Brazilian gas consumers seek contract review

Brazil's large industrial natural gas consumers claim that a lack of clearer regulation on the distribution end prevents them from shifting part of their consumption to the free market.

One year after the gas market's liberalization, fewer than 10 industrial gas consumers have signed contracts with gas suppliers and trimmed gas volumes purchased from distributors, according to market participants. So far, the gas law has opened competition only for distributors — who are succeeding at diversifying their supply— but has failed to do the same for final consumers.

Consumers mostly complain about the current type of contract available with regionaldistributors, which allows them to buy gas from other sources but does not have specific rules for those who want to have more flexible purchases. Large industrial gas consumers say they are willing to start making gas supply deals in the free market for part of their demand, but are facing difficulties in their relationship with distributors. Distributors, however, say all conditions to migrate to the free market are in place.

In Sao Paulo state, the largest gas market in Brazil and home to 27pc of all gas consumption through distributors, regulator Arsesp in 2020 defined rules for the distributors' contracts with consumers in the free market. But the rules do not provide directions for flexible or interruptible gas demand. Without these specifications, variations in gas intake can be viewed as faults and turned into penalties, which are very costly to companies, according to consumers. Consumers complain about penalties on the capacity surcharge (EC) and the exceeding gas price (PGU) and claim that distributors charge consumers a heavier toll than the ones gas suppliers charge distributors.

With advances in the gas market, Arsesp has opened discussions to listen to consumers about their need to change these penalties. In an extraordinary meeting on 23 December, Arsesp directors voted to review the bill on penalties. The topic will be submitted for public comments.

Biomethane can speed changes

Regulators will also have to review the rules regarding the start of the biomethane market.

Consumers see biomethane produced from sugarcane residues as naturally flexible because the crop is seasonal. Distributors will have to adjust to offer flexible distribution contracts.

Ceramics producers in Sao Paulo are willing to push these discussions and test the waters. They have recently signed an agreement to purchase biomethane from regional sugarcane producers.

Sugarcane mills and ceramics makers are still unsure how they will deal with several hang ups in distribution or how to address costs, starting with the need to build pipelines from the mills to the distribution grid, according to Benjamin Ferreira Neto, administrative board president of Anfacer, the Brazilian association of manufacturers of ceramic tiles, sanitary ware and related products.

Ceramics producers will use the distribution grid to receive the gas and are confident that regional distributor Comgas will work alongside them to make that possible and embrace flexibility. With the renewable gas being injected into the distribution grid, distributors can also reap the branding benefits of selling gas with a "green attribute." But Ferreira Neto says that some mills may build pipes to connect with the transportation grid, partially skirting distribution. Oil and gas regulator ANP assured Anfacer that it can issue ceramists a temporary authorization to directly connect to larger pipelines, he said.

"Biomethane will come from the distribution network and ceramists will receive the green attribute, which can help us double our exports share by 2030," Ferreira Neto said.

By Flávia Pierry