News
14/04/26
Q&A: Brazil gas bottlenecks linger after 2021 law
Sao Paulo, 14 April (Argus) — Competition in Brazil's natural gas market has
increased and new participants have emerged five years after the new gas law
reshaped the regulatory landscape. Yet persistent bottlenecks in taxation,
infrastructure access and state-level regulation continue to limit the market's
full potential, crude, gas and biofuels institute IBP's executive director
Sylvie D'Apote told Argus. Edited highlights follow. There have been many
changes and challenges since the new gas law took effect in April 2021. How do
you assess this process? The overall balance is positive, but there is still
work to be done. The law was a key milestone to enable new participants and
promote competition in a historically concentrated market. Since then, we have
seen meaningful progress, including the sale of assets, the emergence of new
suppliers and trading companies, regulatory improvements by [hydrocarbon
regulator] ANP, and a gradual — though still uneven — evolution of state-level
regulation, allowing for market opening and an increasing number of unregulated
consumers. The law was only the starting point. The critical phase lies in its
effective and coordinated implementation. This requires clear, stable and
consistent regulation by federal and state authorities to reduce risk and
support long-term investment decisions across the value chain. The remaining
bottlenecks are well known. Federal-level regulation of gas transportation is
evolving, but the tax system still needs to be adjusted to enable full
implementation of the new entry-exit transport tariff system. At the state
level, further regulatory adjustments are needed to increase unregulated gas
consumers and reduce inefficiencies and costs. The key challenge is ensuring
that market opening translates into effective access to infrastructure,
competitive pricing and sustained demand growth. Only then will it be possible
to unlock the full potential of Brazil's gas market and create a more dynamic,
integrated, and competitive sector. Market participants say that Brazilian gas
could be more competitive and have the same prices as biomass, electricity or
coal. How can the main bottlenecks be addressed to achieve that? The final cost
of gas in Brazil is largely driven by infrastructure — reflected in
transportation and distribution tariffs — as well as federal and state taxation.
As a result, even when upstream costs are competitive, inefficiencies and
distortions in the midstream and downstream segments can significantly erode
gas' competitiveness. Indeed, Brazil has a similar molecule price than other
countries that rely on gas imports, but significantly higher transportation and
distribution tariffs. From a regulatory perspective, there is still a need to
strengthen ANP's regulation, make state-level frameworks compatible with each
other and address tariff distortions. These are essential not only to make gas
more competitive but also to provide an efficient and predictable regulatory
environment required for long-term investments. Transport tariffs remain a
central concern. IBP studies point to the risk of double renumeration of assets
that have been depreciated, which can place an unnecessary burden on final gas
prices. At the distribution level, expansion strategies and investment decisions
must be closely aligned with demand growth and affordability. In a context where
distribution tariffs are already high — and have been rising in many states —
there is a real risk that cost increases may outpace the market's ability to
absorb them, ultimately constraining consumption and limiting the development of
new demand. Some large consumers point to Brazil's high gas reinjection rate as
one of the villains behind high prices. Is it possible to reduce reinjection
rates? Brazil produces significant volumes of associated gas, especially in the
pre-salt, and a portion of this gas is reinjected. But the decision between
reinjecting and selling that gas is inherently complex and cannot be reduced to
a simple operational or logistical matter. It reflects a combination of
technical, economic and strategic considerations, including reservoir management
requirements, the handling of gas with high CO₂ content and the role of
reinjection in enhancing oil recovery. So reinjection is not merely a
consequence of infrastructure limitations nor a decision that can be readily
reversed through additional investment. It is, in most cases, an integral
component of field development and production optimization strategies, aimed at
maximizing resource recovery and the overall value of the asset. Attributing the
low competitiveness of Brazilian gas to reinjection rates is a conceptual
mistake. Forcing a shift toward higher gas production at the expense of oil
could undermine project value and potentially increase, rather than reduce, the
cost of gas supply. Whether Brazil can reduce reinjection rates depends on the
context. For existing assets, the scope for change is typically very limited,
given the technical and economic constraints embedded in project design. For
future developments, reducing reinjection will depend on field-specific
characteristics and, crucially, on the broader market environment — particularly
the existence of firm demand to support long-term gas sales and a stable legal,
fiscal and regulatory framework suitable for long-term investments in the entire
value chain. Power plant dispatch levels drive a large share of Brazil's gas
consumption. Are there ways for the gas market to move beyond such a demand
anchor? The power sector will continue to play a central role in Brazil's gas
demand. Gas is essential as a complement to renewable generation, contributing
to system reliability, flexibility, and security of supply. But relying
predominantly on thermal dispatch — which is intermittent and
hydrology-dependent — creates a volatile demand profile that limits the
development of a more mature and dynamic gas market. Sustainable market growth,
especially one that requires significant investment in infrastructure, depends
on stable demand sources. In this regard, there are several clear avenues for
expansion: fuel switching in industry from more carbon-intensive and less
efficient energy sources, increased use of gas in cogeneration and the
development of gas use in heavy-duty transport, among others. The key challenge
is to effectively convert these opportunities into firm demand. That
accelerating market opening, more efficient and better-coordinated
infrastructure development, a predictable regulatory framework and a reduction
of tax distortions that currently affect gas competitiveness and/or the
perception of risks for new gas consuming projects. By Marcos Mortari Send
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