Brazil gas market moves ahead without defined rules

Brazilian natural gas sellers and buyers are making inroads toward developing an open market, but a lack of regulation could risk the development of an interconnected national market and create secluded regional markets, with less competition.

Well-defined rules for the market's opening from Brazilian oil and gas regulation agency ANP are running behind schedule. Two of nine planned measures should have already been put into place, according to the agency regulatory agenda. The other seven are planned for September-December but the development process for these measures is also lagging. Drafts of the new regulations were scheduled to be released for public analysis from March-July, but none have been released. Mandatory public hearings of the drafts should follow before the ANP director gives final approval.

Despite industry concerns on the lack of regulations for issues such as transport tariffs and interconnections between gas transport companies, gas buyers and sellers have started to conduct business. Last month, at least two distribution companies — SCGás and Potigas — announced gas purchase contracts with companies other than state-controlled Petrobras, with unprecedented moves in the Brazilian gas market to make these agreements possible.

In Potigas' case, the gas will come from offshore and will be processed in one of the 14 Petrobras' gas processing units. This is a scenario that was anticipated by the new gas law and is essential for an open market, but it took more than a year of negotiations among the companies, Rio Grande do Sul state government, ANP and Petrobras to make it possible.

In the SCGás case, a contract with New Fortress Energy (NFE) will guarantee LNG is shipped to Brazil and regasified in a new facility under construction by NFE. This tender also includes some novelties, since until now only Petrobras operated regasification units in the country. SCGás and NFE also found a way to dodge gas pipeline constraints in the region by arranging for the gas to be trucked from the regasification unit to distribution lines.

Aside from concerns with the delay in federal regulation, the market also sees state laws and regulations as a potential hindrance. The Brazilian constitution places gas distribution under the responsibility of the 27 states, so local laws address issues such as minimum volumes of gas consumption required for open market purchases.

Another indication of the rush toward an open market is a decree signed by the state of Sao Paulo's governor, João Dória, to define the Subida da Serra pipeline as a distribution line — therefore falling under the responsibility of the state — and allowing state consumers to pay for its construction. This movement helps the development of this market, but raises concerns about the state take over federal authority to define the pipeline types.

In another key move for the market opening, Petrobras said it would sell its subsidiary Gaspetro's stake in 19 state gas distribution companies to Compass, moving Petrobras further along on its commitment to competition watchdog CADE.

Petrobras also said it will no longer supply gas for northeastern gas distributions and focus on the west central and southern gas markets. This move can potentially help develop competition for gas suppliers in coastal states, including by negotiating LNG cargoes to be regasified in the terminal Petrobras is leasing.

By Flávia Pierry