The liberalization of the Brazilian gas market has revealed processing costs and other difficulties facing producers wanting to access state-run Petrobras' infrastructure.
Most processing capacity in Brazil belongs to Petrobras, but under the new gas law Petrobras must make it accessible to other producers for a fee. Processing costs an average of $1.50/mmBtu in the new market, according to market participants, a fee they consider too high as it transfers the cost of idle Petrobras processing capacity to third parties — namely the producers. For instance, the supply agreement between Shell and gas distributor Bahiagás released by the regulator ANP establishes a R8.0268/mmBtu ($1.558/mmBtu) processing cost.
Some producers consider the processing contracts "far from being reasonable". Petrobras' processing costs, penalties for not reaching the processing plant and the inflexibility of the state-run company to customize agreements to better meet producers' needs favors producing companies that own their processing assets.
A person with knowledge of negotiations between producers and Petrobras told Argus it has come to a point where some producers are analyzing the costs of building their own processing — even as existing Petrobras facilities have idle capacity — in a move called "a financial waste that is economically sustainable."
Gas producers say that Petrobras may be taking advantage of its position of owning processing units by purchasing the gas condensates inside the facilities below value, alleging logistic and technical restrictions. The ethane gathered by Petrobras at Cabiunas Terminal, in Rio de Janeiro, finds use at Braskem petrochemical unit nearby, for example.
Gas producers that contract with Petrobras for processing want to be able to gather the gas liquids and other chemicals from their inputs themselves and sell them to LPG distributors and chemical companies that use them as feedstock. This would require physical retrofits and logistics to harvest, liquefy and ship the gas.
Petrobras told Argus that the processing transaction for third parties implies that the gas and the gas liquids will be given back to the producers after processing. Petrobras said that the implementation of alternative infrastructure to gather the liquids can be negotiated by Petrobras and the third parties, when technically viable.
One solution to skirt the physical restrictions for returning the liquids to the producers is changing the regulation about ethane percentage in the natural gas stream that can be sold to distributors and final consumers. Currently, processed natural gas can have up to 12pc ethane, but the average is 6pc. Producers are advocating for ANP to measure the caloric power parity using the Wobb index, rather than by percentages of specific gases, which would allow more flexibility.
Regulator ANP has on its agenda an update of natural gas technical specifications that would allow gas producers to request Petrobras not to gather ethane at processing and leave it in the final gas, which can increase production by around 20pc, according to forecasts made by gas producers.
The lack of a new natural gas specification worries producers as more pre-salt gas comes onshore that is richer in condensates than gas from other deposits. The new Route 3 outflow pipeline from pre-salt areas is expected to come on line this year and may increase the volumes of gas liquids available for companies to sell in Brazil's import-reliant LPG market.
Among gas processing units, only the new GasLub facility in Rio de Janeiro state — owned by Petrobras — will be prepared to separate and ship ethane, according to an oil and gas company source, but the timeframe is unclear. The unit will receive pre-salt gas from the Route 3 line.
