Brazil gas sector sets sights on 2022 opening up

Brazil's regulators are facing an end-of-year deadline to lay out a key part of a new regulatory framework for the natural gas industry aimed at boosting competition and efficiency and lowering costs.

The regulator ANP is expected to craft the regulatory framework focusing on transporters, which own pipelines, and the carriers, which own or hold the gas contracts, by the end of the year. That timing would allow the carriers to transport natural gas in the open market by January 2022.

ANP is expected to finish the full regulatory framework for the industry within 18-24 months from last month, when the new natural gas law was signed by president Jair Bolsonaro.

Approval of the new gas law comes at a troubled political moment for Brazil, with president Bolsonaro under fire for mishandling the Covid-19 pandemic and economic slump. Still, pushing the measure through Congress at such fraught times is seen as proof of the pro-business Bolsonaro administration's will to develop the gas market, which has long been dominated by state-controlled Petrobras.

Today, Petrobras is responsible for more than 70pc of gas volume produced daily, has stakes in two of the country's five gas transportation companies and in 20 of the 27 gas distribution companies via its subsidiary Gaspetro. Petrobras also owns 14 of the 15 gas processing units in Brazil. With the reform, Petrobras will play a diminished but still large role across the sector.

The new gas law aims to increase gas supply by more than 60pc in 10 years, by attractinginvestment into the sector and facilitating the entrance of new companies, especially in the pipeline segment. Its aim is to end the concession model for the midstream sector. Although exploration and production will still be under the concession model, companies will be able to trade and carry gas freely with authorization from ANP.

The opening of the gas market started in 2019, when Petrobras agreed to divest from the pipeline segment, followed by associated facilities such as regasification plants. Petrobras has since reduced its stake in the pipeline segment to about a third, sold its stakes in three of the five transportation companies, and now is seeking to lease out some of its processing facilities.

About 70 companies are already authorized to carry gas, up from only five in 2014, with 124 authorized to trade gas, up from 21 in 2002, a sign of mounting interest in the sector even before the reforms. These players are eager to hire transportation capacity from the five pipeline companies, and that will depend on the first two regulatory chapters that ANP is aiming to release by December. Other transportation companies are expected to follow, since consumer demand will dictate where carriers will need to take their gas.

"The government gave a very strong message, that we worked for and will keep on working for the market opening," said José Mauro Ferreira, oil and gas secretary at Brazil's mines and energy ministry. "Now it's the law."

Participants in the gas sector are optimistic.

"Brazil's government has sent a strong signal to investors by approving the new gas law," said Rogério Manso, president of Brazil's natural gas association ATGás.

By Flávia Pierry