³/d to Brazilian gas production by 2029, according to a projection by federal energy research company EPE. Brazilian gas production in March was 126mn m³/d, with 59mn m³/d of that gas reinjected.

Brazil has also decreased the period of initial gas supply availability for a thermal power plant required to build a new gas-fired power plant from 10 years to eight, in another measure to try to boost natural gas development in the country.

Prior to the rule changes, oil producers did not have more incentive to stop gas reinjections into the well, with less firm gas demand. With the new rules, more companies could have the security of firm demand for power generation, which can increase the viability of investing in pipelines and processing units, and oil and gas producers do not need to start commercialization prior to the auction. They only have to stop reinjection and send gas to the market if the thermal power plant wins the auction.

"This is a typical egg-chicken dilemma", the Natural Gas Department said about the motivation for the changes.

EPE said the auction rule changes can increase participants and decrease sunk costs for oil and gas field exploration.


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