Wary gas industry welcomes transition rules

Brazilian natural gas market transition rules released last week drew praise from participants as being thorough and well-constructed, but there are doubts they can be fully implemented.

Guidelines in Resolution 3/2022 by the Brazilian national energy policy council (CNPE) call for clear limits between the competitive and the regulated markets; the adoption of measures to avoid regional clusters that impede competition; definitions of market areas and hubs; the reduction of transportation tariff distortions for states far from the southeastern region, similar to a "short haul" discount; and the harmonization of state regulations, among others.

CNPE dictates that terms of use for essential facilities like pipelines and processing plants — mostly owned by state-run Petrobras — must be settled within 180 days by market participants, otherwise oil and gas regulator ANP may step in and define the terms.

"Players can use all the guidelines as [protections] against any others who may be imposing competition barriers," said Adrianno Lorenzon, gas director at large energy consumers' association Abrace. Or, as put by a gas producer, the CNPE guidelines provide "ammunition" for industry participants to face regulators or courts.

The rules also state that the government will supply the market with the gas it owns from pre-salt production-sharing deals. After the CNPE guidelines were disclosed, Brazil's state-owned pre-salt marketing company PPSA said it will begin trading natural gas in the second half of 2022, with a maximum volume of 200,000 m³/d.

The industry lauded the stipulation that gives the government and ANP 180 days to analyze competition in the Brazilian gas market. That can lead to a government-led gas release program, where Petrobras must allow for competition and step away from its long-term contracts or enact other measures to make room for new gas suppliers.

But some doubt a gas release program will be adopted in this stage of the nascent market because it would hurt Petrobras, and it would need approval by the government that runs it. Regulators involved include ANP, the ministry of mines and antitrust agency Cade. Asked if it plans to contribute to gas release programs, Petrobras said "it supports and contributes to the gas market opening process and understands that CNPE is fulfilling its role".

The introduction of gas release programs is not a novelty in other markets, said Sylvie D'Apote, executive director for gas at Brazilian oil and gas institute IBP. But it would have to be done gradually to adjust the market, which jibes with Cade's commitment with Petrobras.

"This is good timing for the CNPE guidelines for transition, at the first anniversary of the [natural gas liberalization] law and with some criticism on the regulatory update pace," D'Apote said. "Cade and ANP have loads of work to do, but the CNPE response is an assertive and welcome gesture from the government."

An abundance of new gas coming to market and infrastructure investments could help speed the transition. The current gas market has Petrobras supplying around 90pc of total demand, leaving little space for other suppliers.

"Only around 2mn m³/d are available to be sold by other than Petrobras at the current gas availability level," said Marcelo Mendonça, gas distributors association Abegás strategy and market director. "This is too little. Is this our goal for market opening?"

By Flávia Pierry