News
26/10/26
Gas set for prominent role in Lula's 4th term
Sao Paulo, 26 October (Argus) — Luiz Inacio Lula da Silva's victory in Brazil's
presidential election is likely to keep natural gas high on the country's energy
agenda, despite the issue being largely absent from discussions during the
campaign. Candidates for the presidency said almost nothing in recent months
about gas' role in energy security or its potential contribution to future
energy transition commitments, as Brazil seeks an increasingly sustainable and
lower-carbon energy mix. But recent public policy in the sector and Lula's
government platform offer some clues about the likely path over the next four
years. Many market participants see gas as already playing a prominent role in
Brazil's energy agenda, even though significant challenges remain. Lula's third
presidential term advanced several important regulatory discussions in the gas
market , including new transportation tariffs charged by pipeline operators ,
third-party access to gas processing, gathering and LNG import infrastructure ,
and even gas release measures aimed at increasing market competition and
encouraging more competitive prices. Many, however, remain under discussion,
with no final decisions yet taken, pointing to part of the agenda taking shape
through 2030. In the week leading up to the second round of voting , state-owned
trading firm PPSA also held the first auction of gas belonging to the federal
government under pre-salt contracts . The move pointed to further efforts to
open up the market and lower prices for end-users, which responded with stronger
appetite for the fuel. The company has signaled plans for another auction in
2027 , 50pc larger than the first, involving deliveries of 1.8mn m³/d. Other
developments also underscore the importance being given to gas in this new
cycle, including the capacity reserve auction held in March, which secured
almost 19GW of contracted capacity, around 15GW of it from natural gas- and
biomethane-fired power plants. Tax incentives recently approved for data centers
may also incentivize a new source of gas demand . Prospects for a significant
increase in production over the next 10 years, driven by new discoveries and the
start-up of the Sergipe Aguas Profundas (SEAP) and Raia projects, should provide
further momentum for gas in Brazil's energy agenda . The volatile geopolitical
environment, marked by the Russia-Ukraine conflict and escalating tensions in
the Middle East, could further strengthen Brazil's prioritization of gas.
External uncertainties have prompted several economies to place renewed emphasis
on energy security and seek greater diversification of supply sources to
mitigate risks. Brazil is unlikely to be an exception, particularly given
prospects for increased domestic gas availability. One potential route toward
greater supply diversification involves purchasing larger volumes of Argentinian
gas as production from the Vaca Muerta unconventional formation increases. But
the extent of the strained relationship between presidents Lula and Javier Milei
could hamper a more collaborative agenda. Lula 4 Lula's platform keeps
state-controlled Petrobras at the center of Brazil's energy strategy. The
incumbent pledges to expand investments in upstream oil and gas, refining and
LNG logistics, while maintaining gas and biomethane as key transition fuels to
support industrial development and power system reliability. His proposals also
call for further expansion of gas transportation and distribution
infrastructure, stronger regional gas integration and the reinforcement of local
content requirements. "The role of gas and biomethane as complementary sources
to renewable energy will continue to be encouraged, enhancing energy security,
increasing power system flexibility and strengthening the competitiveness of the
Brazilian economy," Lula's platform states. Lula's government platform also
outlines R595bn ($118.1bn) in investments in power generation and transmission,
oil, gas, fertilizers, shipbuilding and refining as part of the broader
infrastructure agenda under the Growth Acceleration Program. "These investments
contribute to energy security, reduce external dependence on fuels and
fertilizers and help accelerate economic growth, ease inflationary pressures
amid a turbulent geopolitical environment and create skilled jobs," the platform
says. The platform also calls for reconciling "energy security" with a "just
energy transition" alongside efforts to combat poverty. It also highlights a
strategy to "increase the share of renewable sources, expand investments in
storage and power system flexibility, and accelerate the gradual replacement of
fossil fuels with biofuels and low-carbon-intensity fuels." Looking ahead Lula
ends his third term with several major gas issues still on the table, including
gas release measures, a review of transportation tariffs charged by pipeline
operators and third-party access to gas processing and gathering infrastructure.
The next administration will face the challenge of making concrete progress on
rules that will determine how concentration in the gas marketing sector is
reduced and establish metrics for assessing reductions in Petrobras' market
share. Petrobras' role in the gas market is set to be one of the main areas of
contention during the next administration. Although Lula and his political
allies consider the company strategic, suggesting a low likelihood of further
asset sales, progress toward greater market opening could maintain tensions
within the federal government. Over recent months, Petrobras has stepped up its
opposition to policies aimed at further opening the gas market , pointing to
risks of legal uncertainty and potential impacts on future investment. The
dispute could continue throughout the next four years. Lula will also face
significant governing challenges after the election of the most hostile congress
of his four presidential terms. Still, market participants say the gas agenda
may be somewhat insulated from the turbulence of Brazil's political
polarization, as it has increasingly taken on the characteristics of a state
policy over the past decade. By Marcos Mortari Send comments and request more
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