Brazilian natural gas distributors are making strides in allowing large industrial consumers to buy gas directly from producers, while most distributors have set specific tariffs for free market distribution.
Brazil's captive consumer distribution tariff combines the price of the gas with distribution and transportation charges. Argus assesses 19 distributors' tariffs for industrial consumers in the captive market and publishes them monthly.
The liberalization of the market has led to a new type of tariff — called a TUSD — that does not cover the gas price or transportation costs but includes the cost of distribution and line expansions. Distribution companies added 1,200km (745.6 miles) in distribution lines in 2022, a 3.1pc increase from the previous year that connected 238,000 new consumers to the network.
Of the state distributors for which Argus assesses captive industrial tariffs, 11 have TUSDs. Another three — Ceara's Cegas, Amazonas' Cigas and Espirito Santo's ES Gas — said they are in the process of establishing their own free market tariffs. The remaining four — Alagoas' Al Gas, Pernambuco's Copergas, Paraiba's PBGas and Rio Grande do Norte's Potigas — said they do not have this type of tariff yet, and Parana's Compagas did not answer Argus' inquiries.
Similar to captive consumer tariffs, TUSDs are multi-tiered based on natural gas use, with higher volume consumers paying lower tariffs. Argus' captive market tariff assessment uses three thresholds for industrial demand: one for smaller consumers, at 1,700 m³/d; another for medium-sized consumers, at 70,000 m³/d; and a larger consumer threshold at 340,000 m³/d.
The average TUSD among the highest volume consumers among the 11 distributors is R0.3038/m³ ($0.06/m³). That ranges from Sergipe's Sergas paying the lowest TUSD at R0.0065/m³ and Mato do Grosso do Sul's state MS Gas with the highest TUSD of R0.5142/m³.
In the lowest volume threshold the average TUSD was R0.80/m³, with Minas Gerais' Gasmig at the low end with R0.1422/m³ and Sao Paulo's Naturgy at the top with R1.6452/m³.
A consumer's final natural gas cost is roughly the sum of the gas price, transportation and TUSD. Argus' Brazilian network daily price approximates the price of the gas and transportation costs, according to publicly available contracts. This price was calculated at R2.275/m³ on 9 March. Considering the average TUSD among all 11 distributors, the distribution cost is 11.8pc of the final price/m³.
The TUSDs are essential to developing the free market, but the work necessary to create liquidity is far from done, according to market participants. There are still other issues to be resolved, such as oil and gas regulator ANP's updates or creation of rules that are in the regulatory agenda, increasing the amount of gas in the market — which is expected with the start of operation for pipeline Route 3 and connecting LNG terminals to the grid — and coordinating natural gas regulation across states.
Every state needs to issue its own regulatory framework for natural gas under the liberalization model adopted by Brazil. Furthermore, each state's regulatory agency is responsible for defining its own TUSDs. Mines and energy ministry MME is working with state governments and regulators reach clearer rules and tariffs for the free market.
