Q&A: Shell eyes more clients for gas, LNG in Brazil

Shell Energy Brazil is among the first suppliers in Brazil to sell natural gas to industrial consumers in the liberalized market and now eyes business opportunities in the second year of the free market. Carolina Bunting , sales and origination manager talked to Argus about the challenges in this market, such as the need for more standardization in regulation, contracts, taxation and transport. See edited highlights below:

Shell signed new natural gas supply contracts with distributors for 2023. Is the company looking for new opportunities, such as interruptible/flexible agreements aimed at industrial consumers?

Shell's pioneering spirit and innovation are reflected in all its activities, and also in this new Brazilian gas market. Shell Energy Brazil was one of the first companies to sell gas on the free market, in January 2022, and was the first private company to supply gas to a distributor. We recently entered into spot contracts in the private market, another milestone in this new Brazilian gas market.

We lead these important events and we want to continue to drive the new gas market in Brazil, working on different fronts: short- and long-term contracts — for distributors and other companies — [including] firm, interruptible [and] input. We work with models that make sense for our portfolio and for the client, and we are always open and interested in seeking new models that are advantageous for all sides.

Innovations are welcome but, at the same time, the market needs more standardization, especially in aspects such as regulation, contracts, transport [and] taxation. So, here at Shell, on the one hand, we want to create new products, but in order to have greater liquidity, we need standardization.

Shell bought the biggest biogas producer in Europe. Does the company intend to make investments, partnerships, developments in biogas/biomethane in Brazil?

We are interested in developing the biogas market in Brazil, which has great potential yet to be explored. It's an energy source that makes sense for Shell's and many customers' decarbonization strategies. The big challenge we face for biogas in Brazil is infrastructure, because most of the producing areas are not connected to the grid and transportation can be expensive. At Shell, we analyze all opportunities, and an alternative is to work in partnerships that collaborate with this logistics and transport part to advance in the biogas market.

Does the company seek to increase its supply of natural gas to the market, either by expanding production, reducing gas reinjection or importing LNG?

Yes. Shell is working on supply contracts for two thermal plants, one in Ceará and the other in Pernambuco states, and we are looking to supply these contracts with LNG. We are also studying the possibility of bringing more gas to Brazil, both from fields we have already acquired, but we are also open to buying from third parties, either domestically, from small producers or in the international market.

The company is a partner in the LNG terminal in Suape, which is not yet operational. Does Shell intend to operate in the LNG market, including small-scale?

Shell is one of the largest producers and traders of LNG in the world. We have a lot of experience and an excellent portfolio to supply Brazil. LNG from Nigeria, Peru, Trinidad, the US, eventually also from Canada, can reach Brazil, giving our customers an important supply advantage.

We will be interested in developing small-scale LNG. We will also be able to offer LNG to the industry and to new locations, currently lacking or not served by the natural gas transport and distribution network.

What are the challenges for the gas market in Brazil?

The open gas market is still very new in Brazil, and yet it has already proven its consistency. But for it to fully advance of its potential, it is important that there are some changes. One of the agendas is greater integration between the gas and electricity markets. If there is interest in having more pre-salt gas in thermal plants, it is important that there is more consistency in both markets.

Another important issue is the regulation of the gas market in all states. Each state has different criteria, which makes operations very complex and more costly. Shell and many other market players understand that more harmonization and transparency are important to favor market development.

Regarding transport, there has been a lot of progress, but some adaptations to the open market are still missing. Contracts are quite complex, which ends up pushing away some opportunities. If we want to open up the market, transport must be more streamlined. Taxation is another very complex issue that can be simplified. I believe that improvements in these four aspects could contribute to more efficiency in this new gas market.

By Flávia Pierry

Related News