Brazil proposes gas market overhaul

Brazil's oil regulator ANP is proposing to significantly reduce Brazilian state-controlled Petrobras' role in the natural gas market.

The proposal submitted to anti-trust body CADE would expand access to Petrobras´ LNG regasification terminals and pipelines and reduce the company's role in distribution.

The ANP said Petrobras' strategic decision to sell assets in gas distribution, coupled with the failure by congress to pass new gas legislation, has created an urgent need for competition.

The ANP argued that Petrobras is dictating changes in the domestic gas market which it has traditionally dominated. For the ANP, Petrobras is prioritizing its own business interests, which are not always in line with public interests, and is reducing competition in the sector.

The agency expressed its concern that because Petrobras controls essential infrastructure, it has been able to set prices and created an uncompetitive environment. These factors point to the need for new regulations for the segment.

Petrobras did not respond to a request for comment.

The ANP proposed that the regasification terminals be declared essential infrastructure which would guarantee third-party access to the terminals if there is unused capacity.

Brazil currently has two FRSUs at terminals owned by Petrobras: the 173,400m³ Excelerate Experience at the northern port of Pecem and the 138,000m³ Golar Winter at Salvador, Bahia state. A third terminal in Rio de Janeiro state is idle.

The ANP has proposed that Brazil follow the model in the EU, which considers LNG regasification terminals as part of the gas transport infrastructure and has established rules for third-party access.

Petrobras' three original LNG regasification terminals have operated with significant volumes of unused capacity. According to the ANP, between 2009 and 2018, the average utilization for the three terminals reached 36.4pc. Use of the terminals peaked at 54.1pc in 2014 but has since fallen to 15.7pc in the past three years.

Petrobras requested that it be granted permission to deny third-party access to the Bahia terminal, for example, following an agreement with France's Total which was signed at the end of 2016. Under the agreement, Total would supply gas to two thermoelectric plants through the LNG terminal and pipeline infrastructure. ANP questioned Petrobras' request that all third-party access to the terminal be denied until 31 December 2021 as a result of the agreement, even though the terminal operated with 79.28pc and 69.01pc of unused capacity in 2017 and 2018, respectively.

The ANP has also proposed that Petrobras be forced to grant access to offshore gas transport infrastructure and to processing plants in a "non-discriminatory and transparent" fashion.

Currently, because of its ownership of offshore pipeline infrastructure, it is the only buyer of third-party gas in Brazil, which gives it a monopoly position. This means that oil majors including Shell, Petrogal, Repsol, Total and Equinor are forced to sell their production to Petrobras, rather than into the market.

For the ANP, as natural gas production continues to rise over the next decade, especially from pre-salt deposits, it will be fundamental that other producers have access to transport infrastructure.

The ANP also argued that Petrobras is the only wholesale gas seller and the only supplier to distributors, which allows the company to establish prices in an environment free of competition.

The ANP proposed that gas transport be completely separate from both gas distribution and production. The ANP cited both the local electricity market, which prohibits companies from controlling power generation, transmission and distribution. It also cited the EU where gas pipelines must have independent ownership from producers and distributors.

Although Petrobras has already started to exit the gas transport sector, the ANP is advocating that the company sell all its pipeline stakes.

The ANP also believes Petrobras should roll back its ownership in gas distribution. Its subsidiary Gaspetro owns stakes in 19 state gas distribution companies.

To foment competition, the ANP is proposing a gas release program, which would force Petrobras to sell gas distribution and transport capacity to third parties to increase competition.

Although the company has announced plans to sell some of its transport assets, the company still sees the midstream development as key to its future growth.

In its five-year plan, which was presented last month, the company said it plans to invest $3.7bn in gas in 2019-23, focusing on treatment and transport.